Trident Ltd — Interim / Quarterly Report 2019

Nov 2, 2019

TRIDENT/CS/2019 November 2, 2019

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The Manager Listing Department National Stock Exchange of India Limited Exchange Plaza, Plot No. C/1, G Block Bandra Kurla Complex, Bandra (E) Mumbai – 400 051	The Manager Listing Department BSE Limited Phiroze Jeejeebhoy Towers Dalal Street Mumbai – 400 001
Scrip Code:- TRIDENT	Scrip Code:- 521064

Dear Sir/ Madam

Sub: Industry Outlook & Earnings Frequently asked questions

Pursuant to Regulation 30 and other applicable provisions of SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015, we wish to inform you that to remain committed and transparent towards our stakeholders and maintain high corporate governance, the Company is providing herewith the latest updates on the Financial Results for Quarter and Half year ended on September 30, 2019, Industry outlook, way forward and response to the specific questions that may be helpful to answer the queries regarding the business and financials of the Company.

The document is attached herewith for your information and records please. A copy of the same is also available on the official website of the company at:

• https://www.tridentindia.com/webroot/reports/5dbd9a17ef744_1572706839_Trident%20Ltd%20 %20Q2%20FY20%20FAQs%20and%20Outlook.pdf

This is for your information and records please.

Thanking you

Yours faithfully For Trident Limited

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(Ramandeep Kaur) Company Secretary ICSI Membership No.: F9160

Encl: As above

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EXCELLENCE IN NATURE

Trident Limited Q2 FY 2019-20 “Industry Outlook & Earnings Frequently Asked Questions”

November 2, 2019

Disclaimer: Certain statements that are made or discussed may be forward looking statements. Such forward-looking statements are subject to certain risks and uncertainties like government actions, local political or economic developments, technological risks, and many other factors that could cause our actual results to differ materially from those contemplated by the relevant forward-looking statements. Trident Limited will not be in any way responsible for any action taken based on such statements and discussions and undertakes no obligation to publicly update these forward-looking statements to reflect subsequent events or circumstances.

1 | TRIDENT LTD Q2 FY20| INDUSTRY OUTLOOK AND FAQS

Business Performance and Outlook:

We will be providing you with the latest updates on the financial results, industry outlook and then answer specific questions that may be helpful to answer the queries regarding the business and financials of the company and way forward. This information has been collated by taking inputs from the senior management, including the business leaders who have the ownership of their business performance thereby presenting you with financial as well as insightful and pragmatic data points.

We remain committed and transparent towards our stakeholders and always maintain high corporate governance.

Further, if you have any queries, please feel free to get in touch with the Investor Relations team.

After registering a strong performance in FY 2019, the Home Textile business has sustained the momentum in first half of current financial year. However, the yarn segment has registered a muted growth on account of current economic scenario and impact of US-China trade war.

Bath Linen business registered capacity utilization of 56% in Q2 FY20 whereas the Bed Linen business achieved a capacity utilization of 62% in the second quarter.

Capacity Utilization:

Production:

Business Segment	FY19 (Full Year)	H1 FY20
Bath Linen	49%	56%
Bed Linen	63%	54%
Yarn	98%	97%
Paper	89%	88%

Business Segment	Unit	H1 FY20
Bath Linen	Metric Tons	12669
Bed Linen	Million Metres	6.72
Yarn	Metric Tons	27250
Paper	Metric Tons	37769

Trident has maintained its growth momentum in current quarter despite subdued yarn volumes which in turn have been compensated by increased captive utilization of yarn and increased volumes offtake within the Home Textile business.

We continue to remain optimistic to sustain the growth in Home Textile business.

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In terms of financials for the half year ended 30 September 2019:

• Net Revenue in H1 FY20 grew by 4% to INR 2640.9 crores compared to INR 2542.3 crores in H1 FY19

• Bath and Bed Linen sales volume grew by 7.0% and 20% Q-o-Q basis respectively in Q2 FY20

• EBIDTA for H1 FY20 stood at INR 559.6 crores which translates into 21.2% margin

• Profit after tax for the H1 FY20 stood at INR 260.3 crores translating to EPS of INR 5.11

• The employee cost for the quarter stood at INR 149.3 Crores which is at a similar level on Q-o-Q basis. The run rate will be around INR 145 – INR 150 crores on a quarterly basis going forward.

• Finance cost for Q2 FY20 has come down to INR 27.1 crores which is lower by 16.8% compared to Q1 FY20.

• Net Debt came down by INR 838 Crores in H1 FY20 to level of INR 1506.4 Crores as on 30[th] September 2019; Net Debt to Equity ratio stood at 0.5x and Net Debt to EBITDA at 1.5x.

• Net reduction in Long Term debt by INR 171 Crores to INR 1123.1 Crores as on 30th September 2019.

Coming to the segment wise performance:

Textile Segment:

• Revenue has grown by 4% to INR 2150.3 crores in H1 FY20 compared to INR 2059.1 crores in H1 FY19.

• EBIT for the segment has improved to INR 255 crores Y-o-Y as compared to 138 Crores in H1 FY19.

Paper & Chemicals Segment:

• Revenue has remained at similar level at INR 476 crores in first half of FY20 compared to INR 464 Crores in H1 FY19.

• EBIT for the segment during the quarter has grown by 7% and stands at INR 181.8 crores Y- o-Y as compared to INR 170.2 Crores in H1 FY19.

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Home Textile Outlook:

The Home Textile business registered growth in FY 2019 and has delivered a strong Y-o-Y growth in Q2FY20. Once again we would again like to highlight that India will continue to hold competitive advantage as our industry is characterized by high entry barriers in terms of scale, capital availability, skilled labor, customer relationships, sustainability as well as availability of raw material thereby maintaining high quality standards which is one of the key parameters for customer stickiness. Accelerated growth, higher spending power with customers in US and currency support will help us to deliver better results going forward. Also, as per SBI Trade Report, the ongoing trade war between US and China has been moderately beneficial to India as the cotton imports from US to China have declined whereas imports from India have gone up.

We believe that the currency will continue to witness volatility. The upward revision in Duty Drawback by 0.5% in Yarn Business and 0.6% in Bath/Bed Linen business in Dec 2018 and revision in ROSCTL from 2.2% to 8.2% for Bed as well as Bath Linen business from Mar 2019 has certainly provided boost to the Indian Textile Industry.

OTEXA Data:

Market share for US imports of cotton sheets	Market share for US imports of cotton sheets	Market share for US imports of cotton sheets	Market share for US imports of cotton sheets	Market share for US imports of cotton sheets		Market share for US imports of terry towels	Market share for US imports of terry towels	Market share for US imports of terry towels	Market share for US imports of terry towels	Market share for US imports of terry towels
Country	2016	2017	2018	2019*		Country	2016	2017	2018	2019*
India	49%	50%	50%	49%		India	40%	39%	39%	39%
China	22%	20%	21%	21%		China	23%	24%	25%	18%
Pakistan	16%	16%	17%	19%		Pakistan	22%	21%	20%	21%
ROW	13%	14%	12%	10%		ROW	15%	16%	16%	23%

* – (January 2019 August 2019)

As per OTEXA data India’s share has remained stable in cotton sheets and terry towel in the current year as compared to last year. In absolute terms, India’s exports of terry towel to US have increased by 1% from Y-o-Y.

India has emerged not only the largest producer of raw cotton but also a major cotton surplus & cotton exporting country in the recent years. This gives a distinct advantage to Indian Home Textile Manufacturers. Home Textiles companies which have invested in terms of scale, Technology & systems are bound to consolidate & grow, leveraging their capabilities with cost effect manufacturing & strong market presence. Trident will further consolidate its business by leveraging the existing customers and adding new customers to its portfolio.

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Paper Industry Outlook:

• Actual production of Indian Paper Industry in FY18 stands roughly at over 16 million tones which are roughly 4% of global 400 million tons. Capacity utilization rate is around 86%.

• As per CARE report, the Indian paper industry has continued to witness steady growth in FY18 and the domestic demand grew from 9.3 million tonnes in FY08 to 17.1 million tonnes in FY18 at a CAGR of 6.3%

• CARE Ratings expects that the overall paper demand is expected to grow at a CAGR of 6.7% to touch 20.8 million tonnes in FY21. Writing and Printing segment demand is expected to grow at a CAGR of 4.5% and reach 5.8 million tons in FY 21.

• Factors leading to growth are

i) Rising income levels

ii) Growing per capita expenditure and low domestic per capita paper consumption iii) Increasing FMCG and packaged food industries

iv) Rapid Urbanisation

• We expect the volume growth and realizations to sustain momentum going forward

Cotton Outlook:

• According to CARE Ratings Global Cotton outlook, India is set to be the leading cotton producer with 23% of global cotton production followed by China and US at 22% and 17% respectively. According to the USDA projection for 2019-20 for the world production of cotton is set to increase by 5% over 2018-19 figures to 125.8 million bales

• China and India are set to remain the largest users of cotton with 53% of total world consumption. As per the CARE Report, cotton exports from India are forecasted at 4.4 million bales in 2019-20.

• According to the latest estimate of the cotton crop, The Cotton Association of India (CAI) has estimated production for 2018-19 season (Oct’18- Sept’19) at 312 Lakh Bales of 170 Kgs each which is lower by 3 lakh bales than its previous estimate of 315 lakh bales.

• The CAI estimate for the Northern Zone is at the same level as in its previous month’s estimate of 59 lakh bales. The Cotton crop estimate for the Central Zone has been increased by 30000 bales.

• The estimate for the Southern Zone has been decreased by 3.25 Lakh bales to 68.50 lakh bales compared to the estimate of 71.25 lakh bales made during the last month.

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• The estimate for Gujarat state was increased by 3.5 lakh bales whereas the estimated for Maharashtra and Madhya Pradesh were revised down by 2.88 lakh bales and 7 thousand bales respectively compared to the previous month estimate.

• The imports estimated by CAI stands at 31 lakh bales till the end of the cotton season (30th September 2019). This stands higher by 16 lakh bales compared to the previous year’s estimated imports of 15 lakh bales.

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Dividend:

With strong emphasis to reward the shareholders, the Board has recommended Second Interim dividend of INR 0.90 per fully paid share of INR 10 each.

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Frequently asked questions and their responses

What was the average realization (USD/INR) rate in Q2FY20?

• Our average negotiated rate for the current quarter has been at INR 71.39 per USD and INR 70.99 per USD for H1-FY20

What is the hedging strategy/policy of the company?

• For hedging export receivables, forward covers are taken for a maturity up to 6-12 months. The hedging strategy division wise is as under:

• Terry Towel Division: Hedging is done on monthly rolling basis at 40%-60% of sales replenishment.

• Yarn/ Paper division: Hedging is done on order to order basis. Whenever any order is confirmed, it is hedged by forward cover.

As a policy when do we start hedging for FY20?

• We are hedging systematically. We hedge foreign exchange based on the hedging policy approved by the BOD of 6-12 months tenor.

What is the current hedging rate for FY20?

• Average Forward Hedged Rate for FY20 is around INR 72.32 per USD.

What is the other income besides the FOREX gain or loss that you are showing in the P&L account?

• New accounting standard does not allow to net the interest expenditure with the interest income. But this is broadly the treasury income in terms of our investments into Liquid / FD based current investments.

How do you see cotton price movement in the international markets and what is the current gap between Indian prices and international prices? What’s your outlook on Cotton Prices going forward?

• International prices are short term bullish due to the likelihood of some partial USA - China trade settlement happening in Nov 2019 but with good crop in USA, we expect equilibrium at around USD 65/lb level . On the domestic side, prices are around bottom

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levels with upside expected. The current gap in Indian and International prices is around Rs 3 per kg

What kind of maintenance capex and quantum are we expecting for the in FY20?

• We will maintain our guidance for maintenance capex at approximately INR 100 crores for FY20 and the same will be utilized towards small maintenance CAPEXs in the form of de-bottlenecking/ upgradation of capacities.

Any Capex Plans for in next two years. If yes, in which business and what would be the size of the capacity?

• The company is undertaking an expansion project in yarn segment at Budni, Madhya Pradesh at a total cost of INR 1140.0 crores. The project cost is to be funded through mix of debt of INR 855.0 crores and equity of INR 285.0 crores. The proposed yarn project will provide backward integration support to the enhanced capacity utilization of Home Textile segment as well for outside sales. The plant is scheduled to become operational in 2021. Post expansion the installed capacity of yarn segment will increase by 48482 TPA. Based on outside sales, the plant will add approx. INR 1170 crore of revenue to the existing topline of the company.

The company is also undertaking a De-bottlenecking & Modernization of its existing paper units at Dhaula Plant, Punjab at total cost of INR 222.0 crores. The project cost is to be funded through debt of INR 148.0 crores and internal accruals of INR 74.0 crores. The proposed project shall help to strengthen the existing paper units of the company and shall further increase the market presence. Post expansion the installed capacity of paper segment will increase by 20000 TPA.

What is revenue from Bed and Bath Linen in Q1FY20?

• Bed and Bath Linen contributed more than 60% of the Total Revenue in Q2 FY20 which stands at INR 787 crores.

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What will be the capacity utilization estimates for FY20 for Bed & Bath Linen?

• For Bed Linen we are revising our target to 70% (+-5%) utilization levels in FY20 and for Bath Linen we maintain our guidance of 60% (+-5%) utilization levels in FY20.

Can you provide guidance on EBITDA & Revenue growth for FY20 & FY21?

• On a full year basis, the company’s will maintain its guidance of EBITDA margins around 18% to 22% on a sustainable basis.

What are the key initiatives have been taken by marketing team to sustain the volume growth?

• The company is undertaking the following initiatives for the US market to sustain and increase the volume growth across Bath Linen and Bed Linen segment:

• Targeting key retailers among top 10 US retailers and addition of two top US retailers in our customer profile during the year

• Further in order to develop Trident as a Brand, we have started exploring direct sales through various e-com platforms

• We have tied up with a warehousing company in US for drop shipment of merchandize to various e-retailers of US

• Customer face time has been increased through dedicated US marketing team enabling quick turnaround of orders

• Focusing on having more patents and trademarks through dedicated innovation/designing team

What are the key initiatives we have taken to increase our market share in EU and Japan?

• We are focusing on 3 market segments in Europe - which includes UK, Mainland Europe (includes Germany, France, with hospitality chains to increase Trident’s share in their towel and sheeting requirements Poland, Switzerland, etc.) And Scandinavia (Norway, Sweden and Denmark)

• Working and focusing to enter the supermarket segment in UK to drive potential customers

• Leveraging relationships built on existing clients of Towel business to expand business to sheeting

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• Working closely with major European retailers, to increase production matrix with Trident thus supplying worldwide

• Exploring and focusing on Loyalty & Promotional Programs in Mainland Europe.

• We are working closely with our existing customers in Japan to understand there in depth requirements and taken initiatives by using special fine yarn counts for towels as per their needs.

Do we pass on the impact of currency fluctuation to the customers?

• Prices for most of the programs are agreed for at least a year in advance irrespective of the currency fluctuation. However, the prices can be negotiated within this period if there is substantial change in the currency or input cost. Both the parties do understand the impact (short term or long term) and decides mutually. We address it by conducting market & consumer surveys which helps us in bringing unique & innovative products to our partners & customers that helps them to grow their business & keep us ahead of competition which keeps us to remain competitive. In case of Europe the prices usually agreed on yearly basis for replenishment programs and on half yearly/seasonal basis for promotional programs irrespective of the currency fluctuation. However, the prices can be negotiated during the next year/season considering actual currency fluctuation and freeze the same accordingly

Any updates on MEIS which is likely to go away and benefit of the newly introduced RoDTEP scheme by Govt. of India to incentivize exporters?

• The government is supporting Textile sector and overall exports by various schemes which the government has introduced considering the need of the industry. With the MEIS expected to be withdrawn after 31 Dec’19, the government has introduced enhanced benefits under RoDTEP (Remission of Duties or Taxes on Export Product) scheme for the industry which may provide additional impetus to textile sector in coming years. However, the industry is awaiting further clarification on the benefits under the proposed scheme.

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What is the reason for reduction in finance cost in the current quarter in comparison to Q1 FY20?

• The finance cost has reduced during the current quarter on account of reduced utilization of working capital limits. Further, the company is repaying term loan installments of INR 80-90 crores on quarterly basis which has also resulted in reduced interest cost.

How would the recent reduction in corporate tax rate by the government benefits the company?

• Government of India has reduced Corporate Tax rate from 35% to 25% (including surcharge and ED cess) which is applicable from 1 April’2019 and is expected to result in lower tax liability for the Company.

What is the status of Company’s investment in housing finance company NCDs/ bonds?

• Out of the total investment of approx. INR 60 crores in housing finance company NCDs/ bonds, the company has already received back amount of INR 50 Crores on maturity. The company is actively monitoring the resolution process of DHFL for balance amount. However, in line with the prudent accounting practices being followed by the company, we have created 100% provision for the remaining principal amount of INR 10 crores in the current year.

For more information, please visit www.tridentindia.com OR contact:

Abhinav Gupta/ Ankit Mahajan Trident Limited Tel: +91 161 5039 999 Fax: +91 161 5039 900 Email: abhinavgupta@tridentindia.com, ankitmahajan@tridentindia.com

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