Trident Ltd Upgraded to Hold as Technicals Improve Amid Mixed Financials

Quality Assessment: A Mixed Financial Picture

Trident’s recent quarterly results for Q3 FY25-26 reveal a challenging financial environment. The company reported a significant decline in profit after tax (PAT), which fell by 44.5% to ₹44.24 crores. Operating profit growth remains subdued, with a five-year compound annual growth rate (CAGR) of just 6.54%, indicating limited long-term expansion momentum. However, the company’s ability to service debt remains robust, with a low Debt to EBITDA ratio of 1.66 times, signalling manageable leverage and financial discipline.

Return on Capital Employed (ROCE) stands at a respectable 10.7%, suggesting efficient utilisation of capital despite recent profit pressures. The operating profit to interest coverage ratio, though at a low 5.31 times for the quarter, still indicates that Trident can comfortably meet its interest obligations. These mixed financial signals contribute to the company’s current Mojo Grade of Hold, upgraded from Sell, reflecting cautious optimism.

Valuation: Attractive Yet Discounted

From a valuation standpoint, Trident is trading at an enterprise value to capital employed (EV/CE) ratio of 2.6, which is attractive relative to its peers in the Garments & Apparels sector. The stock price of ₹26.81 is below its 52-week high of ₹34.60, offering a discount that may appeal to value-oriented investors. Despite a negative one-year return of -2.54%, the company’s profits have risen by 39.3% over the same period, resulting in a price/earnings to growth (PEG) ratio of 0.9. This suggests that the stock is undervalued relative to its earnings growth potential.

However, the stock’s long-term performance has been lacklustre, with a three-year return of -16.51%, underperforming the Sensex benchmark’s 27.50% gain over the same period. This underperformance is a cautionary note for investors weighing valuation against growth prospects.

Financial Trend: Profitability Under Pressure but Debt Servicing Strong

Examining the financial trends, Trident’s quarterly PAT decline contrasts with a notable increase in interest expense, which has surged by 48.59% to ₹50.43 crores over the past six months. This rise in interest costs has compressed margins and contributed to the operating profit to interest ratio hitting a low point. Despite this, the company’s debt servicing capability remains intact, supported by a low Debt to EBITDA ratio and steady ROCE.

Profit growth over the past year has been uneven, with operating profit growth at a modest 6.54% CAGR over five years, indicating slow but steady expansion. The stock’s year-to-date return of 0.19% outperforms the Sensex’s negative 8.66%, suggesting some resilience in recent months despite broader market headwinds.

Technicals: The Key Driver Behind the Upgrade

The most significant factor behind the upgrade to Hold is the marked improvement in technical indicators. The technical trend has shifted from mildly bearish to mildly bullish, signalling a potential positive momentum shift in the stock price. Key technical metrics reveal a nuanced picture:

• MACD: Weekly readings are mildly bullish, although monthly signals remain bearish, indicating short-term strength amid longer-term caution.
• RSI: Both weekly and monthly Relative Strength Index readings show no clear signal, suggesting the stock is neither overbought nor oversold.
• Bollinger Bands: Weekly indicators are bullish, while monthly bands are mildly bearish, reflecting recent price volatility with a positive short-term bias.
• Moving Averages: Daily averages remain mildly bearish, highlighting some near-term resistance.
• KST and Dow Theory: Both weekly and monthly readings are mildly bullish, reinforcing the emerging positive trend.
• On-Balance Volume (OBV): Bullish on both weekly and monthly charts, indicating strong buying interest.

These technical improvements have been pivotal in shifting the Mojo Grade from Sell to Hold, reflecting a more balanced risk-reward profile for investors.

Market Performance and Investor Sentiment

Trident’s stock price has shown modest gains recently, with a day change of 1.25% and a current price of ₹26.81, slightly above the previous close of ₹26.48. The stock’s 52-week range spans ₹22.00 to ₹34.60, indicating room for upside but also reflecting past volatility.

Despite the company’s size and sector presence, domestic mutual funds hold a minimal stake of just 0.62%. Given their capacity for detailed research, this low holding may suggest reservations about the stock’s valuation or business fundamentals at current levels. This cautious stance aligns with the Hold rating, signalling that while the stock is not a sell, investors should remain vigilant.

Long-Term Returns: A Mixed Bag

Over the long term, Trident has delivered impressive returns, with a 10-year gain of 437.27%, significantly outperforming the Sensex’s 208.56% over the same period. The five-year return of 75.69% also surpasses the benchmark’s 58.20%. However, the recent three-year return of -16.51% marks a period of underperformance, underscoring the cyclical challenges facing the company and sector.

This mixed performance history reinforces the rationale behind the Hold rating, as investors weigh the company’s strong legacy against recent headwinds.

Conclusion: A Balanced Outlook with Technical Optimism

Trident Ltd’s upgrade from Sell to Hold reflects a nuanced assessment of its current position. While financial performance remains mixed, with recent profit declines and rising interest costs, the company’s strong debt servicing ability and attractive valuation metrics provide a foundation for cautious optimism. The decisive factor in the rating change is the improvement in technical indicators, which suggest emerging positive momentum in the stock price.

Investors should consider Trident as a stock with potential upside tempered by ongoing challenges. The Hold rating signals that while the stock is no longer a clear sell, it requires careful monitoring, especially given its underperformance relative to benchmarks over recent years and limited institutional backing.

Overall, Trident’s current profile suits investors seeking exposure to the Garments & Apparels sector with a moderate risk appetite, supported by improving technical signals and reasonable valuation.

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