Trident Q2 FY26: Margin Compression Weighs on Profitability Despite Revenue Growth

The stock has underperformed significantly in recent years, down 11.51% over the past year and 22.70% over two years, substantially trailing the Sensex's 8.45% and 29.57% gains respectively. Trading at ₹28.13 as of November 14, 2025, the shares remain 29.97% below their 52-week high of ₹40.17, reflecting investor concerns about the company's earnings trajectory and margin sustainability.

The quarter's performance highlights a concerning divergence between top-line growth and bottom-line contraction, with revenue expanding modestly whilst profitability came under severe pressure. This disconnect underscores operational challenges that extend beyond normal quarterly fluctuations, warranting closer examination of the company's cost structure and competitive positioning.

Financial Performance: Margin Erosion Overshadows Revenue Gains

Trident's Q2 FY26 financial performance presents a troubling picture of margin compression overwhelming modest revenue expansion. Net sales for the quarter stood at ₹1,787.17 crores, registering a sequential increase of 4.70% from Q1 FY26's ₹1,706.89 crores and a year-on-year improvement of 4.33% from ₹1,712.94 crores in Q2 FY25. However, this top-line growth failed to translate into proportionate profitability gains, with consolidated net profit plummeting to ₹90.93 crores from ₹139.96 crores in the preceding quarter.

The most alarming aspect of the quarterly results was the sharp contraction in operating margins. The operating profit margin (excluding other income) collapsed to 11.99% in Q2 FY26 from 17.10% in Q1 FY26, representing a sequential decline of 511 basis points. This marked the lowest operating margin recorded by the company in the past seven quarters, falling below even the year-ago quarter's 13.21%. The gross profit margin similarly deteriorated to 11.50% from 16.44% in the previous quarter, indicating pricing pressures or elevated input costs across the company's diversified product portfolio.

On a year-on-year basis, whilst consolidated net profit showed nominal growth of 9.30% from ₹83.19 crores in Q2 FY25, this improvement appears modest when contextualised against the operating margin compression of 122 basis points. The PAT margin of 5.09% in Q2 FY26, though marginally higher than the 4.86% recorded a year ago, remained significantly below the 8.20% achieved in the immediately preceding quarter, underscoring the sequential deterioration in profitability.

Examining the half-yearly performance for H1 FY26 (April-September 2025), Trident reported consolidated net sales of ₹3,494.06 crores, up a modest 1.24% from ₹3,455.65 crores in H1 FY25. Net profit for the half-year reached ₹230.89 crores, marking a substantial 47.14% increase from ₹156.92 crores in the corresponding period last year. However, this improvement was driven primarily by the exceptionally strong Q1 FY26 performance, which saw net profit of ₹139.96 crores with an operating margin of 17.10%. The Q2 deterioration significantly tempered the half-yearly performance, raising questions about sustainability of the profitability trajectory.

Cost Pressures and Interest Burden: Examining the Margin Squeeze

A granular examination of Trident's cost structure reveals multiple pressure points contributing to the margin compression. Employee costs in Q2 FY26 increased to ₹225.15 crores from ₹219.33 crores in Q1 FY26, though as a percentage of sales they remained relatively stable at 12.60% versus 12.85%. The more significant concern lies in the operating profit before depreciation, interest, tax, and other income (PBDIT excluding OI), which declined sharply to ₹214.23 crores from ₹291.86 crores sequentially, despite higher absolute sales.

Interest costs, whilst declining sequentially to ₹24.86 crores from ₹31.34 crores in Q1 FY26, remain elevated on a half-yearly basis at ₹56.20 crores, representing a 50.83% increase from ₹37.27 crores in H1 FY25. This surge in interest burden reflects both higher debt levels and potentially elevated borrowing costs, with the company's long-term debt standing at ₹962.92 crores as of March 2025, down from ₹1,173.42 crores a year earlier but still substantial relative to shareholder funds of ₹4,620.99 crores.

Depreciation charges remained elevated at ₹82.88 crores in Q2 FY26, marginally lower than Q1 FY26's ₹92.79 crores but consistent with the company's ongoing capital-intensive operations. The tax rate in the quarter stood at 26.65%, higher than the 25.45% in Q1 FY26 and significantly above the 15.90% recorded in Q2 FY25, further pressuring net profitability. This tax rate normalisation eliminates a previous tailwind that had supported bottom-line growth in earlier periods.

Return Ratios and Capital Efficiency: Below-Par Performance

Trident's return on equity (ROE) stands at a modest 11.73% on an average basis, with the latest annual figure at 8.00%, significantly trailing peer group averages and indicating suboptimal capital efficiency. The company's return on capital employed (ROCE) presents a similar picture at 13.33% on average and 9.76% for the latest period, reflecting challenges in generating adequate returns from the substantial capital base deployed across its integrated manufacturing facilities.

These relatively weak return metrics become particularly concerning when viewed against the company's capital-intensive business model and substantial fixed asset base of ₹4,376.48 crores as of March 2025. The sales-to-capital-employed ratio of 1.14x suggests modest asset turnover, indicating that the company requires significant capital investment to generate each rupee of sales. This capital intensity, combined with below-average returns, raises questions about the efficiency of capital allocation and the competitive positioning of the company's various business segments.

On a more positive note, Trident maintains a relatively healthy balance sheet with moderate leverage. The debt-to-EBITDA ratio of 1.54x remains manageable, whilst the net debt-to-equity ratio of 0.21x indicates conservative financial leverage. The company generated strong operating cash flow of ₹944 crores in FY25, up substantially from ₹287 crores in FY24, demonstrating improved working capital management. However, the EBIT-to-interest coverage ratio of 7.77x, whilst adequate, has declined from stronger historical levels, reflecting both margin pressures and elevated interest costs.

Industry Context: Navigating Textile Sector Headwinds

The Indian textile and apparel sector has faced multiple challenges in recent quarters, including volatile raw material prices, subdued export demand from key markets, and intensifying competition from regional players. Trident's diversified presence across yarn, home textiles (bath and bed linen), paper, and chemicals provides some insulation from segment-specific headwinds, but also exposes the company to multiple end-market dynamics simultaneously.

The home textiles segment, which constitutes a significant portion of Trident's revenue mix, has witnessed pricing pressures in international markets, particularly in the United States and Europe, where inventory corrections and cautious consumer spending have impacted order flows. Cotton prices, a key input cost, have exhibited volatility through 2025, creating margin uncertainty for textile manufacturers unable to pass through cost increases to customers in a competitive environment.

Trident's integrated business model, with captive power generation and backward integration into yarn manufacturing, theoretically provides cost advantages relative to non-integrated players. However, the sharp margin compression in Q2 FY26 suggests these structural advantages may be insufficient to offset current headwinds. The company's ability to maintain pricing power whilst managing input costs will be critical to profitability recovery in coming quarters.

Peer Comparison: Valuation and Performance Relative to Industry

Positioning Trident against its peer group in the garments and apparels sector reveals a mixed picture of relative valuation and operational performance. The company trades at a price-to-earnings ratio of 33.64x, below the peer group average but still representing a significant premium to book value at 3.17x. This valuation appears elevated given the company's below-average return on equity of 11.73%, particularly when compared to higher-quality peers commanding premium multiples on the basis of superior profitability.

Trident's ROE of 11.73% lags significantly behind peers such as Page Industries (43.38%), K P R Mill (21.04%), and Trent (19.25%), positioning it closer to Welspun Living's 12.02%. This profitability gap justifies the company's lower valuation multiples relative to premium peers, though the absolute P/E of 33.64x still appears elevated given the recent margin deterioration and flat financial trend. The company's debt-to-equity ratio of 0.21x compares favourably to most peers, indicating conservative balance sheet management, though this advantage has not translated into superior returns on equity.

The absence of dividend yield data for Trident, despite a historical dividend payout ratio of 52.49%, suggests potential concerns about dividend sustainability given the recent earnings volatility. Peers like Page Industries (1.90% yield) and Welspun Living (1.24% yield) offer income alongside capital appreciation potential, providing an additional dimension of return that Trident currently lacks in its investment proposition.

Valuation Analysis: Premium Unjustified by Fundamentals

Trident's current valuation metrics suggest the stock is trading at a premium that appears increasingly difficult to justify based on recent operational performance and earnings trajectory. At 33.64x trailing twelve-month earnings, the P/E ratio exceeds the sector average of 23x by approximately 46%, a premium that typically requires superior growth prospects, consistent profitability, or distinctive competitive advantages—attributes that appear challenged in the current context.

The price-to-book ratio of 3.17x, whilst lower than several peers, still represents a substantial premium to the company's book value of ₹9.07 per share. This valuation becomes concerning when considered against the ROE of 11.73%, implying the market is pricing in either a significant improvement in return ratios or sustained growth that recent quarterly results fail to support. The company's EV/EBITDA multiple of 15.99x and EV/EBIT of 25.63x similarly suggest elevated expectations relative to current profitability levels.

The stock's valuation grade has oscillated between "Fair" and "Expensive" over recent months, currently classified as "Expensive" since November 3, 2025. This assessment aligns with the quantitative metrics, particularly given the recent margin compression and flat financial trend. At the current price of ₹28.13, the stock trades 29.97% below its 52-week high of ₹40.17, suggesting significant value destruction over the past year despite modest gains from the 52-week low of ₹23.20.

A fair value assessment based on peer-average multiples and Trident's current profitability suggests a more appropriate valuation in the range of ₹24-26 per share, implying potential downside of 7-15% from current levels. This estimate assumes normalisation of margins to historical averages and modest revenue growth, both of which appear challenging given recent quarterly trends and sector headwinds.

Shareholding Pattern: Stable Promoter Base, Limited Institutional Interest

Trident's shareholding structure reflects a promoter-dominated ownership pattern with limited institutional participation, a characteristic that has remained largely stable over recent quarters. Promoter holding has been steady at 73.68% since March 2025, following a marginal increase of 49 basis points from 73.19% in December 2024. This high and stable promoter stake provides governance stability and alignment of interests, though it also limits free float and potentially constrains liquidity for institutional investors.

Foreign institutional investor (FII) holding has shown marginal improvement, rising from 2.73% in September 2024 to 3.06% in September 2025, with sequential increases across most recent quarters. However, the absolute level remains exceptionally low at just over 3%, indicating limited interest from global institutional investors. This low FII participation likely reflects concerns about the company's growth trajectory, profitability consistency, and relative attractiveness versus other opportunities in the Indian equity market.

Mutual fund holding tells an even more concerning story, standing at a negligible 0.12% in September 2025 despite gradual increases from 0.07% a year earlier. With only 17 mutual fund schemes holding positions in Trident, the company has failed to attract meaningful interest from domestic institutional investors who typically drive liquidity and price discovery in mid-cap stocks. Insurance company holdings remain minimal at 0.02%, further underscoring the lack of institutional conviction in the stock.

The non-institutional shareholding category, comprising retail and other investors, has declined marginally from 24.01% in September 2024 to 23.12% in September 2025, suggesting some retail investor exodus amid the stock's underperformance. This erosion of retail interest, combined with negligible institutional participation, raises concerns about potential liquidity constraints and limited buying support should operational performance fail to improve materially.

Stock Performance: Persistent Underperformance Across Timeframes

Trident's stock price performance paints a picture of consistent underperformance across virtually all relevant timeframes, with the shares struggling to generate positive returns whilst the broader market has advanced. Over the past year, the stock has declined 11.51% whilst the Sensex gained 8.45%, resulting in negative alpha of 19.96 percentage points. This underperformance has been even more pronounced over longer periods, with two-year returns of -22.70% compared to the Sensex's 29.57% gain, translating to alpha of -52.27 percentage points.

The year-to-date performance has been particularly disappointing, with the stock down 15.88% through November 2025 whilst the Sensex has advanced 7.67%. This 23.55 percentage point underperformance reflects growing investor concerns about the company's earnings trajectory and competitive positioning. The stock has also underperformed its own sector, with the Garments & Apparels index returning 3.27% over the past year compared to Trident's -11.51%, indicating company-specific challenges beyond broader sector headwinds.

From a technical perspective, Trident exhibits a "Mildly Bearish" trend as of November 12, 2025, with the stock trading below all key moving averages—5-day (₹28.37), 20-day (₹28.41), 50-day (₹28.65), 100-day (₹29.29), and 200-day (₹28.83). This alignment of moving averages above the current price suggests sustained selling pressure and lack of momentum, with immediate resistance likely at the 20-day moving average around ₹28.41 and stronger resistance at the 100-day average near ₹29.29.

The stock's high beta of 1.35 indicates greater volatility than the broader market, amplifying both gains and losses relative to benchmark movements. With annualised volatility of 34.01% compared to the Sensex's 12.26%, Trident presents a "High Risk Low Return" profile over the past year, with negative risk-adjusted returns of -0.34 versus the Sensex's positive 0.69. This risk-return profile makes the stock unattractive from a portfolio construction perspective, offering elevated volatility without commensurate return potential.

Investment Thesis: Quality Concerns Outweigh Valuation

Evaluating Trident through a comprehensive investment framework reveals significant concerns across multiple dimensions. The company's overall quality grade stands at "Average," reflecting moderate long-term financial performance characterised by sales growth of 11.01% over five years and EBIT growth of 13.17%, both respectable but unexceptional figures. However, this average quality assessment masks more troubling underlying trends, particularly the weak return ratios and recent margin deterioration.

The financial trend assessment of "Flat" for September 2025 captures the challenging recent performance, with the quarter showing the lowest operating margin in seven quarters at 11.99%. Whilst the half-yearly net profit growth of 47.14% appears impressive, this was driven primarily by an exceptionally strong Q1 FY26, with Q2's sharp deterioration raising concerns about sustainability. The significant increase in interest costs of 50.83% over the half-year further pressures profitability, particularly if revenue growth remains modest.

From a valuation perspective, the "Expensive" grade appears warranted given the P/E ratio of 33.64x—a 46% premium to the sector average—combined with below-average return on equity and deteriorating margins. The company's PEG ratio of 1.04x suggests the valuation is roughly in line with growth expectations, but this metric fails to capture the quality concerns and recent operational challenges that should command a valuation discount rather than premium.

Technical indicators uniformly point to weakness, with the "Mildly Bearish" trend and positioning below all moving averages suggesting continued near-term pressure. The combination of expensive valuation, flat-to-deteriorating fundamentals, bearish technicals, and minimal institutional interest creates a challenging setup for investors, with limited catalysts visible for meaningful re-rating in the near term.

Key Strengths & Risk Factors

Outlook: Critical Monitoring Points for Recovery

The path forward for Trident hinges critically on the company's ability to arrest margin deterioration and demonstrate sustainable profitability improvement. Investors and analysts should monitor several key metrics in coming quarters to assess whether the Q2 FY26 margin compression represents a temporary aberration or signals more structural challenges. The immediate priority must be stabilisation of operating margins above the 13-14% range, closer to historical averages, through a combination of operational efficiencies, pricing adjustments, and favourable input cost trends.

The broader sector environment will play a crucial role in Trident's recovery prospects. A revival in global demand for home textiles, stabilisation of cotton prices, and potential interest rate cuts by the Reserve Bank of India could provide tailwinds. However, the company must also address company-specific challenges, including improving return on equity through better capital allocation, enhancing pricing power through product differentiation, and attracting institutional investors through consistent execution and transparent communication.