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Home Textiles segment continues to drive growth

Earnings above estimates

* Trident (TRID) posted a strong performance, largely on account of demand revival across Home Textiles & Paper segments and the new RoSCTL benefit scheme announced by the government. The demand trend in Home Textiles is expected to continue, with easing logistic issues and pent-up demand in the US and Europe markets. The Paper segment is expected to see sharp recovery with the opening up of offices and educational institutes.

* Factoring in the beat to our estimates, we increase our earnings estimate for FY22/FY23 by 38%/27% on the back of an improving demand outlook and considering the benefit from RoSCTL. Maintain Buy.

Robust growth across segments

* TRID’s revenue grew 2.1x YoY to INR14.8b (est. INR13.1b). EBITDA margins expanded 860bp to 25.3% on operating leverage and gross margin expansion of 420bp to 59.5%. EBITDA adjusted for forex gains stood at INR3.7b (est. INR2.2b) during the quarter (3.2x YoY). EBITDA adjusted for the RoSCTL benefit (for 4QFY21) increased 2.7x YoY to INR3.1b. EBITDA margins (adj. for the RoSCTL benefit) expanded 470bp to 21.4%. Adj. PAT grew 13.2x YoY to INR1,973m.

* Textiles revenue was up 2.2x YoY (+13% QoQ) to INR12.8b, with the EBIT margin expanding 17pp YoY (10pp QoQ) to 20.3% (after forex adj). Textiles EBIT adjusted for the RoSCTL benefit surged 11.2x to INR2b; the EBIT margin expanded 12.7pp to 15.7%. Capacity utilization in Bath and Bed Linen stood at 62% in 1QFY22 (v/s 61% in 4QFY21) and 85% (v/s 92% in 4QFY21), respectively. On a QoQ basis, overall segmental revenue/EBIT grew 13%/2.3x.

* Paper and Chemicals revenue grew 59% YoY (-11% QoQ) to INR1.9b, with the EBIT margin expanding 290bp YoY (+260bp QoQ) to 30.4%. Capacity utilization in the Paper segment stood at 85% (v/s 92% in 4QFY21). On a QoQ basis, overall segmental revenue/EBIT fell 11%/2%.

Highlights from press release

* RoSCTL: The sector is expected to perform well, led by government support in terms of extension of the RoSCTL benefits up to Mar’24. This is expected to provide stability and ensure the competitiveness of Indian products in foreign markets.

* Market share: As per OTEXA data, India's share in US cotton sheets has increased in overall percentage terms to 62% in the first six months of CY21, whereas China and Pakistan have collectively lost around 5% share since last year. In the Terry Towels segment, India's share has increased 2% to 44% for 1HCY21, against 42% for the full last year.

* Logistical issues: Indian textile exporters are facing logistic issues due to the shortage of containers, which have further led to higher logistic costs in contemporary times.

Valuation and view

* Work-from-home, coupled with a higher health consciousness in most of the big cities across the world, has contributed to demand revival in home textile products. Demand revival has been further supported by pent-up demand amid the festive season.

* The Home Textiles segment is expected to continue to see healthy growth on account of increased awareness for health and hygiene, work-from-home globally, easing logistic issues, and pent-up demand in the US and Europe markets.

* Factoring in the beat to our earnings estimates, we increase our estimate for FY22/FY23 by 38%/27% on the back of an improving demand outlook and considering the benefit from RoSCTL.

* We value the company at 15x FY23E EPS and arrive at TP of INR25. Maintain Buy.

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