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In this article, we will do a fundamental analysis of Trident Ltd., we will discuss their business model, how they earn their profits, we will also discuss their valuations also. Recently the stock has fallen a lot we will check its reasons also and at the end, we will decide if its good time to invest in it or not. So let’s start!
Trident Ltd. Business is connected with the textile industry and they have different products in it. We will discuss that in detail in some time but before that, we will check how it started.
Disclaimer: This article is only for educational purposes. I do not recommend buy or sell so please consult your advisor and do your own research before investing.
Introduction
Trident Ltd. is the flagship brand of the trident group and it started in 1985. Rajinder Gupta started it and currently, he is chairman of the trident group.
Trident Ltd is the largest manufacturer of terry towels in the world it is a flagship company of one billion dollars Indian business conglomerate and global player.
Trident Group is headquartered in Ludhiana, Punjab. Over the year’s trident has evolved into one of the world’s largest integrated home textile manufacturers.
The company is engaged in the business of manufacturing a wide variety of yarn, bed, bath, linen, paper, and chemicals.
Initially, they had business only in the chemical and fertilizer segment but in 1990 they entered the textile sector and in 1993 started the first spinning unit for yarn. In 1998 they started with towel manufacturing, while in 2001 they diversified with paper manufacturing business, and recently in 2011, they entered in Bed linen.
Currently, they have 10 units of yarn manufacturing, 4 units of bath linen, 1 unit in bed linen, and 2 units of paper manufacturing.
Trident Ltd gets its business revenues from 2 segments which are textile and paper manufacturing.
In textiles, they have 3 divisions which are yarn manufacturing, Bath linen, and Bed linen. So we will discuss each business in detail.
Yarn Segment
This is the oldest segment and they have a total of 10 units in 2 different plants. Plants are located in Madhya Pradesh and Punjab and in each plant they have 5 units.
They have a total of 5,42,448 spindles and 6464 rotors and they have 1,15,000 TPA combined capacity of both plants. Apart from this, they have a capacity of 6800 TPA for dyed yarn.
In 2019 they got 34% revenues from the yarn segment while the yarn segment gives 31% contribution in total revenues. They use 35% off yarn for internal use for the bath and bed linen segment while the remaining is sold in domestic and international markets.
In the yarn segment, they have 98% capacity utilization and they export in different countries as you can see here. But they get most of their revenues from the US, Europe, and the middle east. They have different products in the yarn segment as you can see here.
Home Textile
Now we will discuss the next segment which is home textile. In this segment they have 2 divisions, one bath linen and another is bed linen segment.
Bath Linen
In the bath linen segment, they manufacture towels and they have good demand for this.
For towels they have a 90000 TPA capacity of they can manufacturer 360 million pieces per year. They have 2 plants for towel manufacturing one is in Madhya Pradesh and another is in Punjab. They have 300 looms in the Madhya Pradesh plant and 370 in the Punjab plant. They sell most of the products in the US and trident has an 11-12% market share compared to other exporters in the world, but compared to other exports of India trident has a 30% market share and is the leader in exports of the towel.
In 2005 they used 450 cr revenues from the towel segment which increased to 1750 cr in 2018, so they have grown their revenues with 12% CAGR. They have 49% capacity utilization in this segment and management is thinking to improve it in the future.
Bed Linen
Now we will discuss the second product which is bed linen. You can check here different products in the bed linen segment, which are different types of bed sheets. They have a total of 500 looms in this segment which are in the Madhya Pradesh plant. They have a total capacity of 43 million meters and they started this segment in 2011. Initially, they had very little capacity in this segment but in 2016 company expanded it to 43 million tons and capacity utilization was also very less initially which has increased to 63% now.
The home textile segment contributes 51% of revenues and its highest compared to other segments and in this segment, they have 2 division which is bath and bed linen. While home textiles business gets 89% from export, so we can see that company is focused in exports for this segment. This segment has good demand from the US, Europe, and the middle east.
Paper Products
Now we will discuss the 3rd segment which is paper products and they started in 2001 and they have a total capacity of 1,75,000 TPA. They produce this eco-friendly paper which is made from wheat straw. Punjab is highest producing state for wheat in India and trident have a paper plant in Punjab so due to this, they save logistics cost. They get 49% revenues from the copier segment which has good growth compared to other paper segments so the company decided to increase the contribution of this segment to 70% in the next 2 years.
Trident Ltd has a 10% market share in this segment and overall in India, it’s on 4th rank, while in north India its leading producer. In the paper segment, they have 89% utilization and mostly they sell these products in domestic markets and exports contribute only 6% from paper manufacturing.
You can check here different products of trident ltd in paper manufacturing. In 2019 this segment contributed 19% of total revenues. Now we will discuss the financials of the company. As you can check here they grown their revenues from 2009 and exports contribute 53% of total revenues. So trident ltd is focused on exports as their good demand for their products. You can check EBITDA and PAT margins here, so the company was able to increase these margins which is a very good sign and due to this in the last 10 years company able to grow profit with 45% CAGR.
Apart from this if you will check about their debt then in 2016 it’s increased due to they did huge expansions at that time but now it has reduced. Now also they doing expansion in Madhya Pradesh plant and 1140 cr is total CAPEX required for it. Due to this bed and bath linen segment capacity utilization will increase and total capacity in the yarn segment will also increase.
As the ratings are based on long-term past performance. They are relevant for at least three years in the future until FY 2022.
Also Read: Praj Industries Stock Fundamental Analysis & Fundamental Analysis of Deepak Nitrite
Fundamental Analysis of Trident Ltd
Fundamental Analysis of Trident Ltd is differentiated into different categories are as follows, all units are in millions except ratios and per share data.
Economic Model
- Trident Ltd is the world’s largest manufacturer of terry towels with a presence in over 100 plus countries about 43% of the revenue comes from domestic and 57% comes from exports.
- The company has around 30 years of operations in India and has developed a complete backward and forward integration.
- This helps them to improve their market presence and gives control of their supply chain such integration is hard to achieve for any new player who enters the business.
- Therefore the company has a significant economic model hence this category gets five stars in trident shares fundamental analysis.
Business Model and Management
- The revenue distribution is 51% from bath and bed linen business 19% is from paper and 30 is from yarn business.
- The core business philosophy of the company is centered around innovation and customers they are focused on capacity building with state-of-the-art technology which results in operational and cost benefits.
- The business is driven by their 15-plus strong brand products which range from bath towels to copier papers.
- Trident play and hotel luxury are two of their strongest brands which have market dominance in India.
Management of Trident Ltd
- Mr. Rajinder Gupta is the founder of trident ltd and non-executive co-chairman of the board.
- He has two decades of entrepreneurship experience.
- Mr. Deepak Nanda is the ceo of the company and has a solid track record of business excellence.
- The management team has been able to consistently deliver growth to the company by approximately 12% cagr over the last four years.
- They also managed to improve the financial position of the company by reducing debt to equity from 1.4 to the present 0.8.
- The company also witnessed a 100% growth in dividend payout which shows the management’s commitment to its shareholders.
- Therefore this category gets five stars in the fundamental analysis of trident ltd.
Also Read: Fundamental Analysis of Newgen Software & Fundamental Analysis of Happiest Minds
Company Financials
Company Financials of Trident Ltd are as follows:
Growth Ratios
- The revenue has grown by 11% cagr over the last 10 years.
- The operating income has shown a steady growth of 15.7% CAGR and the net income has shown a growth of 20% CAGR over the last 10 years this shows both operational and business excellence by the company.
- The working capital has also turned positive in the last few years and capital expenditure has flattened.
- Overall the company has shown robust growth therefore growth ratios category gets five stars in trident ltd fundamental analysis.
Profitability Ratios
- The gross margin has improved significantly over the years this is because the company was able to achieve backward integration which reduces the raw material costs.
- The operating margin has also improved with indicates increasing efficiency.
- The return on assets and EBIDTA margin have also seen an increase overall the company has delivered robust profitability.
- Therefore this category gets five stars in the fundamental analysis of Trident Ltd.
Cash Flow Ratios
- The net margin has improved significantly due to improved efficiency and business integration.
- The free cash flow growth has been fluctuating which indicates capital expenditure cycles.
- The operating cash flow growth rate has turned positive which is a good indicator of companies financial position.
- Overall the cash flows are enough for financing the business activities and expansion therefore this category gets four stars in Trident ltd fundamental analysis.
Liquidity and Solvency Ratios
- The current ratio is just at its minimum requirement of 1 which means current assets are almost equal to current liabilities.
- The quick ratio has improved which shows lower inventory.
- The financial leverage is going down which means the company is reducing its debt over the years.
- The debt to equity ratio has also fallen below one which is a good indicator for solvency.
- Therefore this category gets four stars in trident ltd fundamental analysis.
Efficiency Ratios
- The efficiency has gone down for the company to some extent.
- The receivable days have gone up which indicates increased customer bargaining power.
- The payables days have gone down which means the company has to pay their bills early to its suppliers.
- This has also made the cash conversion cycle go up overall which affects the efficiency of the company in a negative way.
- Therefore this category only gets three stars in the fundamental analysis of trident ltd.
ROE & ROCE
- The company has reduced the leverage in the last few years this shows they are using equity to finance their expansion.
- This indicates improved solvency the interest payable has also gone down because of this which improves net income.
- The operating margin has shown stability, and tax efficiency has also gone down this indicates a reduction in return on equity.
- However, this decrease is because of the increasing equity base and not the net income therefore this category gets four stars in trident ltd fundamental analysis.
Future Growth Prospects
- Some insights for the coming years from the analysis management discussions and con calls are as follows:
- The covid 19 lockdown will impact negatively in the short term due to factory shutdowns and flattened demand.
- However, demand is expected to pick up once the global hospitality and tourism industry starts operating by FY 2021 in the coming years.
- The company is going to focus on innovation and branding trident currently has 15 plus brands and is planning to expand its presence in global markets the management is focused on R&D as well.
- They have a new product pipeline along with patent applications.
- They recently got patent approval for air-rich, yarn, and fabric methods of manufacturing from the US patent office.
- The management is trying to improve efficiency further through technology.
- They have already managed to improve the asset turnover from 0.8 x to 1.4 x in the last four years.
- The company shows promising growth opportunities and increased profitability once the temporary slowdown due to covid 19 clears.
- Therefore the future prospects category gets five stars in the fundamental analysis of trident ltd.
- The overall rating is arrived by taking the average of the above 10 category ratings and round it up if it is above or equal to 0.5 and rounded down if it is below 0.5. Overall fundamental rating trident shares 4.5 5. therefore it is a five-star stock.
Shareholding Pattern of Trident Ltd
- If you look at the shareholding pattern.
- Its promoter has 73.02% stake in the company.
- Foreign institutions hold a 1.6% stake.
- Domestic institutions hold 0.93%.
- General public holds a 24.44% stake.
Valuation
- The company is trading at fair multiples and have seen some correction in the recent past
- The market cap slash EBITDA ratio and enterprise value slash EBIDTA ratio show that the company has seen some correction in its share price.
- As we saw above trident has solid fundamentals along with good profitability and this makes it a value stock for the long term.
- Therefore this category gets five stars in trident ltd fundamental analysis.
Conclusion
Overall if we conclude Trident Ltd has an excellent business and its management, strong competitive advantage, and good financial and bright growth prospect which makes it a fundamentally good company.
It is currently available at a fair valuation. What is your take on Trident ltd have you invested in it do let me know in the comment box. I hope you find this analysis useful, and if yes please share it with your friends and family.
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