Published on 27/09/2017 10:45:31 AM | Source: Emkay Global Financial Services Ltd
Buy Trident Ltd For Target Rs.110.00 - Emkay
Strong margin in Paper negates subdued show in Textile
* Trident’s Q1FY18 net sales stood at Rs11.8bn (+2.3% yoy), led by a 1.7% yoy growth in Textile and a 2.4% yoy growth in the Paper segment. Towels revenue declined by 7.8% yoy, primarily due to a higher base.
* EBITDA margin declined 50bps yoy to 20.3%. EBITDA stood at Rs2.39bn (-0.2% yoy). Textile EBIT margin stood at 7.9% (-260bps yoy) while Paper EBIT margin came in at 35.6% (+748bps yoy).
* For FY18, management has guided for capacity utilization of 40-50% in Bed Linen and 55-60% in Terry Towel. Textile EBITDA margin will be in 18-22% range for FY18 while Paper segment EBITDA margin will be in 35-40% range.
* We expect TRID IN to deliver earnings CAGR of 23% over FY17-19E on account of margin expansion and lower finance cost (due to debt repayment). We maintain BUY rating with TP of Rs110 based on 6.5x FY19E EV/EBITDA.
Stable performance; Paper continues to outshine Textile business
Trident’s Q1FY18 net sales grew by 2.3% yoy to Rs11.8bn, led by 1.7% yoy growth in Textile and a 2.4% yoy growth in Paper. Home Textile contributed 49% to sales while Yarn contributed 33% and Paper 18%. Q1FY18 capacity utilization in Textile increased, with Bed Linen utilisation at 36% (vs 29% in FY17), Terry Towels at 51% (vs 50% in FY17) and Yarn at 95% (vs 93% in FY17). Captive consumption of Yarn was 40% in Q1FY18 vs 34% in FY17. Paper capacity utilization was lower at 83% (vs 89% in FY17). Paper business witnessed subdued growth due to GST rollout. EBITDA margin declined 50bps yoy to 20.3% and EBITDA stood at Rs2.39bn (-0.2% yoy). Textile EBIT margin came in at 7.9% (-260bps yoy) while Paper EBIT margin was 35.6% (+748bps yoy). Textile EBITDA declined by 6.8% yoy to Rs1.64bn and EBITDA margin contracted by~200bps yoy to 16% on higher Raw Material cost. Paper EBITDA increased by 33% yoy to Rs950mn and EBITDA margin expanded by ~1000bps yoy to 44% due to price increases. Net profit grew by 13.4% yoy to Rs889mn on account of lower finance cost.
Maintain BUY; Focus on debt repayment to continue
TRID IN retired Rs2.27bn long-term debt in Q1FY18, including high cost debt of Rs1.87bn. Net debt reduced by Rs450mn to Rs27bn and Net Debt/Equity stood at 0.9x, with over 75% of long-term debt under TUFS. It is likely to generate free cash flow of ~Rs13bn over FY18- 19E, led by high operating cash flows of ~Rs15bn, translating into deleveraging of Rs7.7bn over FY17-19E. We maintain BUY rating with TP of Rs110 based on 6.5x FY19E EV/EBITDA
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