Why Trident Share Price is Falling

Editor's note: After falling 35% in 2022, textile company Trident has started 2023 on a similar downward trajectory.

Shares of Trident have fallen around 20% in 2023 so far. Thanks to today's 6% gains, the losses are cushioned.

That brings us to the all-important question - why is Trident share price continuously falling and how long before the stock recovers?

In November 2022, we wrote a detailed editorial explaining the reasons as to why Trident share price was falling.

Trident shares remain under pressure owing to those same reasons, even today.

Continue reading to know more...

Why Trident Share Price is Falling Today

Share price of Trident Ltd., one of the world's largest integrated home textile players, is reeling under intense pressure in 2022.

The stock is down almost 50% from its yearly highs touched in January 2022.

The pandemic and lockdowns hurt Trident's business in financial year 2020 and 2021. But what followed was a sharp recovery as positive developments rolled in for Indian textile industry. Especially for the exporters to the US market.

You see, India has grabbed the market share from China in the US textile export markets. For companies like Trident, this is highly promising.

However, the company has fell short of expectations and hasn't lived up to the hype.

Let's find out why Trident share price is under pressure in 2022 so far...

Weak quarterly results

For the April-June 2022 quarter, Trident reported weak quarterly results. On a consolidated basis, the company's net profit dropped 37.5% to Rs 1.3 bn (Rs 129 crore).

Meanwhile, its operating margin also declined to 18.96% against 29.37% in the year ago period.

Following the trend, it again reported weak results for the month of September 2022. This time, most of its segments saw a decline in production.

Production of bed linen, yarn, chemicals, and paper for September saw a sequential decline.

Earlier this week, the company declared its Q2 results and it was the same story again. This time, the company's net profit slumped a massive 82.7% to Rs 396 m while revenues also saw a 14.6% decline.

Operating margin declined to 11.7%. Note that the company's operating performance is highly dependent on prices of key raw material, especially cotton, which constitutes 50% of the cost of yarn.

For the past three quarters, Trident has seen a moderation in operating margins as cotton prices increased over Rs 100,000/candy.

Update: For the quarter ended December 2022, Trident has reported a revenue of Rs 16.4 bn, down 17.1% YoY.

The operating profit was down 34.2% YoY with margin at 16.3% versus 20.5% YoY. The net profit also declined 31.7% YoY with margin at 8.7% versus 10.7% (YoY).

This quarter was better than the first half of the year, but the business is yet to recover back to historical levels. The decline was mainly on account of weakness in the textile segment (79% of revenue) on account of demand pressure in the export markets and higher raw material prices, while Paper segment performed well.

Trident's performance is impacted largely amid the slowdown in key export markets, (which account for ~60% of revenue) of US and Europe in the textile segment.

Trident's bed linen and terry towels' capacity utilisation dipped to 62% and 48% respectively in 9MFY23 (FY22: 88% and 61%, FY21: 80% and 53%) owing to a moderation in export demand due to excess inventory amid economic slowdown and global uncertainties.

Change in guard

A company's performance is greatly affected by management change. In fact, the impact of management change can be so great that it may even cause a company to fail altogether.

A CEO resignation is an example of how a management change can have a big impact. When this happens, the new CEO may have different goals than the former one and therefore focus their efforts on different strategies. This can be risky (or not).

For Trident, its founder and chairman stepped down as director and non-executive chairman this year due to ongoing health issues and family obligations.

On the day this news came out, the stock of Trident was down 5%. Change in guard could be the other reason why Trident is under pressure.

Apart from that, in July this year, Trident announced that it will temporarily shut operations at select facilities as a precautionary measure to avoid disruption due to the 'Punjab Morcha'.

The temporary dispute can also have an effect on the company's stock price.

What next?

This year, Trident has announced capex worth Rs 8.9 bn for capacity addition in yarn, bath linen & chemical business.

The company had earlier announced capex worth Rs 13.8 bn in 2021 for which the projects are under different implementation stage. These are expected to begin commercial production by September 2023. This capacity expansion can drive Trident's growth going forward.

As of March 2022, Trident has a total debt of Rs 15.7 bn which results to a debt-to-equity ratio of 0.41x.

The company is undertaking a debt-funded capacity expansion project to increase capacity, so debt level will be a key metric to track going forward.

Also, global textile brands are diversifying their supply chain as part of the China plus one strategy. This has resulted in an increase in exports from the textile sector. Trident has a significant presence in the export markets and could be a big beneficiary.

Update: The company has plans to improve margins by adding more value-added products and better production efficiencies.

The company has planned a capex of Rs 22.8 bn over FY22-FY25, to be financed in a debt/equity ratio of 3:1, to increase the capacity of its yarns segment by 48%, sheeting segment by 59%, towel segment by 6%, chemicals segment by 118% and power by 28%.

The enhanced capacity is likely to commence operations in phases up to March 2024 and is likely to boost volumes over the medium term.

How Trident has performed in 2022 so far

In 2022 so far, Trident share price is down 35%.

Today, the stock opened marginally down at Rs 35 against its previous close of Rs 35.5.

Trident has a 52-week low of Rs 30.7 touched yesterday and a 52-week high of Rs 70.9 touched on 18 January 2022.

Take a look at the table below which compares Trident with its peers on important metrics.

Comparative Analysis

Company	Trident	Bannari Amman	DCM	Rajapalayam Mills	Sutlej Textiles
ROE (%)	23.2	14.9	0.0	0.9	14.6
ROCE (%)	23.4	15.0	160.8	3.7	14.7
Latest EPS (Rs)	1.1	6.8	9.3	91.7	10.1
TTM PE (x)	32.3	7.1	8.4	9.4	6.1
TTM Price to book (x)	4.7	0.7	8.5	0.3	0.9
Dividend yield (%)	2.7	1.3	0.0	0.1	3.1
Industry PE (x)	12.7
Industry PB (x)	2.3

Data Source: Ace Equity, Equitymaster

About Trident

Trident Ltd mainly operates under three segments: yarn, home textiles, and paper. In the home textiles segment, the company manufactures terry towels and bed linen.

Back in 1992, when the company commenced its business, it was mainly into yarn and paper production.

The company has successfully transformed itself from a yarn manufacturer to a vertically integrated home textile player which would help the company to garner higher margins and de-risk its business profile.

To know more, check out Trident's financial factsheet and its latest quarterly results.

You can also compare Trident with its peers:

Trident vs Ambika Cotton

Trident vs APM Industries

Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such. Learn more about our recommendation services here...