Stock Pick From The Textiles Sector

Here Is Why:

• Good second quarter performance gives confidence of future performance.
• Merger with Trident Corporation is expected to get benefits of economies of scale and optimum utilization of
  infrastructure & other resources.
• The debt repayment is expected to further improve margins for the company.

With a compounded annual growth rate of almost 34 per cent in its topline, Trident came up as one of the fastest growing business group in the country. It is a leading manufacturer of terry towels, paper, yarn and chemicals. The company today is one of the largest producers of terry towels and wheat straw based paper in the world. It is associated with global retail brands such as Ralph Lauren, Calvin Klein, JC Penney, IKEA, Target, Wal-Mart, Macy’s, Kohl’s, Sears, Sam’s Club, Burlington, etc. Trident has a very good track record and is recognized for its delivery of high quality standards and the customer centric approach that it has.

Recently, its board of directors approved the merger of Trident with Trident Corporation. This merger will result in joint operating benefits in the areas of manufacturing, procurement, new product development and marketing resulting in enhanced shareholders’ value. Further, the combined entity will be one of the largest integrated players in the integrated home textile segment in the world.

The merger will also have forward and backward integration benefits for the combined entity. Geographical diversification and locational advantages is another important aspect. Operating from the state of Madhya Pradesh which is nearer to ports, mega project incentives offered by that state, reduction in power cost, etc. are some of these advantages that the company enjoys.

During the second quarter, total revenues of the company increased by by 21 per cent to `1000 crore against `826 crore in Q2FY13. The main driver of its revenue growth was the higher capacity utilizations combined with increased off-take across all product segments. The higher contribution from value added products increase realizations for the company. EBITDA margins expanded to 21.1 per cent during current quarter from 14.4 per cent in the previous quarter. Also, the company managed to repay 8.7 per cent of its outstanding loans, resulting in 1.8 per cent lower financial cost against Q2FY13. The company’s net profit grew to `73 crore from `1.4 crore in the corresponding period last year.

The domestic textile segment has seen a good traction over the recent past. This has been due to an improved demand improving for textiles and apparels from the larger market. A depreciating rupee and structural changes in competing markets like China are some other factors which have helped the sector. Major international buyers have started diverting orders to India due to wage protests in Bangladesh. All this has resulted in improved performance and stronger order book visibility for Indian exporters.

The company is continuously making investments for expanding and modernizing its capacities and is poised to benefit from the growing business opportunities across the globe. We expect a strong performance from the company can lead to a 20 per cent appreciation in the stock price over next one year from here.