Trident Limited's rating outlook revised to 'Positive', ratings reaffirmed

CRISIL Ratings has revised the outlook on the long term bank facilities of Trident Limited (Trident) from 'Stable' to 'Positive' and reaffirmed the rating at 'CRISIL AA-'. The rating on short term bank facilities and commercial paper programme is reaffirmed at 'CRISIL A1+'.

The rating action reflects healthy improvement in the financial risk profile of Trident post significant reduction in the debt over last few quarters supported by ramp up of operational performance in home textiles division this fiscal. The company has reduced its debt from Rs 1952 crore as on March 31, 2020 to Rs 1059 crore as on December 31, 2020 through prepayments from internal accrual, controlled capex as well as non-recourse factoring initiatives. The traction in home textile division also remains strong with the both, bed sheets and towels segments reaching the highest capacity utilization since inception i.e. 101% and 62% respectively in the 3rd quarter of this fiscal. The strong demand for the home textiles stemmed from increased stay-at-home period and focus on health and hygiene for consumers, is expected to remain healthy in next fiscal.

The capacity utilizations in the cotton yarn segment also reached 97% in 3rd quarter of this fiscal, higher than pre-covid levels, partially owing to increased captive consumption for increased production of home textiles as well as rebound in the cotton yarn demand in the industry. Paper segment also has seen ramp up albeit gradual, with utilization levels reaching 87% in 3rd quarter. Over medium term, the aggregate revenues are expected to grow by ~15% p.a. as against CAGR (compounded annual growth rate) of ~2% during fiscal 2018 to 2020, led by continued traction in home textiles and cotton yarn as well as recovery in the paper segment as well as commissioning of planned capacity addition.

The operating profitability of the company has remained healthy at 18.5% in nine months of fiscal 2021 as against 18% in fiscal 2020, in spite of COVID impact in first quarter, owing to cost optimization initiatives undertaken by company. Over medium term, the operating margins are expected to remain stable between 18-20% p.a.

Lower capex intensity in fiscal 2020 and 2021 as well as healthy annual cash accrual of ~Rs 400 - 600 crore coupled with usage of non-recourse factoring has resulted in sharp reduction in debt levels. As a result, the Net debt/EBIDTA is expected to improve to below 1.5 times for fiscal 2021 from 2.3 times in 2019 and to remain below 1.5 times over medium term. Liquidity profile remains healthy, supported by cash & equivalents of Rs 80 crore and unutilized bank limits of Rs 300 crore in February 2021.

The company also has deferred a part of its earlier planned capex plan of ~Rs 1400 crore involving capacity expansion in cotton yarn and paper debottlenecking projects. Presently, the company is carrying out only one out of the three phases in cotton yarn expansion while paper project will be considered only after substantial recovery is seen. Owing to controlled capex, the debt protection metrics is expected to remain healthy.

Business profile remains healthy as Trident being the second largest player in home textiles and third largest yarn manufacturer in India apart from being one of the leading manufacturers of writing and printing (WPP) paper in North India. The rating continues to reflect Trident's diversified revenue profile with leading market position in the home textiles segment, strong operating efficiency in the paper and home textiles segments driven by high integration, and adequate and improving financial risk profile. These strengths are partially offset by exposure to volatility in cotton prices and fluctuations in forex rates, working capital-intensive operations, susceptibility to slowdown in the end-user market and competition in the home textiles industry.

Shares of TRIDENT LTD. was last trading in BSE at Rs.13.71 as compared to the previous close of Rs. 13.79. The total number of shares traded during the day was 1701049 in over 3902 trades.

The stock hit an intraday high of Rs. 14.01 and intraday low of 13.4. The net turnover during the day was Rs. 23382714.

Source : Equity Bulls

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