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Demand momentum continues to drive growth

Revenue and PAT better than estimated; EBITDA in-line

* Trident (TRID) reported a strong performance in the Home Textile and Paper segments, driven by robust demand with the easing of pandemic woes. The demand trend in Home Textile is expected to continue, with major export demand bouncing back in FY22E.

* While we maintain our FY22 earnings estimate, on factoring in a) the growth opportunity with the normalization of business operations as well as b) an improving demand outlook, we increase our FY23E/FY24E earnings estimate by 11%/9%. We maintain our Buy rating.

Textile, Paper drive earnings

* Revenue grew 52% YoY to INR19.6b (est. INR17.4b). The EBITDA margin expanded 230bps to 20.6% despite a 430bps contraction in the gross margin (to 50.8%). EBITDA, adjusted for forex gains, was in line with estimates at INR4.0b (up by 71% YoY). Adjusted PAT grew 2.4x YoY to INR2,346m.

* Revenue from Textile rose 54% YoY (+21% QoQ) to INR17.1b, with the EBIT margin expanding 400bps YoY (-390bps QoQ) to 16.8%. Textile EBIT surged 2.0x YoY (~-2% QoQ) to INR2.9b. Capacity utilization in the Sheeting and Towel businesses stood at 99% and 69%, respectively, in 3QFY22.

* The Home Textile segment sustained the demand momentum in 3QFY22, with the Bath and Bed Linen segments posting revenue growth of 34% and 26% YoY, respectively. Volumes grew 12% YoY to 15,568 MT in the Bath Linen segment, while Bed Linen volumes came in flat YoY at 10.8m meters. Yarn volumes grew 19% YoY to 33,228 MT.

* Revenue from Paper and Chemicals grew 38% YoY (~-2% QoQ) to INR2.5b. The EBIT margin expanded 170bps YoY (-90bps QoQ) to 23.0%. Paper EBIT rose 49% YoY (-5% QoQ) to INR581m. Capacity utilization in the Paper segment stood at 91% (v/s 98% in 2QFY22).

Highlights from management interaction

* Market share: As per OTEXA data, India’s market share in US Cotton Sheets increased to 57% over Jan–Nov’21 (v/s 52% in 2020), whereas China lost ~2% share (v/s the same period last year). In the Terry Towels segment, India’s share has risen 200bp to 44% in CY21YTD (v/s 42% in CY20), while China’s share has fallen 200bp.

* The following is expected to impact cotton prices going forward: i) the US banning products made from cotton obtained from China’s Xinjiang region and ii) this region accounting for one-fifth of the world’s cotton production. As a result, other cotton-supplying countries are likely to face added pressures.

* Debt repayment: The management has taken several initiatives to pare down its debt, including a) reducing working capital through the retention of cash accruals, b) implementing other measures to reduce the CTC cycle, and c) building up its cash reserves. However, net debt had increased to INR14.9b as of Dec’21 (v/s INR10.5 as of Sep’21) on account of cotton procurement during the cotton procurement season.

Valuation and view

* The healthy growth seen in India’s Home Textile segment is expected to continue on the back of increased awareness about health and hygiene, easing logistic issues, and market share gains from China in the US market.

* While we maintain our FY22 earnings estimate, on factoring in a) the growth opportunity with the normalization of business operations as well as b) an improving demand outlook, we increase our FY23E/FY24E earnings estimate by 11%/9%.

* We value TRID at 25x FY24E EPS to arrive at our TP of INR73. We maintain our Buy rating.

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