Trent, a retail operations company that owns and manages a number of retail chains in India reported better than expected result. Apparels being non-essentials has been most significantly impacted due to COVID induced lockdowns. During 1QFY22; fashion business (Westside and Zudio) of TRENT could operate only for 46% of the trading days.
Consequently, overall business is stayed at c. 43% of Pre-Covid. Revenue from Westside online business grew at healthy +200% and now contributes c. 5% to Westside revenue. Store addition rate remains healthy and aids confidence to our forecast.
Commenting on the result review, IDBI Capital Equity Research said, "During the quarter; TRENT fitted out 25 (13 Westside and 12 Zudio) stores which are likely to open once COVID restrictions are eased. We are estimating 30 and 70 store additions in Westisde and Zudio formats in FY22E. We broadly maintain our estimates. Due to rally in the stock price our rating stands at Sell with a TP of Rs 657."
Key highlights and investment rationale
Revenue growth tracks well supported by 200% growth in online channel
Standalone revenue grew 240%YoY to Rs 3.3 bn (-58%QoQ). Fashion business (Westside and Zudio) could operate only for 46% of the trading days (up from 26% in 1QFY21). Revenue from online channel grew 200%YoY and now contributes c. 5% to Westside revenue during 1QFY22. 10 Westside and 4 Zudio stores were added during the quarter.
Gross margin stays at healthy levels; strict cost control aids reduces overall losses
Gross margin stood at 53.6%; 2nd highest over last three financial years driven by better revenue mix. Cost mitigation measures including rental payments, other expenditures helped to significantly reduce EBITDA losses to Rs 318mn (vs loss of Rs 1191mn in 1QFY21). Negotiation over rent and related expense lead to accounting of Rs 350mn as part of other income.
Valuation continues to remain biggest barrier to entry!
Broadly we maintain our EPS estimates for FY22-23E. Expensive valuation has always been primary barrier to entry for investors. The barrier continues; at current price our rating stands at SELL with a TP of Rs 657 based on SOTP valuation.
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