BSE ID : 521064 NSE ID : TRIDENT
RECOMMENDED PRICE 60.05
PEAK FROM RECO 109.50 82.35%
CURRENT PRICE 65.30 8.74%
Trident is not only one of the largest towel manufacturers of the world, but also one of the world's largest agro-based paper manufacturers. We initiate coverage on Trident as a BUY with a price objective of Rs 104.4 representing a potential upside of 74% from the CMP of Rs 60.05.
The newly commissioned capacities for manufacturing of terry towel and bed linen are expected to lead to improved product mix in favour of the high margin home textiles. Further the fiasco created over Welspun’s product quality has helped Trident secure newer clientele in the fast growing exports of home textiles. Further debottlenecking is expected to enhance paper manufacturing capacities by ~15%. This coupled with the recent spike in realization is expected to boost paper segment revenues which were so far tepid.
As a result we expect overall revenues to grow at a CAGR of 12.1% over FY16-19 from Rs 3,684 cr in FY16 to Rs 5,189 cr by FY19. The higher margins for both business along with lower cost of reprised loan should lead to a exuberant 41.5% CAGR growth in net earnings to Rs 646 cr by FY19 (from 228 cr clocked in FY16).
We initiate coverage on Trident as a BUY with a price objective of Rs 104.4 representing a potential upside of 74% from the CMP of Rs 60.05. At the CMP of Rs 60 the stock is trading at 4.5X its estimated EV/EBITDA of FY19. We have valued the company using the Sum of the parts (SOTP) methodology and ascribe a value of Rs 104.4 per share. We have valued the textile business at an EV/EBITDA of 5.8X FY19 and the paper business at an EV/EBITDA of 6.5X.
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