Trident (TRID) is one of India’s leading diversified group of businesses headquartered in Ludhiana, Punjab. The company is one of the world’s largest manufacturers of integrated home textile, bed and bath linen, and the largest manufacturer of wheat straw-based paper. In FY17, the Home Textile business contributed 82% of its overall revenue, while Paper accounted for 18%. It has manufacturing plants at Budni (MP) and Barnala (Punjab) with combined installed capacity of 115 million kg of yarn, 175k MT of paper, 90MT of bath linen and 43m mtrs of bed linen. Trident also owns the world’s largest compact yarn spinning unit under single roof. Home Textile contributes 82% of TRID’s revenues. Improving productivity and operating efficiencies are expected to significantly boost utilisation in this segment over the coming years, 65% utilisation in its stronghold bath linen versus current level of 50%, and 60% utilisation in the recently forayed bed linen versus current level of 29%. The focus on value-added products should help the company improve realisation impressively in Home Textile. Paper accounts for 18% of its revenues. The company has presence in copier paper, ~60% of TRID’s Paper sales volume, which is among the top-selling brands in India and commands high margins.
Trident plans to implement a debottlenecking project to release capacity of 250-275 TPD, improving capacity utilisation and allowing further expansion in the copier segment. Increased focus on copier paper is expected to expand TRID’s Paper margin by 340bp to 38% in FY20E. We estimate a CAGR of 9% in revenue and 24% in PAT over FY17-20, driven by EBITDA margin expansion of 110bp and lower interest expense. We value the stock at 11x FY19E EPS. We initiate coverage with a Buy rating and a target price of Rs 114, implying 39% upside. Copier paper is among the top selling brands in India and commands high margins. It contributed 45% of Paper sales volume in FY13, which increased to 60% in FY17. The company intends to leverage strong growth in copier paper in India, CAGR of ~8% v/s ~4% in other paper and stationery, to improve Paper realization and margin , +340bp to 38% in FY20E. The company most recently ventured into bed linen, with installed capacity of 43m meters. In the first year of operations, bed linen had 29% utilisation, and the company expects to ramp-up operations by adding new clients. Trident has already added more than 10 clients in FY18 so far, including large replenishment clients like IKEA and Amazon. Bed linen currently posts EBITDA loss, which is expected to turnaround by Q3FY18 as utilization reaches 40%. We believe new customer acquisition and the expanding share of Trident in the global textile market should help the bed linen segment increase utilization to 60% in FY20.