 "Westside store, Trent, Mumbai, customers, shopping, malls")
Shares of Trent hit an all-time high of Rs 1,674.80, as they rallied 5 per cent on the BSE in Tuesday’s intra-day trade on healthy growth outlook.
Trent is part of the Tata Group and operates a portfolio of retail concepts. The primary customer propositions of Trent include: Westside, one of India's leading chains of fashion retail stores, Zudio, a one stop destination for great fashion at great value and Trent Hypermarket, which operates in the competitive food, grocery and daily needs segment under the Star banner.
As of March 31, 2023, Trent’s portfolio included 214 Westside, 352 Zudio and 24 stores across other lifestyle concepts. The performance of new stores added in the last 12 months across concepts is encouraging and in line with the management expectations.
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Westside (65 per cent of revenues) has proven to be one of the most profitable business models as it primarily focuses on selling private label brands (EBITDA margin: 11 per cent, consistent SSSG: 10 per cent plus). Zudio (35 per cent of sales), the value fashion brand, continues to be the next leg of growth for Trent (revenue CAGR: 80 per cent plus in FY18-23E).
India’s apparel market is estimated at $ 692 billion in 2023 and the Indian fashion industry is estimated to be the fourth largest market in the world. In recent years, private brands have increasingly emerged as the rising stars of retail and e-commerce. Retailer owned brands, typically offer shoppers value for money while earning higher margins for retailers with potential to develop into self sustaining propositions, Trent said in its financial year 2022-23 (FY23) annual report.
Meanwhile, thus far in the current calendar year 2023 (CY23), Trent has rallied 25 per cent, while in past one year it surged 53 per cent.
Trent’s standalone revenue/EBITDA (pre-IND AS 116) reported a robust CAGR of 34 per cent/37 per cent over FY20-23E, backed by strong footprint addition and healthy like-for-like (LFL) growth despite the Covid impact.
The two key points that stand out: 1) its strategy to focus on value: In a high RM cost environment where most companies tried to pass on the impact to protect market share, Trent took a hit on gross margins but improved EBITDA margin through operating leverage; 2) Aggressive growth without diluting its store economics, which is evident from healthy ROE of 19 per cent. As a result, Trent posted an industry-beating EPS CAGR of 42 per cent over FY19-23E, analysts at Motilal Oswal Financial Services said in company update.
At 30.1x EV/EBITDA and P/E of 54.8x on FY25E basis, Trent is trading at rich valuations. However, the strong growth potential and historically robust performance justify the higher multiples. Star’s improving store metrics and scaling up of Samoh offer a further opportunity, the brokerage firm said. It reiterates BUY rating on the stock with a target price of Rs 1,835.
