Trent Ltd. share price target

We believe Trent is best placed to bounce back post COVID-19 pandemic, driven by its success in Westside' concept (exclusive brands at competitive prices), ramp up of value fashion format Zudio', sustainable margins (led by superior store metrics

With the current unprecedented scenario various retailers have significantly curtailed their store expansion guidance for FY21E. However, Trent is among the few retailers who has reiterated their stance of aggressively adding stores. In H1FY21, it added 11 additional stores (eight Zudio, two Westside, one Landmark). We expect store addition momentum to accelerate in H2FY21E. On b/s front, better inventory management has led to working capital release of | 165 crore in H1FY21. Also, capex requirements were lower in H1FY21 (| 21.1 crore vs. | 81.0 crore). Negative...

We initiate coverage on Trent Ltd (Trent) with a BUY rating and a Target Price of Rs 786 based on SOTP valuation methodology.

Trent reported below than expected result after several quarters of positive surprise. Revenue decline is higher than expected due to regulatory restrictions on store openings. As per our channel check stores which were located inside malls (c. 70% of Trent store portfolio) were allowed to be operational from Aug'20. Negative operating leverage (40-44% of gross profit is consumed by employee and rental cost) severely impacted EBITDA and PAT. Positively, 90% of stores (both standalone and inside-malls) are now operational. As per management, overall business witnessed decent recovery during current month of end of season sale. We expect business recovery in 2HFY21E to...

As expected, Trent reported a washout Q1FY21. High store concentration in worst hit Coivd-19 states (~ 17%, 16% of Westside, Zudio stores in Maharashtra) and higher presence in malls (~50% for Westside, 25% for Zudio) further hampered store operations due to stringent measures by local authorities. Subsequently, the company reported revenue de-growth of 87% YoY to | 96.3 crore (April: 0%, May: 8%, June: 32% pre-Covid sales YoY). The company made provisions worth | 40 crore towards inventories that led gross margins to contract substantially to 13.3% vs. 53% in Q1FY20....

23 July 2020 Trents consolidated revenue/PAT grew 33%/9.2% to INR34.9b/INR1.1b in FY20. Standalone revenue growth of 26% was led by strong performances from Westside (+16%) and Zudio its freshly established Value Fashion Retail brand (+2.5x, 16% contribution). The brands were supported by strong same-store sales growth (SSSG) and store adds. A) Indias Retail industry ranks among the top 5 retail markets globally (consumer category targeted by Westside). B) Value Fashion accounts for ~75% of the market (consumer category targeted by Zudio). These three factors underscore TRENTs growth levers. The company revealed that 70 stores had resumed operations on the easing of the COVID-19-led lockdown, but our channel check suggests >200 stores (~80%) are now operational. Auld who has led Trent for the last 10 years), and b) (formerly served as Chief Commercial Officer). Westside reported 16% YoY revenue growth in FY20, driven by a 15% rise in the no.

Jan-Feb20 revenues grew ~33% YoY, highlighting strong performance in the pre COVID-19 period. We have cut our standalone FY21E/FY22E revenue estimates by 10%/9% due to the prolonged lockdown. 4QFY20 standalone revenue grew 8% YoY to INR7.2b (4% above est.), despite the lockdown in Mar20. Revenues in Jan- Feb20 grew 33%, which implies ~42% decline in the Mar20 (according to our calculations). Revenues were driven by Westside, which saw flattish sales at INR6b whereas Zudio revenues grew ~110% YoY to INR1.1b (according to our working), reflecting strong revenue growth in the pre COVID-19 era. Standalone EBITDA was at INR929 (up 175% YoY) due to Ind-AS 116 impact. Ind-AS 116, EBITDA declined ~90% YoY to INR29m, due to higher rent expense. Standalone PBT declined to INR67m (64% YoY). Pre-Ind-AS 116, PBT stood at INR104m (down 43% YoY), which was supported by higher other income.

Trent reported better than expected topline. SSSG and revenue growth were on strong trajectory during Jan'20 and Feb'20. However, Mar'20 witnessed steep decline in revenue (-42% per our estimate). Positively, c. 88% standalone stores are now operational. However, c. 70% stores are in mall which is expected to take some more time (by June'20) to resume operations. Superior control over inventory (100% stores company operated) and robust supply chain, strongly positions Trent to equip their stores with fast selling essential-inventories (this will drive better store through-put). Considering last 56 days (c. 15% of annual no. of days) complete shutdown of all the...

The Covid-19 pandemic had an unprecedented impact on retail industry, forcing temporary closure of physical stores from mid-March onwards in India. The same materially impacted Trent's performance in Q4FY20. In the apparel space, Trent has been a consistent outperformer with robust revenue growth (30%+ growth in previous three quarters). However, the revenue trajectory got de-railed significantly in Q4FY20. Standalone revenues (including Westside, Zudio formats) grew 8.1% YoY to | 722.8 crore in Q4FY20. The management highlighted that for January-February,...

While execution remains top-notch, Trent seems priced to perfection with little on the table for investors at 33x FY22 EV/EBITDA. That said, we revise EBITDA estimates upwards by 4-5% for FY21/22 primarily to factor in lower cost of retailing. This coupled with our DCF roll-over for standalone biz and Zara to FY22 bumps up our SOTP-based TP to Rs. 580/sh (earlier Rs. 490). We bake in 28/30/41% revenue/EBITDA/PAT CAGR and a 440bp improvement in RoIC (ex-investments in JVs/subsidiaries over FY19-22E. Maintain NEUTRAL. Westsides clockwork-like growth continues. Trents flagship format grew 22% YoY in 9MFY20. SSSG came in at 12% - healthiest within our retail universe. We estimate Zudio to have more than doubled top-line over 9MFY20, however, we suspect productivity may have dipped. Gross margin continues to dip as 1. Zudios skew increases in the revenue mix. Share in JV/associate losses have increased over 9MFY20. While the Westside format remains a winner in terms of unit store economics; the same for Zudio is yet to be tested in catchments without a corresponding Westside store as currently the former piggybacks on the supply chain of Westside.