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IDBI Capital
Trent (Sell)
Target: ₹657
CMP: ₹897.1
Trent reported better-than-expected result. Apparels, being non-essentials, has been most significantly impacted due to Covid-induced lockdowns. During Q1FY22, fashion business (Westside and Zudio) of Trent could operate only 46 per cent of the trading days. Consequently, overall business has stayed at 43 per cent of pre-Covid level. Revenue from Westside online business grew at a healthy 200 per cent and now contributes 5 per cent to Westside revenue.
Store addition rate remains healthy and aids confidence to our forecast. 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 FY22.
Gross margin stays at healthy levels and strict cost control reduced overall losses. Gross margin stood at 53.6 per cent, second 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 ₹31.80 crore (vs loss of ₹119.10 crore in Q1FY21). Negotiation over rent and related expense lead to accounting of ₹35 crore as part of other income. Broadly, we maintain our EPS estimates for FY22-23. Expensive valuation has always been primary barrier to entry for investors. The barrier continues and at current price, our rating stands at ‘Sell’ with a target of ₹657 based on SOTP valuation.
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