Trent Ltd. share price target

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....

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...

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.

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,...

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...

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.

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.

Trent has reported above expected result during 3QFY20. SSSG at 12% for 9MFY20 (c. 10.5% in 3QFY20) compared to 5% SSSG in Pantaloons for 3QFY20 and 2% SSSG in TCNS is extremely positive. Decline in gross margin is led by rise in the revenue share of the value fashion format Zudio. PBT on like to like basis rose significantly due to higher other income. Trent continues to out-perform competition over past several quarters. We have revised our SSSG assumptions and EPS estimates upward based on 9-M actual performance. We expect Trent to continue outperform other apparel retailers in India led by disruptive pricing and superior business model. Based on recent run-up in the stock...

Westside continues to be one of the most successful, established franchises, deriving 97% of share of revenues from private label brands. Over the last six years, Westside has sustained its same stores sales growth at 7%+, outperforming peers in the industry. Exceptional ramp up in store addition in non-metro cites, mainly through Zudio format (value fashion business) is one of the major growth drivers in coming years. Robust performance in a challenging scenario instils confidence in the business model, which would enable the company to command premium valuation multiple on a...

Maintain Trents revenues were up 33% YoY to INR8.7b (in-line), led by strong performance of Westside stores that witnessed an impressive 22% YoY revenue growth and 10% SSSG, considering other retailers are facing the Post Ind-AS116, PAT was up 38% YoY to INR557m, while pre Ind-AS116 PAT was up 60% YoY to INR645m (7% beat). Thus, 3QFY20 SSSG stands at ~10%, witnessing strong traction in a weak Zudios revenues are estimated at 2.3x YoY to ~INR1.14b, now contributing 13% of the total standalone revenues (up from 5% in 3QFY19), led by fast Our SOTP-based TP of INR700 values Westside and Zara at 30x EV/EBITDA and Star at 2x EV/sales on FY22E.