Dolly Khanna holdings of Trident Ltd
Trident Ltd is one of the stocks that Dolly Khanna has been holding for a long time in her portfolio.
Dolly Khanna bought Trident in the beginning of 2016. Her holding in the stock did not exceed 1% till December 2016.
In December 2016, the holding in the stock exceeded 1% and was seen in Dolly Khanna’s portfolio.
Why is Trident Ltd a multibagger buy?
Trident Ltd’s Q3FY17 revenue and earnings were good. The Revenue increased 25.9% y-o-y to Rs. 11,257 mn, led by strong offtake in the textile segment. EBITDA margin expanded 53 bps y-o-y to 20.1% owing to higher share of value-added products in the paper segment. The company’s continuous efforts to retire high cost debt kept finance charges in check and, therefore, adjusted PAT increased 26% y-o-y to Rs. 786 mn. Going forward, owing to the company’s concerted efforts in marketing products overseas, and widening store presence and the product portfolio in the domestic market, utilisation levels are expected to rise. Further, favourable growth outlook in the domestic and the US markets is expected to drive volume growth.
Home textiles: Growth was volume driven; momentum to continue
The home textile segment’s revenue increased 30% y-o-y to Rs. 9.2 bn in Q3FY17. Cotton yarn posted volume growth of 14% y-o-y and terry towel – 24% y-o-y. EBITDA increased 28.6% y-o-y owing to higher volume growth. In the bed linen segment, the company increased its ratio of processed to non-processed fabric and, as a result, realisations jumped 15% q-o-q. We expect utilisation of terry towels to increase to 60% in FY18 from 40% in FY16 and bed linen to 55-60% in FY18, supported by concerted efforts to increase penetration in new geographies and strengthening presence in existing regions. Accordingly, we factor in revenue contribution of Rs. 38.2 bn in FY17 and Rs. 43.9 bn in FY18.
Paper: Increased realisations aided performance; copier segment to sustain growth
The paper segment’s revenue increased 11% y-o-y to Rs. 2.2 bn led by 9% y-o-y growth in realisations. Higher share of branded copier paper (~50%) aided revenue growth. However, growth is expected to be moderate over FY16-18, primarily owing to expected increase in competition following excess supply.
Volume growth to drive revenue; EBITDA margin to remain range bound
As envisaged earlier, revenue is expected to grow at 19.3% CAGR over FY16-18 to Rs 52.6 bn owing to superior volume growth, especially in home textiles. While the higher share of value-added products is expected to aid margin expansion, a rise in cotton prices should keep margin range bound at 20-20.5%.
Retirement of high cost debt is a positive
Over the past three quarters, the company repaid debt of ~Rs 4,450 mn, including prepayment of ~Rs 1,600 mn. Free cash flow generation is expected to lead to further repayment of high cost debt in the following quarters. This is expected to bring down the debt-to-equity ratio to 1.2x by FY18 from 2.0x in FY16. As a result, PAT is expected to grow at a CAGR of 35.5% over FY16- 18 to ₹4.2 bn in FY18.
Increase fair value to Rs 93 per share
We maintain our FY17 and FY18 estimates. We continue to value Trident by the discounted cash flow (DCF) method, and have rolled forward our estimates by one year to FY19. Subsequently, we have raised our fair value to Rs 93 per share from Rs 80. The current market price is Rs 71.
Trident Ltd is looking like a very good stock to buy and hold for the portfolio. it is expected to give multibagger gains for the future and that it is the reason why it is part of Dolly Khanna’s portfolio holding.