Trident Ltd-A Safe & High Potential Multibagger (CMP64.75)

September 17, 2018

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Strategic Alpha

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Trident is the world’s one of the largest terry towel manufacturers. It is also the world’s largest wheat straw-based paper manufacturer. Trident Ltd was incorporated in the year 1990, headquartered in Ludhiana, Punjab. The company operates in three key business segments such as Home textile (49% of revenue), Yarn (33% of revenue), and Paper (18% of revenue) with manufacturing facilities located in Punjab and Madhya Pradesh. The company has a capacity to produce 90,000 MTPA of terry towel, 43.2mn meters of bed linen, 115,200 MTPA of yarn, and 175,000 TPA of wheat straw-based paper.

For more info check, http://www.tridentindia.com/

NUMBERS – THE LATEST

Market cap: 3271 crores CMP on Day 17 Sept 2018: Rs 64.75 BV: 57 Apx
Revenue FY18: 4557Cr Net profit FY18: 263cr FV: 10

POSITIVES

  1. Trident has a well established global business, with clients across 100 countries. the company clearly thinks big and is an excellent example of “make in India”
  2. The company has the capacity to manufacture 360 million towel pieces and 7.5 million bed sheet sets per annum for the global market. ~
  3. Paper manufacturing is a significant part of the business. It enjoys the highest operating margins among key listed players in India.
  4. The company recently incorporated a wholly-owned subsidiary in the UK to strengthen its marketing channels in Europe
  5. Trident has been able to grow its revenues at 22 %CAGR, From 47Cr Revenue in 1995 to over 4670Cr in FY18 which shows management stride towards growth.
  6. Continuous focus on debt repayment:-Company has reduced its long-term Debt from 3421Cr in FY16 to 2381Cr in FY18. Another Reduction in Long-Term Debt in Q1FY19 of INR 65 Crore; Net Debt reduced by INR 240 Crore.
  7. The company had recently gone into a massive expansion of capacity and its major Capex cycle has been completed, and with recent debt reduction, the company would be able to generate a great amount of cash from its operations, which in turn would improve dividends payouts.

INTERESTING INFO

  1. Trident is a preferred supplier to some of the global retail giants like Walmart, JC Penny, IKEA, and Target. It also supplies to large hotels like Taj and Oberoi.
  2. The company has signed Kriti Shanon to endorse its new Bed and Linen collection. The company has brands in various quality and price categories.
  3. Trident went into a licensing agreement to launch an exclusive range of home textiles under the world-renowned French lifestyle brand ELLE DECOR in India, which is also related to the world’s largest selling fashion magazine, ELLE. A Clear Indication of management to bring premium and high margin products into its product offering which would be responsible for the next leg of growth for Trident.
  4. Within two years of operation, Company is able to scale up its Bed Linen capacity utilization to 55% (Q1FY19) by leveraging its existing relationship with terry towel customers.
  5. Crisil has upgraded the short-term credit rating to CRISIL A1+ from CRISILA1 and the Long-term rating has been reaffirmed at CRISIL A+/Stable.
  6. Recently stock fell from 110 to 55 due to MTM Forex Losses and Destocking of Trident products by its Retailers. However, MTM forex losses are one-time impact and Restocking has recently seen in 2 Qtrs and would improve further in coming qtrs. All in all, both these factors are currently priced in for trident @ 65.
  7. The current capacity utilization of bed linen is at 55% and Terry Towel at 45% which provides enough room to play on its operating Leverage incoming 6-10 Qtrs.
  8. Recently promotors have bought 34 Lakh shares between 61-66 from the open market during 28Aug and 3Sept.
NEGATIVES – POSSIBLE RISKS
  1. Trident major revenues come from the US, any adverse Duty tariffs imposed by the US would impact the business. The recent trade war between the US and China would actually prove helpful to Indian textile exports, However, we need to keep in check if there are any adverse duty tariffs imposed on Indian textile imports from the US.
  2. Trident has been able to snatch market share from other competitors in the recent past, however, any loss in market share in the future would impact the business for Trident.
  3. Adverse Currency Fluctuations and Adverse Cotton Price movements will impact margins.
MY TAKE
Starting small in Punjab around 2 decades back, Trident has transformed from small operations to a formidable mid-sized company. During the course of that journey, it has set up large manufacturing operations on a global scale, carved a niche position for itself in the global home textile market.

During the course of the last couple of years, it has expanded its operations with a very substantial CAPEX, entry into new product segments, and a platform for future growth. Trident currently is a play on operating leverage and free cash flows in coming to Qtrs due to higher capacity utilization and substantial debt reduction. With the licensing agreement with Elle-Decor, the company’s intentions are very clear about the direction to become a debt Light brand-led company in the coming future. Thus, the company is well placed to move to the next level from mid-sized to a large size company.

 

Trident-The Stock
Trident
Trident has become multi-bagger twice in the past 5 Years. Once from 20Rs to 60 Rs, a 3 Bagger in less than 10 Months, and Secondly from 40 to 108 a 2.5 bagger in less than 24 months. Stock falls for an average of 45-50% after such a stupendous rise. After such fall again it goes up 140-150% to give multi-bagger returns. In the Recent Fall from 108 to 55, it has priced in all the negatives and thus it is placed nicely to reward Medium Term and Long-term investors. Trident is placed nicely to become a Multibagger once again, Investors with patience for 12-24 Months, would be able to see the levels of 130-150.
Trident has good future potential to become a multi-bagger!!

Important Note: Potential multi-baggers are those stocks that have the potential to give 100 – 500% profits. Obviously, such returns take time. Probably 3 – 4 years or more. Short-term volatility is the reality of the stock market and that will always happen. Short-term movements(upside and downside) are impossible to predict. Only invest funds that you will not need for the next 3 – 4 years. As long as you buy a stock for the right reason and are convinced about the future prospects of the company, there is no need to worry if the share price goes down and stays down for a period of time after you buy; provided you have followed the cardinal stock market mantra BUY LOW.

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The author of the blog Mr.Suyog Dhavan is a Full-time Investor / Value Trader and Value investing/Trading Mentor. His style of Investing is inspired by Mohnish Pabrai, Peter Lynch, and Porinju Veliath. He is the founder of Strategic Alpha Wealth, A Premier stock market mentorship firm with a mission to touch the lives of 1Lakh people through its mentorship program.

18 Comments

  1. Strategic Alpha

    Dear All,
    I am Happy that price wise too, trident is showing a great amount of strength. Today when Sensex Fell 800-900 Points Trident, fell from 64 to 56 and Recovered to 64 again. This shows that this story has a lot of importance for market participants.
    I feel we should buy stocks keeping late 2019 and 2020 at least. Longer the better.
    Challenging times for markets since past 6 Months and Few Months going forward. But this is an opportunity to cherry-pick stocks. However one needs to be very selective.
    7/10 of our blog stocks are highly worth cherry-picking currently.
    Regards
    Strategic Alpha.

  2. Vicky Verma

    Sirji you have beautifully explained Trident.My query is it is still struck in a range 60-75 ,when it will reach your targets 140?

    • Strategic Alpha

      Well My Friend, Patience is the only thing which differentiates super successful investor from a normal investor.

      However, i post Multibagger picks here with a 3 year view. So with patience we will be able to see the desired levels.

  3. Vicky Verma

    You have stopped sharing such picks ,please try to share more ,thanka.

    • Strategic Alpha

      Yes. My best Picks are yet to be shared. I am not getting enough time to share

  4. Vicky Verma

    Trident is going for stock split and raising money on may 13.What are ur views positive or negative sir?

    • Strategic Alpha

      I dont find any Logical Reason to go for a stock split as of now. Stock split generally happen which price become too big. In case of trident, price is not much big and already equity is considerably big, with split it would bring lot of new shares into market, for Trident i would consider it to be negative as share price could stay in range for long time.

      • Strategic Alpha

        I am not feeling comfortable after Money Raising News. They already have underutilised capacity. I would rather stay out of trident

  5. Vicky Verma

    Thanks for ur reply U said right sir .Positive thought is maybe they will split to not less than 5FV and maybe they are raising money at cheaper rates in dollors to pay off high interest debt..

    • Strategic Alpha

      Vicky see Trident has total 50Cr Shares, even if its split into 5FV total shares will be 100Cr, even if we see 15%-18% in Retail Hands thats hugh. So after every rise there will be sellers. Many stocks who haven’t taken split decision right. Even being positive on all fronts stock remains range bound. Getting dollar debt to payof the high interest debt is good, however they want to issue FCCB’S which can again convert into equity, that again will add more shares.

      • Vicky Verma

        Sir i m new investor dont know much fundamental analysis,etc but after reducing promoter 70.7% holding free float have also decreased and seeing little less holding of FPI and mutual funds they may also increase stake in future ,so by increasing liquidity and improving fundamendals and decreasing d/e ratio and also stock have already consolidated in these ranges from last two years isnt this time i expect breakout on upside although i may be wrong ?

      • Strategic Alpha

        Yes, what u say is right. If Your Holding Period is 2-3 Year Plus then u should hold the stock seeing how events unfold. If u have done purchase at a good price then holding makes a lot of sense.
        Business wise, its hard to find negatives here in Trident.

  6. Vicky Verma

    My average cost now is 90 and i have huge quantity and i feel if management is doing all these things they will not intentionally sink their share price,they may be seeing something positive ,so this is only reason i try to hold .Hope to learn from u in future too,thanks.

  7. Vicky Verma

    Sir your view on Trident results and stock split?

    • Strategic Alpha

      Results are Extremely Positive. And About Stock Split, there will be Sentimental Negative in Short Run, However it looks like management is of the view that small stock price will provide Liquidity and thus improve the price prospects. Now will it fullfill their view, only time will tell. There is not a single negative business wise currently and Patient investors will benefit in long run. I am an impatient investor 🙂 i may look at it again after the split for Medium Term trade once the price goes near 5.

      • Vicky Verma

        Thanks sir for your reply.One thing i doubt that the price is falling afyer results because of split into 10 or because of company equity dilution ? Whetjer i continue to hold or book out and reenter at lower levels ?

      • Strategic Alpha

        If u already hold it at higher price, u should continue to hold it. Add Small Chunk on falls.

  8. Vicky Verma

    Thanks sir for reply .I continue to hold.

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