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Trident Limited Q4FY15 Earnings Conference Call Transcript

May 29, 2015 at 11.00am IST

Moderator: Ladies and Gentlemen, Good Day and Welcome to the Trident Limited‟s Q4&FY15 Earnings

Conference Call. As a reminder, all participant lines will be in the listen-only mode and there will be an

opportunity for you to ask questions after the presentation concludes. Should you need assistance during

the conference call, please signal an operator by pressing „*‟ then „0‟ on your touchtone phone. Please note

that this conference is being recorded. I now hand the conference over to Mr. Nishid Solanki of CDR India.

Thank you and over to you sir.

Nishid Solanki: Thank you. Good Morning and Welcome to the Q4&FY15 Earnings Conference Call of

Trident Limited. Today, we are joined by senior members of the management team including Mr. Pawan

Jain – President, Mr. Kavish Dhanda – President and Mr. Gunjan Shroff – Chief Financial Officer. We will

commence the call with opening remarks from the management and follow that with an interactive question-

and-answer session.

Before we begin, I would like to caution that some of the statements made or discussed on the call today

may be forward looking in nature and a note to that effect has been included in the „Earnings Presentation‟

sent to you earlier. The Company does not undertake to update them publicly.

I would now like to invite Mr. Pawan Jain to make his initial remarks. Thank you. And over to you, sir.

Pawan Jain: Thank you Nishid. Good Morning everyone and thank you for joining us for the Q4 & FY15

Earnings Conference Call of Trident Limited.

Let me begin by highlighting the Operational Performance of the Company during the quarter across

business segments and also sharing the Corporate Developments. Later, Mr. Gunjan Shroff will take us

through the financial performance for the quarter and the full year ended 31st March, 2015. We also have

Mr. Kavish Dhanda who is heading our supply chain, will give you some insights on the Cotton scenario and

the outlook for the next year.

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I am glad to share that Trident has completed 25 years of being different. Founded in the year 1990, Trident

Limited has proudly established itself as the Largest Terry Towel and Wheat Straw based Paper

Manufacturer in the World.

Financial Year 2015 was a challenging year for the Indian Textile industry owing to sharp correction in

Cotton and Yarn prices which led to significant inventory losses since Cotton was procured at a higher cost

last year. Falling exports to China further impacted Yarn profitability. In line with this, our performance in

Yarn was also impacted. However, this was offset by our Terry Towel business which delivered healthy

growth on the back of improved volumes. The performance of the Paper segment was also as per

expectations as a result of higher contribution from value added Copier Paper and other branding initiatives

undertaken during the year.

Let me give you segment wise perspectives.

The Indian Cotton Yarn industry has been facing pricing and demand pressures over the past few quarters

on the back of multiple factors. Yarn prices declined by over 22% in past one year, while the Cotton prices

fell by around 27%. Following a dull phase last year, things have started returning to normalcy with stable

Cotton and Yarn prices and improvement in demand of Yarn witnessed during Q4. With a normalized

scenario, we expect our margin profile to improve in the forthcoming year. More importantly, our focus on

Home Textiles including Terry Towels and Bed Linen, coupled with product branding initiatives in Home

Textiles would drive growth and profitability in the near term.

Our Terry Towel business reported healthy performance during the quarter as a result of improved

utilization at our new Budhni unit owing to deeper penetration in the domestic market and enhancement in

the global client base. We are steadily scaling up utilization rates at our new Budhni plant which is currently

operating at 40% levels. This would further improve in the upcoming year led by the efforts of our marketing

team to increase sales and various other initiatives undertaken by the company. During the quarter, we

ramped up volumes in the new markets like Central and Eastern India besides adding new clients globally.

Our International order book continues to look robust with addition of newer clients. We have also increased

our presence in online portals, reaching direct customers and our products are now available in all major e-

commerce websites. We have also launched premium brands in Home Textiles – Trident Indulgence and

Trident Organica in domestic market to cater to diverse set of customers.

In the Paper business we witnessed sharp improvement in the margins in view of better product-mix

towards high margin Copier Paper. The contribution of value-added products during the quarter improved to

50% and this would continue to improve resulting in better operating margins for the Company.

Before I conclude, I would like to share that we are making continuous progress on the Bed Linen project in

Budhni and are confident of commissioning operations in the second half of FY16. We anticipate limited

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revenue contribution from the unit in FY16, but we expect a growth in topline going forward as we ramp up

utilization levels. We are focused on consolidating our operational performance over the next couple of

years which itself will enable us to deliver strong growth.

Further, I am glad to state that Trident Limited has been conferred with prestigious “Indian Exporters‟

Excellence Award 2015” organized by ECGC and Dun & Bradstreet India, which recognizes valuable

contributions of Indian exporters to growth of the economy.

The Company remains confident of demonstrating a robust performance in the forthcoming years especially

on the back of improved utilization levels and focus on deeper penetration in the domestic market together

with the entry into new markets and steady introduction of innovative products in line with the customer

preferences.

With that, I would like to hand over the call to Mr. Gunjan Shroff who will share the financial performance of

the company for Q4 & FY15.

Gunjan Shroff: Thank you, Pawan. A very warm welcome to everyone present on the call today. I will take

you through the financial highlights of the Company for the quarter and year-ended March 31st 2015.

During the quarter, net revenues stood at Rs. 978 crore as against Rs. 990 crore in the corresponding

quarter last year. EBITDA improved by 27% at Rs.195 crore, while EBITDA margins stood strong at 19.9%

which is up 440 basis points year-on-year. Profit after tax increased by 38% at Rs. 40 crore vis-à-vis Rs. 29

crore reported in the same period last year.

For the year-ended 2015, net revenues have been at Rs. 3,784 crore, as compared to Rs. 3,884 crore last

year. EBITDA stood at Rs. 691 crore against an EBITDA of Rs. 743 crore in the same period previous year.

The EBITDA margins have been consistent at 18.3% for the current financial year. Profit after tax has been

at Rs.117.8 crore.

Let me now give you a segment wise performance of Trident.

During the quarter, the revenues from Textile segment stood at Rs. 764 crore against Rs. 768 crore

reported in the corresponding quarter of last year. PBIT improved to Rs. 91.9 crore, up 19% year-on-year

while the PBIT margin was at 12%, up 190 bps. Decline in Yarn realizations and higher captive

consumption of Yarn has led to moderation in the top line growth for the quarter. This was however offset

by growth in Terry Towel business which has witnessed 25% increase in volumes as compared to

corresponding quarter last year. Revenues in the Paper segment stood at Rs. 214 crore as compared to

Rs. 221 crore in the same period last year. PBIT for the Paper segment came in at Rs. 38 crore which is

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again up 17% year-on-year, while the PBIT margins have enhanced by 310 bps to 17.8%. Margins have

improved on account of higher contribution from value-added Copier Paper.

On the balance sheet side, as on 31st March 2015, our total debt stood at Rs. 2,580 crore resulting in debt-

equity of 1.77:1. During the quarter, the Company has repaid 7.6% of the outstanding term loans amounting

to Rs.134 crore. In FY15, the Company has repaid term loans of Rs. 458 crore which also includes

prepayments for the next financial year (FY16). The outstanding term debt of the company as on 31st March

2015 stood at Rs. 1,764 crore. Post commissioning our Bed linen facility in FY15, we expect our debt to

increase slightly more than what we are today; however, as mentioned earlier, we are focused on delivering

strong performance with expanded capacities over the next couple of years. This along with periodical

repayment of debt should enable us to improve our debt-equity ratio going forward.

Growth and Profitability in FY16 would be driven by improved utilization levels at the new plant driven by

sustained focus on expanding our customer base in Home Textile segment. Our Paper segment would

continue to support growth on the back of our focus on value added Copier Paper and also focus on

institutional orders.

With this, I would like to hand over the call to Mr. Kavish Dhanda – President, Supply Chain to share the

Cotton Scenario and the Future Outlook. Thank you.

Kavish Dhanda: Thank you, Gunjan. Good Morning and a warm welcome to everyone present on the call

today. I will take you through the Cotton scenario and outlook for the next year.

The World Cotton production in FY16 continues to be projected to decrease by about 6-7% whereas

consumption is expected to increase by 3-4% in FY16. Overall, the lower crop and the increase in use are

expected to result in first production deficit in six crop years. This implies a decrease in existing Cotton

stocks; however, global ending stocks have reached to its highest level over the last four crop years thus

there should be little concern on shortage even with the increase in consumption than the production.

India is expected to emerge as the world‟s largest producer of Cotton again in FY16. Previous forecasts for

FY15 had suggested that India would surpass China in the current crop year; however, the slow pace of

arrival led to a series of downward revisions to the Indian harvest figure and pulled the recent estimate for

Indian production in FY15 most equivalent to Chinese production estimate. Indian Cotton prices very

recently have increased from Rs. 33,500/candy a month ago to Rs. 35,500/candy.

Furthermore, against USDA estimate for Indian Cotton output of 395 lakh bales for FY15 season, India is

likely to end only at 365 to 370 lakh bales at the max. All India pressing figures till 26th May, 2015 are

approximately 352 lakh bales. All India Cotton arrival in current days has dropped down to a level of

approximately 20,000 bales per day.

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CCI, which has played a pivotal role in purchasing the Cotton from the farmers, has only been able to sell

6.7 lakh bales through e-auction out of the total procured stock of 86 lakh bales. Also, Maharashtra

Federation is expected to be holding a stock of 4.75 lakh bales procured by them. According to an estimate

of Indian Cotton Federation, unsold Cotton stocks lying with ginners and traders are approximately to the

tune of 20 lakh bales. This makes approximately 105-110 lakh bales available for Indian industry to be

consumed. Since export demand has remained sluggish throughout the period, we are likely to end the

current Cotton period export to the tune of only 50-55 lakh bales. This means India is likely to end the

Cotton carryover stock of 19-20 lakh bales which is likely to be the highest in last few years.

The recent Southwest monsoon estimates of Skymet or Indian Metallurgical Department said that there is

likely to be the shortfall in monsoon due to the El Nino impact. However, unlike other agricultural crops, less

rainfall is not really a bad news for Cotton. A below average monsoon may not hurt Cotton output as Cotton

is more resilient than most other crops, in fact, experts point out that a poor monsoon normally tend to

benefit Cotton as it is a desert crop.

What is however, more worrying is that China,the world‟s biggest cotton buyer, has been cutting down its

cotton imports considerably. According to government estimates, lesser cotton imports made by China may

eventually lead to as high as 41% drop in Cotton shipments from India this year. As a result, Indian cotton

export is likely to fall to a 6-year lowest level.

Since, majority of Indian mills are working on stock-to-use ratio of approximately 2-months and there is

going to be a lower fresh availability of good quality Cotton, thus we anticipate that in the near future or in

the coming quarter, Indian Cotton prices are likely to be more volatile but likely to remain in a particular

range; however, looking at the recent hike in Indian Cotton prices, some of the farmer groups do even

believe that the Cotton area may not shrink during FY16 season, as land conditioning has begun in many of

the cotton producing states.

I would now request the moderator to open the forum for questions. Thank you

Moderator: Thank you. Participants, we will now begin with the question-and-answer session. The first

question is from the line of Sumant Kumar from Elara Securities. Please go ahead.

Sumant Kumar: My question is regarding the Budhni Terry Towel plant. What kind of capacity utilization

are you expecting in FY16 and FY17?

Pawan Jain: In the last quarter, it was operating at 40% utilization, so we expect it to ramp up in the next

year as well, so I think on an overall basis in FY16 it would be around 50% plus. In FY17, it would further

improve on quarter-to-quarter basis.

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Sumant Kumar: What kind of realization growth we are expecting in Terry Towel segment?

Pawan Jain: Realizations growth is also happening, but it is more on a currency impac. So realizations are

improving but it is by way of currency impact and the other is increase in the value-added products. So that

will again continue to be in the next year as well.

Sumant Kumar: With other competitors, how are you competing and what is the kind of demand scenario

for your business, can we reach 80% capacity utilization in FY17 considering that the demand is there in the

US?

Pawan Jain: Going forward, yes, we can reach up to that level. In Terry Towels, the orders range from 6

months to 9 months or 12 months of a period, so once you penetrate into those kind of orders, so it will

remain for a certain period of time. So we need to ramp up that order book according to our capacities.

Sumant Kumar: What is our order book position for Terry Towel?

Pawan Jain: We are not disclosing the order book size, but yes, on the basis of utilization we have order

book for the entire year.

Sumant Kumar: Regarding the operating margin, we were showing a subdued operating profit on account

of yarn, so what kind of inventory gain and what kind of margin we are expecting if there is an improvement

in Yarn realization?

Pawan Jain: We are giving 18% EBITDA margin guidance on a blended basis for all the three businesses

put together. All these three businesses are having a different set up. So, if you see Yarn, margins will

range from 12% to 18%, in Towels, it will range from 18% to 22% and in Paper it is 27% to 30% kind of a

range. On a blended basis, taking all three together, it is 18% sustainable in the next year also.

Sumant Kumar: What was the margin in Yarn in the bad time?

Pawan Jain: In the bad time, it was near 12% and in the good time it has even shown 20-21%, but usually

the range is 12% to 18%.

Sumant Kumar: What is the outlook for Yarn in terms of margins and realization? Also, what is the cost

ratio

Pawan Jain: Q3 FY15 onwards, the Yarn realizations have gradually improved because of the Cotton

season and due to stabilized Cotton prices. We expect it to remain subdued and remain stagnant going

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forward also. So we do not expect much increase in the Yarn realizations going forward in the next few

quarters.

Sumant Kumar: What kind of improvement have we seen in the Q4 and the current month in value term?

Pawan Jain: It is around 3% to 5% kind of improvement in realizations but it is not very significant. It is

more of margin expansion which is due to the Cotton prices.

Sumant Kumar: It is a kind of inventory gain?

Pawan Jain: Yes, it is like upto Q3, we were having the inventory which we procured last year. So the Yarn

prices at that time adjusted with the Cotton prices which was the market price at that point of time, so that

adjustment obviously diluted your margins, that has been normalized in Q4.

Sumant Kumar: Can you quantify what kind of margin expansion in the Yarn segment because of

inventory gain?

Pawan Jain: We would say that there is improvement in Q4, so Q4 is the most normalized kind of quarter

where there are no inventory losses as such.

Sumant Kumar: What is your outlook on the paper business?

Pawan Jain: Paper segment is a stable business. There is less cyclity, so it is most stable and cash

generating business for us and going forward also we see a stable margin.

Moderator: Thank you. The next question is from the line of Dhaval Shah from Siddhesh Capital. Please go

ahead.

Dhaval Shah: On yarn front, you mentioned that there is a 40% expected drop in shipment of Cotton to

China. So the reason for this is the inventory which is hoarded up by the Chinese authorities or the demand

fall in China or it is a mix of both?

Kavish Dhanda: If you look in terms of the Chinese import and India‟s export, India‟s Cotton was majorly

being exported to China, so against last year where India exported around 115-120 lakh bales of Cotton,

exports this year is likely to only end at 50-55 lakh bales. So, major drop that is at around 41% what we

have been discussing that is on account of China. So, Chinese imports are coming down, because China is

following its policy to cut down its stock to use ratio. If you look in terms of the Chinese stock to use ratio, it

was as high as 186% and that is expected to come down to 172%. So China is cutting down its own stock

by 14%.

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Dhaval Shah: So, this is because they want to encourage people to buy from the domestic market because

of the inventory that they have been holding?

Kavish Dhanda: Yes, not only that, even when we look in terms of the subsidies which China has been

providing to its Cotton growers, in this financial year, they have reduced their subsidy for Cotton plantation

from 19,800 Yuan per tonne to 19,100 Yuan per tonne. The main objective is to cut down the stocks. China

was basically carrying down the stocks of approximately two years‟ consumption.

Dhaval Shah: China has always driven the prices of Cotton globally. So now what happens to the Cotton

prices as per you?

Kavish Dhanda: As mentioned earlier, in the next Cotton Crop year, we expect that the consumption shall

be more than the production, but whatever stocks that have been accumulated over a period of last 4-years,

they shall suffice enough that there should not be much of bullishness with respect to the Cotton prices. So,

Cotton prices are likely to remain stable or tend to follow an upward bias with a little downward bias.

Dhaval Shah: So because there is a drop in exports, where will the cotton get diverted to, will it get diverted

to some other countries or it will be dumped in the domestic market, how will that happen?

Kavish Dhanda: If you look in terms of the original estimate when the season started, Indian crop

production was expected to be 395 bales to 410 bales according to various estimates, whether it by Cotton

Corporation of India, whether it by ACSA or whether it by USDA, but we are likely to end the year with

around 365-370 lakh bales, so a drop of around 30 lakh bales straight away from the original estimates.

Secondly, the Indian Cotton consumption have grown by 3-4%, so somehow the Cotton stock to use ratio

basically the closing Cotton stock ratio is likely to be around 20 lakh bales which was around 12 to 14 lakh

bales. So definitely, there is increase in the stock carry forward for the next year but that is very marginal

around 4 to 5 lakh bales only.

Dhaval Shah: How do we get impacted because of this fall in export? Even the Yarn division gets impacted

because of this, because they would be importing less of Yarn from here?

Kavish Dhanda: Cotton Yarn and Cotton prices are highly correlated, so they tend to follow the same

pattern what the Cotton follows. If you observe a month back, than the Indian Cotton especially Shankar 6

went up from Rs. 33,500 a candy to Rs. 35,500 a candy. So we saw the Cotton Yarn prices, especially for

the 30s count, in the market went up to Rs. 205/Kg. But due to sluggish demand from China, or very less

demand from the import perspective from the other countries, these prices have gone down to Rs. 197/Kg.

So definitely there is an impact, but one thing which we should not forget, that there is high correlation

between the Cotton and the Cotton Yarn prices.

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Dhaval Shah: With regards to the inventory of Cotton during the season, are we at 6-7 months of inventory

as per the industry norm or have we reduced the months of inventory we hold because I heard that this time

many spinners are following a different approach and holding only 3-months of inventory because the

farmers were unwilling to sell the crop as they were expecting that when the prices go up in the future, they

do not benefit rather the spinners benefit on the inventory gain. So, do you have any thoughts on that?

Kavish Dhanda: As mentioned earlier, Trident tries to follow a policy of 4-5 months holding of the Cotton

with respect to its forward cover. So, that practice has been followed again this year and whatever short-

term volatility that Cotton has recently seen, so somehow Trident is not impacted that much on account of

that and definitely whatever addition to the prices have gone by, that should go to the Trident‟s advantage.

Moderator: Thank you. The next question is from the line of Vaibhav Bid from Motilal Oswal. Please go

ahead.

Vaibhav Bid: Just wanted to get an idea on the plan for Bed Sheet segment, what is the CAPEX and how

much would be the capacities? Also, are we going to sell it to new customers and how much time will this

entire business take to basically start operating?

Pawan Jain: This Bed Linen project is a composite project from Cotton to Bed Linen, so the CAPEX is Rs.

1,667 crore and it will be commissioned sometime in the second half of FY16, but during FY16 we are not

expecting much revenue out of it as it will take some time for stabilization. So we expect to ramp up the

utilization in next year i.e. FY17. Hence, as of now we are just having a seed marketing in terms of Bed

Linen in the domestic market so we are outsourcing Bed Linen from other suppliers and just testing the

market in terms of demand and the market segment. So, whenever we start commercial production, we can

pick up the utilizations and revenue in Sheeting business. In international markets, we are already dealing

with large retailers and distributors in Towels, so we would bundle it along with the Towels within this Home

Textile business so it can go well with the same marketing and distribution channels.

Vaibhav Bid: What are the asset turns we get from this entire project?

Pawan Jain: Asset turn would be around 0.8x.

Vaibhav Bid: And how would this Rs.1,667 crore funded?

Pawan Jain: It is funded through a mix of debt, internal accruals and capital subsidy.

Vaibhav Bid: How much would be the debt?

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Pawan Jain: Debt is Rs.1,250 crore.

Vaibhav Bid: Usually it takes close to 3 years for a Company to add clients and start production due to

testing and trial runs that happens initially. So, how much time will you take given that you have existing

clients for your Terry Towels?

Pawan Jain: We believe that stabilization and testing issues will take around 6-months‟ time and after that

next 6-months for sampling and certification from all the overseas buyers and another 6-months for building

the order book and getting the revenue out of it. So, I think the entire process will take close to 18-months to

get stabilized.

Vaibhav Bid: How much is the capacities that are you adding?

Pawan Jain: The capacity is 1 lakh meters per day.

Vaibhav Bid: So how much would that add up to on per annum basis?

Pawan Jain: Per annum it would be around 40 million meters plus.

Vaibhav Bid: So this entire CAPEX is at an existing plant or it is a Greenfield expansion?

Pawan Jain: It is a Greenfield project, but within the same complex of our existing Terry Towel plant at

Budhni

Vaibhav Bid: Are we going to launch a new brand or it would be under the Terry Towels brand?

Pawan Jain: In Textiles, we have a brand strategy of having the existing brands only, so we recently

launched Trident Indulgence and Trident Organica in Terry Towels, so same brands will continue in Bed

Linen also. So the strategy is to have a common brand for both Towel and Bed Linen.

Vaibhav Bid: What are the margins in the bed linen segment?

Pawan Jain: The margin for bed linen would be around 25-27%.

Vaibhav Bid: In the Paper segment, do we have any growth plans or it is like stable business?

Pawan Jain: It is a stable business which will carry on with a minor debottlenecking exercise in order to

increase the capacity.

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Vaibhav Bid: The trend for Maplitho is going down and people have started using some other paper. So

what is your strategy?

Pawan Jain: In the last few years, we had allocated more capacities towards Copier Paper, so we had built

our brand in Copier Paper during the last three years and right now we are the third largest in the Copier

Paper on pan India basis in terms of Branded Copier.

Vaibhav Bid: Under which brand?

Pawan Jain: We have Trident Spectra, Trident Natural and Trident Royal Touch. We have 4-5 brands

keeping in the brightness and GSM.

Vaibhav Bid: So do we expect another 15-20% growth in the paper segment this year?

Pawan Jain: In this year, we expect 5% improvement in volumes, but going forward, we expect to increase

the volumes by 15-20% when we complete the debottlenecking. Till now the environment clearance has not

come. So once that comes, we will put up some debottlenecking equipments where we can increase the

Copier Paper capacity.

Vaibhav Bid: Any chance for dividends?

Pawan Jain: We already have a stated dividend policy where 6% of the face value is committed and it can

go up to a maximum of 33% of PAT

Vaibhav Bid: So how much have you paid this year?

Pawan Jain: We have paid 6% of face value this year, so that is around 25% dividend payout.

Moderator: Thank you. The next question is from the line of Resham Jain from Batlivala & Karani

Securities. Please go ahead.

Resham Jain: On depreciation for this year based on the new companies act, what is the change which we

have made in terms of number of years?

Gunjan Shroff: As per the New Companies Act, 7.5 years is the lowest and we can go upto 25 years. In

the Old Companies Act, the number of years was 9.2 years. So we have adopted 9.5 years of useful life for

our plant and machinery and based on that we have also given a disclosure in our results that our

depreciation is lower by almost Rs. 20 crore had we followed the Old Companies Act. So there is not much

change, we have kept our useful life same as what industry practice is.

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Resham Jain: What kind of margin improvement have you seen in Yarn sequentially, in the second quarter

and fourth quarter, is the number substantial?

Pawan Jain: From Q3 to Q4, it is substantial because in Q3 we were having high-cost inventory which was

procured last year, so margin has increased by about 20-25% as compared to the previous quarter. So, that

kind of the margin enhancement we saw within the Q4. Q4 is more of a normal kind of margin because of

the reason that new Cotton Crop has started in November last year, so that is adjusted with the current

Cotton prices with the Yarn.

Resham Jain: Something on the similar lines, do you see because of Cotton prices going up in the last

couple of months and Yarn prices also going in the same direction, you see margin may slightly improve in

the next two quarters – Q1 and Q2 of FY16?

Pawan Jain: Yarn realizations are gradually improving, but it is not significant.

Resham Jain: So you expect similar kind of margin in Q1 and Q2?

Pawan Jain: Yes. Going forward also.

Resham Jain: Lastly, on the exchange rate. Can you tell us what was your average exchange realization

for FY15?

Gunjan Shroff: Our average dollar realization was Rs. 63.6 in FY15

Resham Jain: The current outstanding is at what rate?

Gunjan Shroff: The last year pivot rate was at Rs. 62.5 for FY15.

Resham Jain: But forward will be 5-6% higher than this, right?

Gunjan Shroff: The forward would not be exactly 6% higher because we are doing it on a month-on-month

basis. So approximately, we have hedge of around 4-6 months, hence our average rate would be around

Rs.1.60 to Rs.1.80 more than the spot rate of Rs. 63.6.

Resham Jain: Coming to debt, can you tell me what is the kind of repayment that is scheduled for FY16

and what is the new loan which you will be taking including working capital because you will be completing

this plant so you will take additional debt but in addition to that there will be an increase in working capital

also, so what will be the total addition in debt which you are expecting?

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Gunjan Shroff: In FY15, we had our routine repayments of Rs. 390 crore, out of which we have made

repayments of Rs. 460 crore, in that sense we have also done prepayments for FY16 in FY15 only to the

extent of Rs. 75 crore based on robust cash accruals.

In FY16, we have repayments of Rs. 360 crore and as on date we are ahead of schedule by two months of

prepayments and for FY16, we are looking for a consolidated debt based on the commissioning of the new

plant as well as the scheduled repayments of close to Rs. 3,250 to Rs. 3,300 crore.

Resham Jain: This includes the working capital as well?

Gunjan Shroff: Yes, this includes the working capital because as such the need is there but that has

already been factored in at Rs. 3,300 crore.

Resham Jain: Yes. As the new ~2 lac spindles will come in the second half of this year, right?

Gunjan Shroff: Yes, it is okay because that has also been taken into consideration. The new ~2 lac

spindles which are coming are of a very-very fine count Yarn and since its average count is around 60-65,

so the requirement of Cotton is not to that extent which normally we understand as a ~2 lac spindle as for

this ~2 lac spindles we have a capacity of close to 40 tonnes per day only.

Resham Jain: Okay. And it will take 18-months‟ time to completely stabilize the new Bed Sheet plant, but

as you are already there into spinning, this ~2 lac spindles would start generating revenue initially?

Pawan Jain: It is not for spinning, it is for overall Bed Linen business. So, until the bed linen unit is

stabilized, we can start selling the yarn it in open market also.

Resham Jain: So the revenue from spinning will start accruing from Q3 & Q4 and probably next year first

quarter we will be completely utilizing this capacity at least?

Pawan Jain: Yes, that is right.

Resham Jain: So out of the Rs.1,667 crore of CAPEX, the CAPEX related to Bed Sheet will start

generating full revenue probably 18-months down the line?

Pawan Jain: Yes.

Resham Jain: On the order book position, you said you have typically 4 to 5 months of Cotton inventory

with you. What will be the relative order book in Terry Towels, in the sense what are the number of months

of orders that you will be having in hand where the price is fixed?

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Pawan Jain: On the current utilization levels, we are having orders for the next 12-months.

Resham Jain: But there are certain products which are just in-principle orders where price will get

renegotiated and you will be having certain orders where prices are already fixed, so that will be for how

many months?

Pawan Jain: That is typically for 4-6 months only.

Moderator: Thank you. The next question is from the line of Abhijeet Singh from CRISIL. Please go ahead.

Abhijeet Singh: In Q4, your EBITDA margins in the Textile business has grown to 20%. Just wanted to

check, whether this 20% is sustainable going ahead?

Pawan Jain: Yes, it is sustainable, keeping in mind the current scenario of Cotton and the outlook for the

new crop which is arriving, so it is sustainable.

Abhijeet Singh: You said that 19% is sustainable and is normalized margins. So in Q4 FY14, this 15%

margin was not normalized? I just wanted to understand that why is this jump of 5% on year-on-year basis,

how can we explain this 5% jump?

Gunjan Shroff: One of the reasons is that in the third quarter we had our old cotton inventory and in the

fourth season our Yarn business EBITDA margins increased largely on account of the new Cotton stock.

Secondly, as our production ramp up takes place every quarter, we will see incremental contribution to the

overall pool of EBITDA.

Abhijeet Singh: No, so my question is from Q4 of FY14 to Q4 of FY15, the margins in Textiles have

improved from 15% to 20%. In Q4 FY14, you made 15% margins which was normalized and now it has

jumped to 20%

Pawan Jain: This is on account of two things. First, due to our integrated model, in a particular quarter, if

Yarn realizations are higher, than that will impact the realizations and margins of Towel business and in

other scenario, if the Yarn prices are lower, than that will give you better margins in Towels. So in a fully

integrated model, if both the scenarios are favorable then you can have better margins and if something

happens in Cotton or Yarn, then in that case there is a contraction in the margins.

Abhijeet Singh: So what I understand is that to an extent this is driven by lower material cost on a year-on-

year basis?

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Pawan Jain: If you are comparing this 5% jump from Q4 FY14 to Q4 FY15, I would like to tell you that in

Q4 FY14, the Yarn prices were at a highest level, so at that time we were having good margins in Yarn

business but we were having less margins in Towel business.

Abhijeet Singh: Okay. When you go for price renegotiation with your large US customers, so what is the

risk that you have to pass on the benefit of lower material cost to them?

Pawan Jain: Usually, it is not passed on, but in case of an abnormal scenario, we need to share some part

of the cost with these customers. So, it is not on a frequent basis, it is more or less when it is an abnormal

kind of a change in raw material prices or a currency fluctuation.

Abhijeet Singh: In this case what you are saying is that in FY16 you will be making margins of 20% on an

average?

Pawan Jain: On a blended basis, all the three businesses put together it should be 18% margins.

Abhijeet Singh: In the paper segment, you said there is a debottlenecking which is happening, so can you

just explain that thing, I actually missed out that?

Pawan Jain: We are not putting up a new machine line; it is basically putting up cutting equipments and the

finishing line, with that we can improve your Copier Paper production.

Abhijeet Singh: Has this already been decided by the management or it is still in the discussion mode?

Pawan Jain: It is already decided, we had filed with the Ministry of Environment & Forest for environment

clearance, but we are still waiting for their clearance, so it is pending for the last 1.5-years.

Abhijeet Singh: How much of capacity will be added in that case?

Pawan Jain: It will be increased by another 100 tonnes a day.

Abhijeet Singh: In the Bed Sheet segment, you are saying that your plant will run 18-months down the line

of the commissioning date?

Pawan Jain: No. It will take 18-months to reach the expected utilization level.

Abhijeet Singh: What is the expected utilization in that plant?

Pawan Jain: It is 80%.

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Abhijeet Singh: You said that the margins would be close to 25-27% in that plant, so that includes a

favorable Yarn prices scenario currently?

Pawan Jain: Yes.

Abhijeet Singh: So if the Yarn prices were like what it was a year back, than it would not be 25-27%?

Pawan Jain: Yes, obviously.

Abhijeet Singh: On the balance sheet, your inventory seems to have gone up although the revenues have

not increased on a year-on-year basis. So just wanted to understand what happened there?

Gunjan Shroff: The inventories have added up specifically because of the new Terry Towel plant which we

have recently commissioned, so that is around Rs.100 crore of overall inventory and debtors as well as

other short-term receivables which have been added in the total asset base. And as highlighted earlier we

are ramping up at a stage so it takes time to ramp up.

Abhijeet Singh: So is it more of your finished goods or semi-finished goods?

Gunjan Shroff: Finished goods have also increased as well as WIP have also increased because while we

go and try to book orders, the product mix also has to be enlarged. So accordingly, smaller SKUs inventory

also has to be maintained for such kind of orders.

Abhijeet Singh: So in that case, we can expect the inventory to remain at these levels or will it decline?

Gunjan Shroff: It will not decline substantially but yes, there have been periods of slightly more inventory

but by and large we can look at something like 8-10% reduction but not significant reduction from where we

are today.

Abhijeet Singh: In FY14, there were MAT credits entitlements of Rs. 32 crore. So, what kind of tax rate are

you foreseeing for FY16 & FY17?

Gunjan Shroff: If you see our effective rate in FY15, it has been close to 29.6% and we are under MAT

and we expect that our rate would be at the same level in FY16 as well.

Moderator: Thank you. The next question is from the line of Vijay Sarda from IDBI. Please go ahead.

Page 17 of 22

Vijay Sarda: Firstly, how much of the Yarn in your current capacity are you using captively? Additionally,

with the increased capacity that you are talking about, will that entirely suffice your Bed Linen output?

Secondly, in terms of the overall utilization on the Terry Towel, just wanted to understand utilization plant

wise, what is the utilization level at your Ludhiana plant and what is the utilization level at the current plant?

And lastly, with the kind of CAPEX that you have done on the Bed Sheet unit, you said that after 18-months

you will be targeting 80% of capacity utilization. So what kind of revenue that can generate over that period

of time?

Pawan Jain: In Q4 FY15, close to 38% of Yarn was consumed captively, as compared to 26% in 2014, so

quarter-on-quarter it is increasing. So when you put a forward integration unit of towels, than you start

consuming more Yarn captively. So, that gives us better margins in terms of overall utilization. So going

forward also, since the Bed Linen project is a composite project, we would have 100% captive consumption

of Yarn so this 38% will again improve to around 50-60% going forward.

Vijay Sarda: So, you will not be vulnerable to the volatility going forward?

Pawan Jain: Yes, that is right.

Vijay Sarda: Secondly, as you said that the Yarn unit will be ready in H2 FY16, so you will be selling yarn

until the bed sheet utilization catches up in the market?

Pawan Jain: Yes, that is true.

Vijay Sarda: For this kind of fine Yarn, do you have better margins than the commoditized yarn that you do

for Towels?

Pawan Jain: Yes, that is true. Also to answer your question on the Terry Towel capacity utilization, the

demand is overall good. We need to penetrate into the new markets and also need to add new customers

which is happening on a quarter-on-quarter basis. A single customer‟s order book ranges from 6-months to

9-months kind of a period, so once we keep improving our order book, then you can see the improved

utilization.

Vijay Sarda: What is the current utilization of the new plant as well as the old plant?

Pawan Jain: Capacity utilization at the new plant is 40% and for the existing plant at Barnala, it is around

80%.

Vijay Sarda: By when do we see this ramping up to 80%? In the next two years?

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Pawan Jain: Yes. In the next two years.

Vijay Sarda: On Bed Linen, our objective will be to have a majority of export i.e. 80% to 90% export?

Pawan Jain: Yes. That is right.

Vijay Sarda: How much time will it take for you to stabilize, meaning reaching 80% of capacity, within 18-

months?

Pawan Jain: In FY17, we are expecting an aggregate utilization of around 50% on Bed Linen. So we can

reach up to 80% in the last quarter or at a fag end but on an overall utilization it will be around 50%.

Vijay Sarda: If I just assume 70-80% utilization level, what kind of revenue this plant will generate?

Pawan Jain: Close to Rs.1,000 crore of revenue.

Vijay Sarda: And the margin would be upward of 25%?

Pawan Jain: It would be about 25-27%.

Vijay Sarda: Next year, you will see a peak debt of Rs. 3,250-3,300 crore, so thereafter we do not envisage

any CAPEX? What can be the incremental CAPEX going forward?

Pawan Jain: There is no incremental CAPEX as such planned right now, it is more of a maintenance

CAPEX and the focus is towards ramping up the utilization and consolidating in terms of the overall Bed

Linen and Towel business.

Vijay Sarda: How much will be the average cost of loans if you put together all the subsidy benefits?

Gunjan Shroff: Our average cost taking into account all kind of subsidies is close to 6.5% for long term

debt.

Vijay Sarda: So on the incremental loans this year, it will be almost same?

Gunjan Shroff: It will be less only.

Vijay Sarda: Could you also throw some light on global perspective, we have been reading that India is

been gaining market share against all the major competitors in Asia including China in the Towels as well

as Bed Linen. So how do we see this going forward in terms of the scalability?

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Also, how much is the market share in US and Europe and how are things shaping up going forward, what

kind of growth that you are seeing in these markets because I understand that this market has already been

entrenched quite widely, so what is the incremental market growth that envisage?

Pawan Jain: Currently, these three Asian countries - China, India and Pakistan accounts for more than

85% of the overall US imports in terms of Towels and Bed Linen business.

India is having a competitive position as compared to China because of the two reasons – one, their

currency is appreciating and our currency is favorable. Second, the cost of labor is almost 2.5x in China as

compared to India. However, their productivity per person is higher. So on a comparable basis, it is again

the costing which is 2x in China in terms of labor cost. In textiles, the labor cost is higher at around 8-10%

kind of cost. So India is at a favorable position in terms of costing. So we believe that going forward also,

India will witness market share expansion in US and obviously that will be eaten up from China, and

secondly, the China‟s internal consumption is also picking up in Home Textile Products.

Vijay Sarda: So roughly on a global level, what kind of growth you see in both segments of Towel and Bed

Linen?

Pawan Jain: Overall the global CAGR in Towel and Sheeting is from 5% to 6.5%. But if you compare the

Indian exports and Indian consumption, they are increasing by 8% to 11%.

Vijay Sarda: Because we are getting market share?

Pawan Jain: Yes.

Vijay Sarda: So do you think it will sustain due to this competition?

Pawan Jain: Yes. It will sustain because even the government is in favor of the industry to export more, so

I think it is going to be favorable for next 2-3 years also.

Vijay Sarda: You are well established in Towels, but in Bed Sheet, do you need to take a lower margin

compared to the competition in order to establish yourself or your brand credentials of Towel will be enough

to command those kind of margins?

Pawan Jain: In the domestic market, we have launched our product line in Bed Linen by the way of

outsourcing it from outside. In international market also, we have credentials as for an international

customer costing, quality and service levels are more important as in international markets all players have

Page 20 of 22

their brands, so the service level, economies of scale, cost and the quality standard is crucial. We have set

a standard in Towels which we need to replicate in Bed Linen.

Vijay Sarda: Since you are not going to incur any major CAPEX now, do you see your ROEs coming back

to 15% - 18% level? What is the timeline that you have projected?

Pawan Jain: Two years down the line.

Vijay Sarda: So around 15-18% is a reasonable level or more than that?

Pawan Jain: It is a reasonable level to start with.

Moderator: Thank you. The next question is from the line of Rajesh Zawar from Motilal Oswal Securities.

Please go ahead.

Rajesh Zawar: We are putting 500 looms of Bed Linen this year, so is there any other CAPEX lined-up over

long-term although you mentioned that there would not be any CAPEX in the immediate term?

Secondly, we have said that by fourth quarter of FY17, we would be seeing a utilization level of close to

80%. So what would be our plans for deploying that cash? Is there anything on the anvil, may be expansion

or anything?

Pawan Jain: As of now, we are not planning any other CAPEX in either Textiles or Paper. Bed line is the

only CAPEX under implementation. Later, we may have a small CAPEX of about Rs.100 crore in

debottlenecking of Paper, but we are not having any major CAPEX plan for any of these businesses.

We have reached global capacities in Terry Towels and going forward we intend to consolidate this in terms

of utilization and ramping up the utilization. In Sheeting, when we absorb the entire utilization, we may think

of enhancing that capacity but as of now there is no plan as such. So it is more of reaching optimal

utilization levels and then depending upon the demand scenario, we may look at other things.

Rajesh Zawar: So, when our Budhni plant reaches 80%, we will be looking at some 20% volume growth at

least for the next two years on the Terry Towels?

Pawan Jain: Yes. That is right.

Rajesh Zawar: Also, what would be our annual maintenance CAPEX roughly once all these facilities are

established?

Page 21 of 22

Gunjan Shroff: Normally, we are looking at close to Rs.60 crore to Rs.75 crore.

Rajesh Zawar: All including?

Gunjan Shroff: Normally, 2% to 3% is our maintenance CAPEX.

Rajesh Zawar: For the peak debt of Rs.3,300 crore, what would be the annual repayment schedule spread

over the next 3-4 years?

Gunjan Shroff: The repayment schedule would be over a period of 7 to 7.5 years, our peak repayment is

close to Rs.400 crore every year, which will get tapered down as we go forward.

Moderator: Thank you. The next question is from the line of Abhilasha Satale from First Global Securities.

Please go ahead.

Abhilasha Satale: How would you ramp up your capacity? Will you be adding more clients or will you try to

generate more business from the existing clients because as we see the capacity ramp-up is quite slow

than expected?

Pawan Jain: It is a combination of both and mainly biased towards adding more clients.

Abhilasha Satale: Have you added any new clients in the current financial year?

Pawan Jain: Yes. We are adding more clients on quarter-to-quarter basis.

Abhilasha Satale: Can you name a few?

Pawan Jain: No, we do not disclose these names from competitive point of view.

Abhilasha Satale: How is your client‟s portfolio divided? How much do your top clients contribute or your

top five, if you could give some perspective, or how much of your revenues are coming from the existing

clients and how much is expected from the newer clients?

Pawan Jain: Not a single customer contributes more than 5%-10% to our revenues, so the top ten

customers will contribute not more than 30%-40% to our revenues.

Abhilasha Satale: Okay. What is the current Cotton : Yarn spread?

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Kavish Dhanda: Current pricing of Shankar 6 Cotton is around Rs. 35,500 a candy vis-à-vis Yarn prices of

30s count which is around Rs.195-197 per kg.

Abhilasha Satale: In the Textiles division, how much does Yarn contribute and what is the contribution of

Terry Towels currently?

Pawan Jain: We do not disclose these figures separately and book all our revenues in a single segment-

Textiles.

Moderator: Thank you Participants, that was the last question. I now hand the floor back to the

management of Trident Limited for any closing comments. Thank you. And over to you.

Pawan Jain: Thank you everyone for joining us on the call today. Hope we were able to answer all your

queries. Should you need any more clarifications, please feel free to contact us or Citigate Dewe Rogerson.

Moderator: Thank you, sir. Ladies and Gentlemen, with that we conclude this conference call. Thank you

for joining us. You may now disconnect your lines.