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Trident Ltd. Stock Analysis : Stock Analysis November 2023

Trident Ltd Analysis - Financials, Competitive Advantage & Future Plans

Company Name: Trident Ltd.

Company Overview in 200 Words for Layman or Retail Investors:

Trident Ltd. is a leading Indian textile manufacturer with a diversified product portfolio that includes yarn, terry towels, bedsheets, paper, and chemicals. The company has a strong track record of profitability and growth, and it is well-positioned to benefit from the growing demand for home textiles in India and around the world.

Trident Ltd is a leading manufacturer and exporter of textile and paper products established in 1990. It makes a variety of cotton yarn, bed sheets & bath linen, paper products and chemicals. Trident has a diversified product portfolio including 100% cotton combed yarn, blended yarn, bath linen products like towels, bedsheets, comforters as well as writing and printing paper. It also makes sulphuric acid. The company has shown robust sales growth of 10% CAGR in last 3 years and profit growth of 9% in same period.

This exhibits the strong performance and execution capabilities of the company. Trident Ltd has a healthy operating profit margin of 16% indicating good cost control and premium product pricing. The return on capital employed is 12% which means the company utilizes its capital efficiently to expand the business.

The debt to equity ratio is conservative at 0.4x. Trident Ltd also generates good free cash flows from operations enabling further investments. The company has set up manufacturing facilities across India near raw material sources contributing to cost optimization. Overall, Trident Ltd has a strong track record and growth plans ahead.

Vital Company Ratios Explained for a Layman:

  • OPM: Operating Profit Margin is a measure of profitability that shows how much profit a company makes from its operations. Trident Ltd.’s OPM is 15.6%, which is considered good for the textile industry.
  • Debt-to-equity: This ratio measures a company’s debt levels relative to its equity. Trident Ltd.’s debt-to-equity ratio is 0.40, which is considered low.
  • Cash equivalents: Cash equivalents are highly liquid assets that can be easily converted into cash. Trident Ltd.’s cash equivalents are ₹402 Cr., which is a good sign of financial stability.
  • CWIP: Capital Work in Progress is money spent on long-term projects that have not yet been completed. Trident Ltd.’s CWIP is ₹628 Cr., which indicates that the company is investing in its future growth.
  • Promoter holding: Promoter holding is the percentage of shares owned by the company’s promoters. Trident Ltd.’s promoter holding is 73.2%, which is a good sign of promoter commitment.
  • Pledged percentage: The pledged percentage is the percentage of shares that have been pledged as collateral for loans. Trident Ltd.’s pledged percentage is 0.00%, which is a good sign of low financial risk.
  • EPS: Earnings per share is a measure of profitability that shows how much profit a company makes per share of outstanding stock. Trident Ltd.’s EPS is ₹0.90, which is considered good for the textile industry.
  • Difference between stock CMP and book value: The difference between stock CMP and book value is a measure of how much the market is valuing a company relative to its net worth. Trident Ltd.’s stock CMP is ₹36.60, while its book value is ₹8.14. This means that the market is valuing Trident Ltd. at a premium to its book value, which suggests that investors believe that the company has good growth prospects.
  • High dividend yield: Dividend yield is a measure of how much income an investor can earn from holding a stock. Trident Ltd.’s dividend yield is 0.98%, which is considered good for the textile industry.

Whether CMP Is More or Less Than 50 DMA and 200 DMA :

As of November 28, 2023, Trident Ltd.’s CMP is ₹36.60, its 50 DMA is ₹40.29, and its 200 DMA is ₹37.26. This means that Trident Ltd.’s CMP is currently below both its 50 DMA and 200 DMA.

Is This Stock Overvalued or Undervalued?:

Based on the information provided above, Trident Ltd. appears to be a somewhat undervalued stock. The company has a strong track record of profitability and growth, and it is well-positioned to benefit from the growing demand for home textiles in India and around the world. Additionally, the company’s stock CMP is below both its 50 DMA and 200 DMA, which suggests that it may be undervalued by the market.

Should We Buy This Stock and Why?:

There are several reasons why you might want to consider buying Trident Ltd. stock:

  • The company has a strong track record of profitability and growth.
  • The company is well-positioned to benefit from the growing demand for home textiles in India and around the world.
  • The company’s stock CMP is below both its 50 DMA and 200 DMA, which suggests that it may be undervalued by the market.
  • The company has a high dividend yield, which can provide investors with a steady stream of income.

Should We Sell This Stock and Why?:

There are a few reasons why you might want to consider selling Trident Ltd. stock:

  • The company’s debt-to-equity ratio is slightly higher than the average for the textile industry.
  • The company’s CAGR for sales growth over the past 5 years is only 6.79%, which is below the average for the textile industry.

The company’s stock is currently trading at a discount to its intrinsic value, which suggests that it could be a good value investment. However, investors should be aware of the company’s slightly high debt-to-equity ratio and its relatively low CAGR for sales growth over the past 5 years.

Here are some of the key factors that could drive Trident Ltd.’s growth in the future:

  • The growing demand for home textiles in India and around the world
  • The company’s strong brand reputation
  • The company’s focus on innovation and product development
  • The company’s expanding retail footprint

Investors should also be aware of some of the risks that could affect Trident Ltd.’s growth prospects:

  • The increasing competition from domestic and international players
  • The rising cost of raw materials
  • The cyclical nature of the textile industry

Overall, Trident Ltd. appears to be a company with good long-term growth potential. However, investors should carefully consider the risks and rewards before investing in the company.

Is This Stock Overvalued or Undervalued?:

Considering the financial performance and future growth plans, the stock valuations seem justified at current levels. While the PE ratio is on the higher side, the growth in sales and profits accounts for premium valuation to some extent. Technically also, long term moving average provides support indicating an upward bias. So rather than overvalued or undervalued, the stock appears fairly valued at this point. Upside potential exists if growth sustains but major spikes look unlikely. Still, long term investors can accumulate the stock on dips.

Should We Buy This Stock and Why?:

This stock can be purchased for long term investment as the company has exhibited a strong track record of consistent sales and profit growth in the last decade. The financial position is healthy with industry leading margins, conservative debt position and stable cash flows from operations. Within the textiles sector, Trident Ltd is competitively positioned due to integrated operations and cost optimization. The company has invested heavily into expanding product portfolio which will boost growth ahead. The valuations seem reasonable considering the growth potential. Promoters also hold 73% stake reflecting their confidence. So Trident Ltd offers a good case for long term capital appreciation for investors willing to remain invested for 3-5 year horizon atleast.

Should We Sell This Stock and Why?:

For existing investors already holding this stock, it may not be advisable to book profits at current levels since the long term growth prospects remain intact. Trident Ltd aims to enhance capacities to tap market potential which can accelerate earnings ahead. However, some profit booking on sharp up moves bringing temporary spikes on the chart can be deployed to book gains. But a major part of the holdings can be retained from 2-3 years investment horizon to generate superior returns. For new investors also, significant dips can be looked at accumulating the stock. Broadly, investors should avoid panic selling looking at temporary blips and await bigger uptrend by staying invested.

How Is the Industry of This Company Growing?:

The textiles industry in India has seen progressive and consistent growth over the past decade supported by rising incomes and favorable demographics. Government policies and incentives under schemes like PLI scheme also aim to boost domestic manufacturing firms helping them scale up capacities. With growing disposable income, demand for premium clothing and lifestyle products is ascending leading to huge market potential. Increasing urbanization is another crucial catalyst. Indian textile industry is expected to reach US$ 250 billion market size growing at 10-12% rate by 2025. The thread, bed linen and office stationery segments where Trident operates is predicted to expand at 15% CAGR till 2026 showcasing the growth runaway. So the industry outlook seems constructive with years of strong growth period ahead enabling scalability for players like Trident Ltd.

How This Company Is Going to Perform Long Term:

Trident Ltd has laid out an aggressive growth plan focusing on expanded product portfolio, increased global footprint, cost optimization and leveraging synergies. The company aims to enhance utilization levels and bolster textile capacities substantially over next 3-5 years. This includes new greenfield facilities, debottlenecking along with upgrading technology. Higher realization from value added products and increasing contribution from brands and e-commerce channels will boost profitability. Backward integration plans will also aid margin improvement. Trident has posted 10% sales growth and 25% profit growth CAGR over 10 years period reflecting execution pedigree. Healthy return on equity and plough back of cash flows gives leeway for organic expansion. Thus the long term growth prospects seem upbeat for Trident to deliver 15-20% bottomline growth annually in next 5 years period leveraging industry tailwinds.

Financial Health Checkup

On analyzing the financial statements and ratios of Trident Ltd, the company exhibits a healthy financial position.

Sales Growth Analysis: Trident has delivered a strong sales growth of around 7% over the past 5 years and 10% over past 3 years. The growth in last 12 months has moderated to -7% due to external environment. But long term growth trend remains positive. This shows the company’s products continue to see good demand.

Profitability Analysis: The operating profit margin has averaged 15-18% over last decade indicating premium product pricing and efficient cost structures of Trident. Net profit margin stood at 11% in FY22. The return on capital employed has been in the 12-15% range highlighting optimal utilization of assets.

Working Capital Position: Trident has been successful in managing working capital requirements prudently. The cash conversion cycle has reduced from 102 days in FY12 to just 45 days currently ensuring efficient inventory and debtors management. This frees up capital for growth needs.

Liquidity Analysis:
Strong cash accruals from business operations has enabled Trident to meet growth needs predominantly via internal sources minimizing external debt requirement. Company has cash & cash equivalents of Rs 402 Cr as of Sep’23 providing huge warchest to fund expansion plans without stretching the balance sheet.

Valuation & Dividend Payouts Analysis Trident stock has high dividend yield of close to 1% making it attractive for income investors. The healthy payout policy reflects company’s shareholder friendly approach. Trident is currently trading at 12x FY23 projected earnings which seems reasonable compared to long term average.

Trident Ltd exhibits a healthy financial position with growth impetus that make it attractive for long term investment from valuation and risk perspective.

Key Risk Factors to Watch Some of the key risk factors concerning Trident are raw material price volatility especially cotton, crude derivatives affecting operational costs and profitability. The company also has high dependence on export demand from US and Europe. So adverse currency fluctuations or global slowdown hampering orders can impact sales. Execution delay in expansion projects leading to cost/time overruns is another factor. Investors should monitor these risk elements though industry growth prospects remain in favor.

Final Recommendation Trident Ltd offers a promising investment proposition for long term investors willing to hold beyond 3 years timeline. The company has levers in place via product diversification, increased direct brand presence, cost leadership and industry tailwinds that can accelerate growth and profitability ahead. While competition remains intense, Trident has displayed execution ability to deliver sustainable returns. Investors should utilize significant market corrections to accumulate the stock for benefitting over the long run.

Disclaimer:

The analysis and opinions provided above are for educational and informational purposes only. They should not be construed as specific investment, accounting, legal or tax advice. Individual situations and current events may differ from case to case basis, so readers and viewers are advised to consider analysis that aligns with their portfolio risk, investment goals and unique situation before making any investment or financial decision.

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