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Trident To The Moon?

As investors, we always desire multifold returns on our stock picks. We are going through a massive bull run, and many quality stocks have given impressive returns to their shareholders. In this article, we shall analyse Trident Group, a company that will benefit from India being a global manufacturing and export hub. The stock has given a ~440% return to its investors within just a year! The market capitalization of the stock has crossed Rs 20,000 crore and will come under the large-cap segment.

Trident – A Brief Profile

Trident Limited commenced operations in 1990 and is headquartered at Ludhiana, Punjab. The company has three main business verticals:

The pie chart showing the revenue contribution of the Trident by business vertical. Home textiles contribute 55%, Cotton yarn 27% and paper & chemicals 18%
  1. Home Textiles: Textiles that are used in homes, such as curtains, bed & bath linens, and pillow covers falls under this segment. Trident is a vertically integrated home textiles company. It has direct ownership in every step of manufacturing— from raw materials to finished products. This cuts down expenses, and the company is able to market its products at competitive prices. Terry towel, bath, and bed linen are the main products of the company. The vertical contributes 55% to the total revenue.
  1. Cotton yarn: The company manufactures cotton yarn for the home textiles segment as well as for the retail space. Nearly 27% of the total revenue comes from this segment.
  1. Paper & Chemical: Apart from the conventional way of paper manufacturing (from cellulose), Trident uses wheat straw (residue of wheat harvest) as the raw material. It includes the production of copiers, writing, and printing papers. Trident has also entered into the chemicals industry through the manufacturing of sulphuric acid.

Financial Performance

For the financial year 2021 (FY21), Trident reported a 4.2% year-on-year (YOY) decline in revenue to Rs 4,546 crore. The 5-year Compounded Annual Growth Rate (CAGR) of the revenue stands at just -1.27%. The CAGR tells us that sales of the company are not growing across the years.

The company’s Profit After Tax (PAT) also declined 10.4% YoY to Rs 304 crore. Similar to the revenue, profits have also not grown over the years.

Trident is an export-oriented company. Out of the total sales, 68% was attributed to customers outside India. The company caters to entities in the United States, Europe, and the Middle East.

Return on Equity (ROE) and Return on Capital Employed (ROCE) are profitability ratios. It helps to analyse the ability of a company to generate profit with respect to shareholder’s equity.

The chart showing the Return on Equity (ROE) and Return on Capital Employed (ROCE) of the trident. It has been declining across the years.

From the graph shown above, it is clear that there is no improvement in the profitability of the company. An ROE of 9% means that for every Rs 100 investment made by investors, the company can generate Rs 9 as net profit. In ROCE, we consider the overall capital (equity + debt).

The company has announced Vision 2025, through which it aims to achieve total revenue of Rs 25,000 crore with a 12% profit margin. In the current financial scenario, accomplishing the revenue target will be a mammoth challenge for the company. 

Peer Competition

Since Trident has 3 business verticals, the manufacturer faces competition from different companies. Vardhman Textiles and KPR Mills are the competitors in the cotton yarn industry.

Let us look over the profit margins of the home textiles department with a strong competitor— Welspun India Ltd.

Comparison between Trident and Welspun by their profit margin. Currently, the margin of trident stands below welspun at 11%.

From the graph shown above, we see that both companies have a similar range of profit margins. Trident with a Profit Margin of 11%, which means that for a revenue of Rs 100 (after all the expenses), the company can keep Rs 11 as net profit.

Reasons Behind the Rally

There can be two reasons for a stock to move up— Technical and Fundamental.

Under technical analysis, it depends upon the supply-demand of the stock in the market as well as due to the breakouts or breakdowns of a price acting as resistance/support. 

The weekly candle chart showing the sudden increase in the price of stock in January 2021.

In the weekly chart, we can see how Rs 11 (a resistance formed over the past few years) broke out with a significantly large volume. This sudden increase in demand created in the markets makes supply short, and thus, the price went up.

Now, what created this demand? The company’s third-quarter results were to be out on January 18th, and the sudden pulse in volume was observed in the second week of January. The result was not extraordinary; the company reported a decent 11% growth in the revenue from operations. Interestingly, profit margins of the home textile segment are picking up from the impact created by the Covid-19 pandemic. It may even be better than pre-pandemic levels.

The line chart shows the Profit before Interest Tax (PBIT) margin across the two years. currently the margin stands at 21%.

Conclusion

The home textile sector is driven by the new hygiene-conscious lifestyle, increase in stay-at-home culture, and the arrival of the festive season. Across the globe, companies adopting “China Plus One” sourcing strategies have also developed new opportunities for Indian exporters like Trident. This can be observed by the increase in the market share of Indian companies in the global textile industry.

Moreover, rating agencies such as ICRA and CRISIL have rated a jump in sales of ~25% for Indian exporters in FY22, along with a healthy profit margin better than the pre-pandemic period.

Rally in Trident Ltd can be related to the upcoming demand for their products, along with a technical breakout in the stock that has been consolidating in a price range for a long period.

What are your views on Trident’s rally? Have you invested in the company? Let us know in the comment section of the marketfeed app.

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Rally May Not be Done Yet: CDSL Stock Analysis

CDSL or Central Depository Services Ltd is one of the two central depository services in India. You may have received several emails from them as you opened your Trading & Demat accounts. It was established in 1999 with the Bombay Stock Exchange (BSE) as its promoter. The depository became the first to hit 3 crore active users in India. 

The company has given a staggering ~272% return on investment over the past year. Before this, the share price was moving pretty much in a consolidated manner. There is definitely something that has triggered retail investors across the market since such returns were not seen in the past even when CDSL had healthy financials. 

From an investor’s perspective, CDSL is a ‘unique’ company. The company has a sustainable business model and stable financial growth over the years. In this piece, we discuss CDSL’s business model, financial stability, and growth prospects for the future.  

CDSL’s Business Model

The profits and stock returns of CDSL have increased after the COVID-19 lockdown was imposed last year in March 2020. India has managed to add the highest-ever number of 49 lakh Demat accounts in FY 2020. The company has 589 registered Depository Participants(DPs) across India and 290 lakh investors across the country.

Speaking of Demat accounts, CDSL earns close to 60% of its revenue directly or indirectly from Demat accounts. If you look closely at the revenue breakup, CDSL earns most of its revenue from Transaction Charges and Annual Issuer Charges. 

Transaction Charges

Every time a transaction takes place CDSL levies charges on it. A transaction can be buying, selling, or transfer of securities. The number of transactions has increased considerably over the past year and so has the income from the ‘Transaction Charges’ segment. 

Annual Issuer Charges

Coming to the Annual Issuer Charges segment. This is the cash cow of CDSL. According to SEBI regulations all listed companies need to establish a connection with both NSDL and CDSL. Listed companies pay ‘Annual Issuer Charges’ to both NSDL and CDSL. The ‘Issuer’ over here is the company whose shares would be traded. SEBI regulates ‘Annual Issuer Charges’ and renews them every five years. This is a fee that the depository charges to listed companies for being a custodian of their shares. Remember that even though shares are ‘traded’ on stock exchanges, they are ‘stored’ in depositories, which requires complex data warehouses that need maintenance. 

Largest KYC Registry

The Online Data Charges segment refers to KYC services offered by the company. ‘KYC’ or Know Your Customer is a very familiar term today. Opening a bank or Demat account or even investing in a mutual fund requires a KYC. It is a security verification process used by banks and companies to avoid financial fraud and money laundering activities. CDSL is the LARGEST KRA(KYC Registration Agency) in India holding 60% of the market share in the KYC of the capital market.

Other Income

The company offers services involving the transfer of securities during an IPO. It provides other services like hosting e-Annual General Meetings(e-AGMs) and e-voting for a nominal charge. The company also charges Electronic Consolidated Account Statements(e-CAS) that investors and traders receive every month. It also offers services for storing insurance claims and the commodities market receipts for commodities trading offered on platforms like Multi Commodity Exchange of India (MCX).  

Subsidiaries

In all, the company owns three subsidiaries:

CDSL Ventures Limited (CVL)

CDSL Ventures Limited (CVL) manages the KYC (Know Your Customer) business. The company is also a vendor for GST Suvidha centres. CVL held over 216 investor records, as of March 31, 2021. The company also maintains a claim registry for life insurance companies that offer Pradhan Mantri Jeevan Jyoti Bima Yojana (PMJJBY).

CDSL Insurance Repository Limited (CIRL)

CIRL is regulated by the Insurance Regulatory and Development Authority of India (IRDAI) and is in the business of enabling policyholders to hold life policies, motor policies, health policies, and all other types of general (non-life) policies

CDSL Commodity Repository Limited (CCRL)

Just like share trading involves storing ‘share certificates’ in an electronic form. The commodities markets involve storing electronic warehouse receipts(e-NWR) for goods bought or sold.  CCRL is regulated by the Warehousing Development and Regulatory Authority (WDRA) and is in the business of holding and transacting in electronic negotiable warehouse receipts (e-NWR).

Supportive Financials

  • The company’s revenue and net profit have grown consistently since September 2018 as shown in the chart above. The company has grown at a CAGR of close to ~16% over the past 3 years. In the most recent quarterly results for Q4FY21, the company’s revenue grew by ~51% YoY. The Net Profit grew by ~89% YoY.
  • CDSL has an Asset-Light Model. The company does not have to invest in heavy machinery, land, or other fixed assets. This meant that the company does not have many fixed costs associated. 
  • CDSL’s main costs are Employee Wages and Benefits, Computer Technology Related Expenses which are largely fixed in nature. Any increase in revenue will naturally reflect on net profits. 
  • The company operates on zero debt.
  • The share price of the company has increased by ~272% over the past year and ~240% over three years. This could mean your investment in the stock would have multiplied more than 3.5x had you invested in the stock. 
CDSL Price and Volume Chart(Source: TradingView)
  • The company’s charts suggest that the stock picked up most of its activity in 2020. Trading volumes were relatively insignificant before that. The stock price is supported by strong volumes. FII or Foreign Institutional Investor’s shareholding in the company has increased by a staggering 7% in FY 2020-21.  

Conclusion

Let me tell you about the risks associated with CDSL. CDSL’s profit numbers are cyclical, just like the stock market. The more people invest, the more money it makes. Any reduction in trading or delivery volumes could impact profits. For the long term, the company needs to tackle regulation by SEBI, at the same time improving its technology. The company’s expenditure on employees’ salaries has increased over the years. 

The rally that CDSL saw in FY2020-21 filled many pockets. At this point, there are two possibilities, there could be profit booking which could mean that the share prices would eventually fall. The second possibility could be that the stock breaks the glass ceiling and the price would increase further. The only thing that is crystal clear is the monopoly that CDSL has in their domain, and this is likely to push long-term growth.

One can only speculate for the short term. What do you think about the stock? You may let us know in the comments section below!

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Can Just Dial be the next IndiaMart?

Just Dial, the hyperlocal search engine, has ventured into a new initiative that can turn the company into gold. It was launched in 1994 as a phone-based local directory. The Mumbai-headquartered company has launched its Business-2-Business(B2B) e-commerce portal which will be known as JD Mart. The new JD Mart will directly compete against IndiaMart and Udaan which are already present in this B2B e-commerce market. Just Dial promises to bring a new wholesale experience for the customers with the aid of JD Mart. They will ensure to offer quality vendors with wide categories of products. 

JD Mart will aim to provide you with a complete experience with the help of interactive content cataloguing and 24×7 support. The products will be certified and verified so that the customers are not fooled to buy poor quality products. 

When we visit Flipkart’s website and buy products from there, it is Flipkart’s Business-2-Customer(B2C) business. With JD Mart, Just Dial is trying to lure sellers who want to buy products in a bulk hence the B2B. This will help them to sell their products at a wholesale price.

The Legal Battle

JD Mart was scheduled to launch in the latter half of 2020 but the launch was delayed. This was because of India Mart who went to Delhi High court against JD Mart over copyright violation. India Mart was successful to obtain a temporary injunction which stalled Just Dial’s entry into the B2B e-commerce space. 

In return, JD Mart termed India Mart’s complaints as “absolutely baseless and frivolous”. Also, they accused IndiaMart of data-copying and cybersquatting. The Delhi High Court launched an investigation of the alleged data theft by Just Dial. Finally, after the 4-5 month tussle, Just Dial unveiled JD Mart in the last week of February.

A Look at Just Dial’s Financials

Just Dial is one of those very few companies that have consistently seen an increase in their numbers. Their revenues have never seen a dip since 2012. In FY19, their revenue was Rs 984 crore which increased to Rs 1092 crore in FY20. The same can be said about their net profits as well. They amassed a net profit of Rs 272 crore in FY20 which was almost 25% higher than what they recorded in FY19 (Rs 206 crore). 

In the last three years, their EPS also increased from 17.46 (FY17) to 42 (FY20). EPS stands for Earnings per Share which tells how much an investor is able to earn per share. Thus, the higher the EPS, the better for the investor. Before you invest in a company, it is important to gauge how risky that bet is. This can be mapped out via the debt company holds. 

Another positive news for the company is that over the last 5 years, their debt to equity ratio has been 1.27%. This is way lower than 3.49% which is the industry average for this ratio. In the last year (from December 2019 to December 2020), the promoters of Just Dial have increased their holding in the company from 32% to almost 36%. The last share buyback took place just a few months ago. Promoters increasing their stake in their company is always a good signal for the investors. It is interpreted as proof of the confidence of promoters in their business.

The Success of IndiaMart

Weekly Chart of IndiaMart since its IPO

IndiaMart has given massive returns to its investors since its IPO in 2019. The IPO price of IndiaMart was Rs 973. The IPO was listed at Rs 1,180 and closed the day at Rs 1,302. That is more than Rs 300 benefit on just one share! Currently, the stock is trading at more than Rs 8000. If an investor has held even one share for 1.5 years, he would have earned a capital appreciation of Rs 7000. Last month, it touched it’s all-time high of Rs 9950. If any of you have enjoyed this unbelievable rally, then do let us know in the comments section below. You can also view India Mart’s price chart above.

The Final Take

The speculation in the markets is wide that the arrival of JD Mart can potentially be as big as IndiaMart in the next few years. Just Dial has been in business for years and they have a huge client base. They are a well-known company when you have to search for any store nearby. The new JD Mart can take the benefits of the huge client base of Just Dial. 

This will increase their reach on the new web portal and can be a very strong competitor to India Mart. The B2B e-commerce market is a space with a lot of potential in the future. With low competition, and high potential to expand, we think that if JD Mart can attract people, they can surely be a big thing in future. What do you think about the B2B market in India? What is your opinion on JD Mart vs India Mart? Share your views with us in the comments section below!

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RailTel IPO: Should You Invest?

RailTel Corporation of India Limited has come up with an IPO. The issue opens on February 16, 2021, and closes on February 18, 2021. RailTel Corporation of India Limited is an Information and Communications Technology (ICT) company. You might have heard about RailTel broadband near your houses. It is a Mini Ratna (Category I) PSU, wholly owned by the Government of India and run by the Ministry of Railways. Let us find out more about the IPO.

The Business of RailTel

RailTel was incorporated on Sept. 26, 2000, in order to modernize the existing telecom infrastructure for train control, operation, and safety. It also aimed to generate additional revenue by creating a nationwide broadband and multimedia network by laying optical fiber cable by using the right of way(ROW) along the railway tracks. It intends to host telecom players at railway stations and assist them in disbursing 5G networks.

The company provides a number of services such as:

  • Telecom Network Services: National Long Distance to carry long-distance telecommunication services and includes various teleservices including voice, data, fax, text, video, and multimedia. Also, act as an internet service provider(ISP) and offer retail broadband services through the ‘RailWire’ platform.
  • Telecom Infrastructure Services: To provide storage, power, cooling, and physical security for servers and networking equipment of our customers and connect them with a variety of telecommunications and network service providers.
  • Projects (System Integration Services): National Knowledge Network and Bharat Net (formerly, the National Optical Fiber Network).
  • Data Center and Managed Hosting Services: Data Centre and Managed Hosting Services: It offers a variety of data center services including Infrastructure as a Service or IaaS, dedicated hosting, managed services, cloud computing, managed e-Office services, disaster recovery services, Aadhar authentication services, and other IT related services such as load balancing services, application hosting, bandwidth services, and advanced firewall services
  • ICT Hardware, Software, and Service System Integration Projects
  • To Provide Digital Services To Customers

Financial Position of RailTel

  • The company revenue has grown at ~7.5% CAGR for FY20. Earnings Before Interest, Tax, Depreciation, and Amortization(EBITDA) has grown at ~4.5% over 3 years. The company’s net worth has grown ~3.6% over the past 3 years.
  • The company holds a net profit margin of 13% and close to zero-debt.
  • It has right of way along 67,145 route km of railway track connecting 7,321 railway stations for laying optical fiber cables. As of now, It has an optical cable network of 59,098 route km connecting 5,929 railway stations.

Risk and Rewards

  • The company will help set up internet and broadband services in rural areas. The Indian Railways’ connectivity even in the remotest corners of the country will be an added advantage to its revenue source. At the same time, the company will not have to pay for fixed land assets as it will be using the railway track’s right of way to lay cables.
  • It has helped the Indian Railways in implementing payroll system, ticketing system, freight operations information system and is currently involved in the execution of various other projects. RailTel is required to share 7 percent of its gross revenue with Indian Railways.
  • The company will also have an added advantage with the upcoming 5G infrastructure. Telecom companies might prefer using RailTel’s infrastructure because of its efficiency and geographic reach. 
  • It holds regulatory risks like changes in laws, license terms, and government policies that can potentially affect the business. The company needs to keep pace with growing technology, it can lose customers and subscriber base. 
  • The company has a high dependence on PSU customers. For FY20, close to 25% of its income from Indian Railways. The Government prefers RailTel as a service provider in telecom and network-infra related services for other PSUs. If the PSUs were to have a change in investment plans, the company might take a dip in revenue. It needs to increase its private customer base. 

The IPO in a Nutshell

IPO Opening DateFeb 16, 2021
IPO Closing DateFeb 18, 2021
Issue TypeBook Building
Face ValueRs 10 per equity share
IPO PriceRs 93 to Rs 94 per equity share
Lot Size155 Shares
Min Order Quantity155 Shares/ Rs 14,570
Listing AtBSE, NSE
Issue Size87,153,369 Eq Shares of ₹10(aggregating up to Rs 819.24 Cr)
Offer for Sale87,153,369 Eq Shares of RS 10(aggregating up to ₹819.24 Cr)

The entire issue is Offer for Sale, that is, promoters getting money. No extra funds are being raised by RailTel from this IPO. Do not apply for more than 1 lot, as the issue will be oversubscribed anyway.

Will we Invest?

RailTel Corporation of India Limited has had a grey-market premium of 50%. It has seen more interest in the market than its competitor IRFC, which had a not-so-good IPO listing. It is the 6th railway company to go for an IPO. RailTel has shown a fairly good financial performance, but very innovative and strong growth potential. It had shown a good interest from retail investors.

The company needs to look out for private clients, currently, the company only serves major PSUs including the Indian Railways. This is reflecting in its slow but positive revenue growth. The consumer-facing side of the business has also been gaining a lot of buzz recently for the good service being provided, but it is still small. Hopefully, this is sustained in the long term.

Considering the strong financials, good valuation and market sentiments, the IPO can give a good return both for short term and long term and I will be investing.

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Can the Rally Continue in Adani Ports?

Adani Group is one of the biggest corporate groups in India. If you are an active trader or an investor in the market, you would have thought about investing in at least one of Adani’s companies. And why not? The rise of Adani Group over the years is historic and a revolutionary story itself. We are well aware of Reliance and Tata companies, now it’s time to respect the beloved Adani Group and learn what it’s one of the biggest has to offer. Today, we dig deeper into Gautam Adani’s crown jewel company, Adani Ports and Special Economic Zone Limited.

About APSEZ

This entity was established on 26 May 1998. In the last 22 years, it has shown exceptional growth to become India’s largest private port and Special Economic Zone operator. The company has been listed on NSE and BSE since 27th November 2007. APSEZ is responsible for almost 25% of the total cargo movement in the country. 

They provide services across three verticals, i.e. Ports, Logistics and Special Economic Zones (SEZs). You would wonder how they cater the logistics? This happens with the aid of its subsidiary Adani Logistics Limited. This is the benefit of having several companies under one umbrella.

APSEZ currently operates at 11 domestic ports. From the Bay of Bengal to the Arabian Sea, Adani Ports are spread everywhere. The highest number of ports (4) are present in Gujarat. Other ports are present in states like Tamil Nadu (2), Goa, Kerala, Andhra Pradesh and Odisha. In totality, Adani Ports & SEZ offers over 400 MMTPA (Million Metric Tonne Per Annum) capacity. It is paired with over 4 Lakh square feet of warehousing.

Out of the 11 ports, Mundra Port which is in Gujarat is India’s largest commercial port. Here the company offers you Bulk & Break Bulk, Liquid Cargo, Container Cargo, LPG/LNG Cargo and Crude – Single Point Mooring. This Mundra Economic Hub is the largest multi-product SEZ, Free Trade and Warehousing Zone (FTWZ) and Domestic Industrial Zone which spreads over 8,000 hectares. 

Remarkable Recovery in the Market

Weekly Chart of Adani Ports & Special Economic Zone
  • Due to Covid-19 pandemic, the share price of APSEZ fell to the 52-week low of Rs 203 on 23rd March 2020.
  • In less than 11 months, the stock has attained its all-time high of Rs 594.
  • The image below shows the weekly chart of Adani Ports. Since the last many weeks, the stock is making a new all-time high.
  • The curved yellow line shows the journey of the stock over the last 11 months.
  • The promoters of Adani Ports hold more than 60% of the total stake in the company. But, most of the shares of the promoters’ are pledged shares. Pledging of shares means that the investors have taken a loan by submitting shares. Generally, this is considered as a negative signal for retail shareholders like you and me. 
  • A few weeks back, the management of the company stated that soon they will be paying their debt and freeing up almost all of their shares. Investors did not have many red flags before investing in Adani Ports. And, this commentary further increased the positive sentiments within the investors.
  • Adani Ports have expanded their business even during the pandemic. They have added five new container services; two at Mundra, two services at Hazira, and one at Kattupalli.

Positive Results Keep Flowing In

Consolidated net profit rose by 16% at Rs 1,577 crore on YoY (Year-on-Year) basis for the December quarter. The net profits by the end of the last quarter were Rs 1393 crore. Total revenue increased by over 10% YoY and by 25% when compared to the previous quarter. Revenue and profits for nine-month ending FY21 are more than what was recorded till December 2019. Thus, telling that even after Covid-19 lockdown, the company has performed exceptionally well to beat its previous years’ performance.

This success is based on many key pointers. One of those is a 37% rise in cargo volume as compared to the same quarter last year. This has helped the company to increase its market share from 25% to 28%. All India Cargo volume grew by only 5% from Q3FY20 to Q3FY21. But APSEZ’s cargo volume increased by a stunning 37% during the same period. The port of Mundra has alone recorded a growth of 25% during the third quarter. This shows how dominating performance the company has been able to put in.

(Source:Company Website)

“The strong and lasting recovery at APSEZ has been the cornerstone of our journey in the recent past. It’s a proven certitude that our business now operates closer to a pure-play utility. Our portfolio of assets, increasing market share in India, and pre-eminence of our network with leadership positions have an unparalleled value proposition.” – Karan Adani, Chief Executive Officer and Whole Time Director of APSEZ.

APSEZ ranked 14th globally out of 102 companies in the transportation and transportation infrastructure sector by Dow Jones Sustainability Emerging Markets Index. In fact, they have the highest EBITDA margin (70%) globally. 

Conclusion

The success of APSEZ tells us about their journey from a single port single commodity to an integrated logistics platform. The company aims to keep its EBITDA margin from ports above 71%. The Indian government also has the vision to manufacture and produce more in the coming years. They not only aim to be self-reliant but also become a net exporter. All of these things have benefitted Adani Ports and will keep on doing so in the future.

(Source)

Their revenue has grown at a yearly rate of 15% in the last five years. This is more than 13.5% which is the industry average. Its median sales growth is 27.38% of the last 10 years. A company which is outperforming its own industry shows the positive work put in by them. APSEZ looks like an interesting bet for sure. The way they conduct their business and the opportunities in the future both tells that Adani Ports might have a long way to go. With all the interesting upcoming projects, strong revenue growth, high margins for profits and government support, Adani Ports will surely reach greater highs.

You can find the company’s third-quarter results here. What are your opinions on Adani Ports and Special Economic Zone Limited? Let us know in the comments section!