Trent Ltd. share price target

22 November 2019 The Zudio store and products have a trendy look and feel, offer only casual wear (no formals) and is targeted at young value-seeking consumers. The lower pricing has also been possible due to (a) passing-on of low gross margin benefits (~30% v/s Westsides 55%), and (b) no marketing costs (in line with Westside). Given the low gross margins, Zudios success lies in its strong turnover revenue/sqft of ~12-15k/sqft (v/s industry average of INR8-10k/sqft). Zudios high fashion appeal and sharp pricing has led to an encouraging store operating metrics. Therefore, a franchisees capex is INR15-20m for a store size of 6k sqft; in turn, a franchisee receives a fixed revenue share, while the company operates the store and retains the profitability. Typically, franchisees get ~16% revenue share and 12-15% IRR, while the company garners strong ROCE on merely one-month inventory capital.

Overall result has been in line with our estimates. Westside continues to outperform its competitors based on strong same store sales growth performance during a period when consumption slowdown is at its peak. Decline in gross margin has been due to higher discount during end of season sale and increase in revenue share from Zudio. This is not too concerning as Trent, unlike branded retailers, is able to follow strict discounting policy; 2 months a year. Gross margin dilution coming from Zudio should not have significant spill-over EBITDA margin dilution impact. This is because, in value retailing its always high inventory turn (and not gross margin) which helps to build on...

We recently attended Trent's annual general meeting (AGM). The key takeaways are; 1) robust store addition plans in FY20 (100+ stores between Westside and Zudio), 2) outlaid capex of ~| 350-400 crore (~2x FY19), 3) opened its first exclusive store of its own ethnic brand, Utsa', 4) plans to raise additional capital worth | 600 crore in the next three to six months, 5) focus on enhancing share of private label brands for Star format with adoption of new pricing strategy to become more competitive, 6) adjusting for Ind-AS 116, EBITDA margins for Q1FY20 expanded 60 bps YoY to 12.6%...

The expected capital infusion (| 950 crore) by the promoters is likely to act as a key catalyst for healthy revenue growth. The capital to be raised can provide a strong fillip to store addition pace. A substantial amount is also expected to be invested in enhancing warehousing capacity and supply chain. We maintain our estimates and expect revenues to grow at a CAGR of 23% in FY19-21E with EBITDA margin expansion of 140 bps to 10.1% by FY21E. We have not incorporated Ind-AS 116 impact on financials due to lack of data. Robust performance in a challenging scenario instils confidence...

Revenue growth healthy; PAT supported by other income: Standalone revenue increased strongly by 30% YoY, led by healthy 21% growth in Westside sales. EBITDA was up 130% at INR1.6b on account of Ind-AS 116 reclassification we, however, believe that this number makes limited sense in the absence of any company-provided reconciliation. Reported PBT was up 50% YoY at INR865m (INR85m/9% impact due to Ind-AS 116). On a preInd-AS 116 basis, PBT would have been INR950m (+62% YoY; 32% beat). PAT (post Ind-AS 116) was up 51% YoY at INR579m (23% beat), mainly led by significantly higher other income (+6x YoY to INR359m)....

10 July 2019 Westside is a well-oiled business format with a right product proposition, pricing and favorable store economics. It now plans to replicate Westsides success in Zudio, which will have competitive pricing and value products targeted at the youth. Against this promising backdrop, the company targets to double its store count potentially in three years (adding 60 stores). Subsequently, we have revised our store addition estimate for Westside/Zudio to 35/40 annually v/s 23/25 earlier. Keeping in mind its ambitious plans and accelerated growth, the company has announced equity fund raising plans of INR15.5b in end-June. calculations, Westside garners mid-teens RoCE, but the upcoming investments in scaling up both Westside and Zudio may keep the return profile in single- digits. Further, we expect RoIC to languish at ~10% in FY20E, but believe it will recover to healthy mid-teens level over the next 2-3 years on (a) Zudio driving scale benefits, (b) accelerated store addition, and (c) backend synergies.

Westside continues to be one of the most successful, established franchises in the women's wear category. With steady same store sales growth (8%) and aggressive store addition (added 25 stores: highest store addition historically in a single year); revenues from the Westside format grew robustly by 17% YoY in FY19. Private label brands continue to dominate the product portfolio with the share now touching 97% (from 80% in FY13). On the profitability front, gross margins for Westside format declined 210 bps YoY to 57.9%, mainly owing to price rationalisation in selected categories of...

Westside (~92% of standalone revenues) continued to deliver a superior performance with healthy revenue growth of 18% YoY in FY19. Westside is considered one of the most successful and established franchises, consistently delivering high single digit SSSG (FY13: 7%, FY14: 9%, FY15: 11%, FY16: 8%, FY17: 9%, FY18: 9% and FY19: 9%) and deriving ~96% of share of revenues from private label brands. The management accelerated its store expansion pace by adding record number of stores in FY19 (added 20 Westside stores in FY19 vs. 18 in FY18). Healthy store addition coupled...

Driven by strong festive season, revenue grew a robust 26% YoY to | 656.5 crore (I-direct estimate: | 612.6 crore). For 9MFY19, Westside format sales grew 17% YoY, with like to like sales growth of 8% Gross margins for the quarter declined 359 bps YoY to 53%. However, decline in other expense as a percentage of sales (down 177 bps YoY) neutralised the impact of lower gross margins, to a certain extent. Subsequently, the decline in EBITDA margin was restricted to 211 bps YoY to 11.1% (I-direct estimate: 13.7%). Absolute EBITDA grew 6%...

ICICI Securities Ltd | Retail Equity Research Trent reported a healthy operational performance, with revenue and EBITDA in line with our estimates. Net profit came in below our estimates mainly on account of higher interest expense Revenue for the quarter grew 18% YoY to | 615.9 crore (I-direct estimate: | 612.4 crore). Gross margins for the quarter declined 125 bps YoY to 50.8%, mainly on account of higher discounting days. However, a decline in other expense as a percentage to sales (down...