Trident Limited — Q2 FY21 earnings call

Call held 15 Oct 2020

Management summary

Trident Limited reported a strong recovery in Q2 FY21, with revenues up 65% and EBITDA margins up 91% quarter-on-quarter, primarily driven by robust demand in the Home Textile segment. The company achieved record capacity utilizations in key segments and significantly reduced its net debt to INR 947.6 crores. Despite challenges in the Paper segment due to increased imports, the overall outlook remains positive, with management focused on sustaining demand, improving profitability, and strategic market initiatives.

Highlights

  • Net Revenue in Q2 FY21 stood at INR 1174.6 crores, showing a 65% Q-o-Q growth.

  • EBITDA for the quarter was INR 226.9 crores, translating to a 19.3% margin, with a 91% Q-o-Q improvement.

  • Profit after tax (PAT) for Q2 FY21 was INR 100.2 crores.

  • Bed Linen and Bath Linen segments achieved highest ever capacity utilizations at 90% and 61% respectively.

  • Net Debt reduced significantly to INR 947.6 Crores as on 30th September 2020, resulting in a Net Debt to Equity ratio of 0.3x.

  • Exports grew by 10% over Q2 FY20, contributing 68% to the overall revenue.

  • Finance cost for Q2 FY21 reduced by 54.6% Y-o-Y to INR 12.3 crores.

Concerns

  • Volatility due to Covid-19, potential second wave, and government actions

Key financials

  1. Net Revenue ₹1,174.6 Cr -11.4%YoY
  2. EBIDTA ₹226.9 Cr +91%QoQ
  3. EBIDTA Margin 19.3%
  4. Profit After Tax ₹100.2 Cr
  5. Finance Cost ₹12.3 Cr -54.6%YoY
  6. Net Debt ₹947.6 Cr
  7. Net Debt to Equity 0.3×

What they filed

Q1 FY27: revenue up 4.8%, net profit up 10.1% against the same quarter last year.

₹ Cr · quarterly
Line itemQ2 FY25Q3 FY25Q4 FY25Q1 FY26Q2 FY26Q3 FY26Q4 FY26Q1 FY27
Revenue1,709 1,663 1,859 1,700 1,785 +4%1,566 −6%1,630 −12%1,782 +5%
EBITDA225 210 243 290 213 −5%135 −36%229 −6%292 +1%
Net profit83 78 132 139 92 +11%42 −46%102 −23%153 +10%
How to read this

₹ crore, as filed. The percentage beside a figure is the change against the same quarter a year earlier — never the quarter before, which would make every seasonal business look like it collapses and booms each year.

Segment breakdown

Share of Revenue
₹1,171.7 Cr Total
  • Textile Segment ₹990.8 Cr 84.6%
  • Paper & Chemicals Segment ₹180.9 Cr 15.4%

Guidance & targets

Margin

  • EBITDA Margin Margin · FY20 & FY21 · High confidence 18% to 20%
    On a full year basis, the company's will endeavor to achieve EBITDA margins around 18% to 20% on a sustainable basis.

    — Management

Capacity

  • Textile Segment Capacity Utilization & Demand Capacity · upcoming quarters of current financial year · Medium confidence sustain at current levels
    We expect the demand and capacity utilizations to sustain at current levels in upcoming quarters of the current financial year however the same may get impacted on account of any negative development related to Covid-19 pandemic.

    — Management

Raw Material Cost

  • Cotton Prices Raw Material Cost · going forward · Medium confidence remain near current levels
    We expect cotton prices to remain near the current levels going forward

    — Management

Capex

  • Yarn Manufacturing and Paper Upgradation Projects Capex · ongoing · Medium confidence reassessing implementation schedule and viability
    The capex project being undertaken by the company before the Covid-19 was Yarn Manufacturing units and Paper Upgradation project which are currently being reviewed owing to Covid-19 situation. The company is reassessing the implementation schedule and viability in view of the changed economic scenario.

    — Management

Fund Raising

  • Purpose of QIP and NCD Fund Raising · High confidence augmenting financial resources, meeting capital requirements, working capital, repayment, general corporate purposes, financing investment opportunities
    The same is enabling resolution which the company gets approval from shareholders on annual basis in AGM. The company shall utilize the proceeds for business purposes, including but not limited to augmenting financial resources for organic/ inorganic growth opportunities, meeting the capital requirements of the ongoing consolidation process, meeting and satisfaction of working capital requirements, repayment of existing borrowings, general corporate purposes and financing investment opportunities.

    — Management

Risks & concerns

  • Volatility due to Covid-19, potential second wave, and government actions

    high

    The situation is very volatile currently with daily reporting of increased number of infections all over the world with some countries seeing a second wave. Covid-19 cases and subsequent actions by local governments will be major variables for the industry.

    Management acknowledged

  • Impact of Indo-China relationship and US elections on industry outlook

    medium

    Indo- China relationship and US elections may also impact the future outlook for the industry.

    Management acknowledged

  • Growing imports from China causing pricing pressure in Paper segment

    medium

    Growing imports from China (14% increase in last financial year) will impact the demand for domestic manufacturers as well as create pricing pressure, with realizations down by 20% on Y-o-Y basis in paper segment.

    Management acknowledged

  • Cotton price volatility and impact of Cotton Corporation of India's buying strategy

    medium

    Existing cotton stock may shift the cover period, leading to initial pricing pressure on fresh crop arrival, and CCI buying strategy would also impact pricing.

    Management acknowledged

Q&A highlights

3 direct
Reasons for enhanced capacity utilizations in Home Textile Segment Direct
The enhanced capacity utilization in Bed Linen and Bath Linen segment is on account of robust demand coming from export market on account of increased preference on hygiene front due to Covid-19 pandemic. With work from home becoming the norm, demand for home furnishing products has also increased.

Explains the key drivers behind the strong operational performance in the core Home Textile business, linking it to macro trends.

Guidance on EBITDA margins for FY20 & FY21 Direct
On a full year basis, the company's will endeavor to achieve EBITDA margins around 18% to 20% on a sustainable basis.

Provides a clear, quantifiable profitability target for the full fiscal year, which is a critical metric for investors.

Company's efforts to reduce debt commitments Direct
During the year, the company has prepaid its high cost term loans amounting to INR 373.2 crores. Owing to the above initiatives the debt levels of the company have reduced by INR 666 Crores during the half year to level of INR 948 Crores at end of Sep 2020.

Highlights significant progress in deleveraging the balance sheet, improving financial health and reducing finance costs.

3 min read 6 chapters

Detailed narrative

Q2 FY21 Financial Performance Overview

Trident Limited reported a strong financial rebound in Q2 FY21 (July-September 2020), with Net Revenue reaching INR 1174.6 crores. This represents a significant 65% increase on a quarter-on-quarter basis, although it was an 11.4% decline year-on-year compared to INR 1325.6 crores in Q2 FY20. The company achieved an EBITDA of INR 226.9 crores, translating to a healthy 19.3% margin, which improved by 91% quarter-on-quarter. Profit after tax stood at INR 100.2 crores for the quarter.

Robust Demand and Capacity Utilization in Home Textiles

The Home Textile segment was the primary driver of growth, experiencing a strong demand revival from export markets, fueled by increased preference for hygiene products and the work-from-home trend. This led to record capacity utilizations, with Bed Linen reaching 90% and Bath Linen 61%. The Bed Linen segment alone saw a 48% year-on-year revenue growth. The company also noted increased captive consumption of yarn, reaching 64% of total production in Q2 FY21, up from 49% last year.

Significant Debt Reduction and Financial Strengthening

Trident made substantial progress in deleveraging its balance sheet, prepaying high-cost term loans amounting to INR 373.2 crores during the half-year. This initiative, along with other measures, reduced the net debt by INR 666 crores, bringing the total net debt down to INR 947.6 crores as of September 30, 2020. Consequently, the Net Debt to Equity ratio improved significantly to 0.3x, and finance costs for Q2 FY21 reduced by 54.6% year-on-year to INR 12.3 crores.

Paper Segment Challenges and Strategic Adjustments

The Paper & Chemicals segment faced challenging circumstances, with revenue declining by 20.6% year-on-year to INR 180.9 crores in Q2 FY21. This was primarily due to growing imports from China, which increased by 14% in the last financial year, leading to pricing pressure and a 20% year-on-year decline in realizations. Despite this, the company managed to sustain volumes year-on-year and is diversifying its product mix by offering kraft paper to cater to diverse uses like packaging, expecting volumes and realizations to improve with the gradual unlocking of the economy.

Export Focus and Hedging Strategy

Exports played a crucial role in Q2 FY21, growing by 10% over Q2 FY20 and contributing 68% to the overall revenue. India's market share in US imports of terry towels rose to 43% in Jan-Aug 2020, and cotton sheets remained at 50%. Trident employs a hedging strategy for export receivables, taking forward covers for 6-12 months. For Terry Towel, hedging is done on a monthly rolling basis at 40-60% of sales replenishment, while for Yarn/Paper, it's on an order-to-order basis, with an average forward hedged rate for FY21 around INR 75.30 per USD.

Outlook and Future Initiatives

Management expects demand and capacity utilizations in the Textile Segment to sustain at current levels in upcoming quarters, targeting full-year EBITDA margins of 18-20% on a sustainable basis. While existing capex projects (Yarn Manufacturing and Paper Upgradation) are under review due to the Covid-19 situation, the company is focusing on marketing initiatives like tapping new customers, creating a dedicated online channel team, and utilizing virtual showrooms to drive volume growth. Cotton prices are expected to remain near current levels, supported by increased sowing.

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