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Textile margins improve; ambitious capex to drive future performance

Trident reported consol. EBITDA of INR2.3bn, lower than JMfe of 2.8bn. Revenue from home–textile segment declined sequentially by 4.4% while paper and chemicals segment declined 23.2 QoQ. Textile segment reported EBIT margins of 6.5% during the quarter vs 5.9% during 4QFY23 mainly on account of lower raw material cost while margins for the paper and chemicals segment declined significantly QoQ to 29% (34% in 4QFY23). Consolidated EBITDA margins came in lower QoQ at 15.5% vs 4QFY23 margin of 17.1%. As a part of the ~INR21bn current capex plan, Trident expects to commission a) 1.9 lac spindles by Sep’23 b) bedsheet capacity of 70k mtrs/day by Sep’23 c) 105ktpa chemical capacity by Mar’24 d) power capacity of 16.3MW by Sep’23. The company has already commissioned 42 looms for bath linen in Jun’23. Structural drivers of increased market share in the US, US ban on Xinjiang imports, duty reimbursement by GOI and market share gain on China+1 theme are likely to drive earnings going forward. Further, FTAs with UK/EU over time could likely increase the addressable market size, possibly leading to further re-rating. Near term demand environment for textile segment is expected to remain muted given US recessionary fears with improvement in demand expected from 2HFY24. Maintain BUY (refer exhi. 4)

* Textile margins improve marginally: Revenue from Textiles registered a marginal decrease of 4.4% QoQ (up 13.7% YoY) to INR15.3b. Textile segment reported an EBIT of INR1.0bn as against an EBIT of INR0.9bn in 4QFY23. Revenue from Paper and Chemicals declined 23.2% QoQ (-19.4% YoY) at INR2.6bn. EBIT margin contracted by 520bps QoQ (+150bps YoY) to 29%. Paper EBIT decreased by 35% QoQ to INR0.7bn. Consol. revenue declined 5.1% QoQ to INR14.9bn (est. INR15.6bn). EBITDA margin contracted 160bps to 15.5%. Net debt during the quarter increased 9.3% QoQ to INR11bn.

* Restructuring of board to empower professional management: Trident previously announced restructuring of Company’s Board to empower professional management amidst decision of Mr Rajinder Gupta (Founder and Chairman) to step down due to health issues and family commitments. The company appointed five professional managing directors to enhance empowerment, drive strategy and catapult growth of each of the business segments. Further, the board appointed Mr. Rajinder Gupta as ‘Chairman Emeritus’ of the Company.

* Ambitious capex plan ahead: The Company is progressing on its ~INR21bn current capex plan which includes a) plan worth INR12.8bn towards 1.9 lac spindles with commissioning expected by Sep’23 b) 42 looms for bath linen commissioned in Jun’23 at a capex outlay of INR2.5bn c) bedsheet capacity of 70k mtrs/day by Sep’23 at a capex of INR4.7bn d) 105ktpa chemical capacity by Mar’24 at a cost of INR1bn and e) power capacity of 16.3MW by Sep’23 at a cost of INR1.8bn.

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