Trent Ltd - Strong margin show; healthy stores additions - ICICI Securities

Key takeaways from Trent's Q3FY21 result include: a) despite revenues declining 17% YoY, adjusted EBIT grew 9% YoY to Rs970mn (pre Ind-AS 116) owing to 380bps gross margin increase and better costs control; b) Westside revenues fell 22% YoY; while implied Zudio revenue grew ~10% YoY on store additions; c) sales trajectory improved MoM with traction in Jan'21 for full-priced merchandise consistent on YoY basis both in terms of quantity and value; d) online sales grew 80% YoY on low base; e) company opened gross 17 additional stores (12 Zudio, four Westside, one Landmark) in Q3FY21. We believe Trent is better positioned to leverage the huge opportunity available, given its value product offerings and strong balance sheet. We maintain our FY22-23E EBITDA; while raise our DCF-based target price to Rs845/sh (earlier: Rs780) on half-yearly rollover (on FY23E). Maintain BUY. Key risks: lower discretionary spends and increasing competition.

- Standalone revenues down 16% YoY to Rs7.3bn. Westside revenues declined 22% YoY to Rs5.64bn with LTL revenues down 26% YoY in Q3FY21. Implied Zudio revenue grew ~10% YoY to Rs1.5bn. Sales trajectory improved MoM with traction in Jan'21 for full-priced merchandise consistent on YoY basis in terms of quantity and value. Revenues from online platform grew 80% YoY on low base. Trent has recently launched Westside.com in addition to sales through Tata Cliq and targets 8-10% revenue contribution (1.6% in FY20) from online sales in the medium term.

- Trent added gross 17 additional stores (12 Zudio, four Westside, one Landmark) in Q3FY21 taking its total store count to 101 Zudio and 169 Westside stores, respectively, as of Dec'20. Overall, it has added gross 28 new stores (20 Zudio, six Westside and two Landmark) in 9MFY21. Management remains focused on accelerated growth in store network with a significant number of stores currently under fit-out, and continues to pursue opportunities in all relevant micro markets.

- Gross margin (adjusted) improved sharply 380bps to 54.4% owing to no incremental discounting coupled with stronger full price sales and no additions to inventory aging provisions given festive demand recovery. In fact, company reversed excess inventory provision (made in Q1FY21) of Rs140mn resulting in reported gross margin being higher at 56.4%. Pre-IndAS116 EBITDA margin improved 350bps to 15.5% with employee costs, rent and other expenses declining 16% YoY and EBITDA (our estimate) increasing 8% YoY to Rs1.2bn. Other income of Rs426mn included Rs188mn relating to reduction of rent for the period of store closures. The net effect of Ind-AS 116 on PBT was an adverse impact of Rs140mn in Q3FY21. Adjusted reported net income increased 18% YoY to Rs657mn. Share of profit from associates/JV fell 75% YoY to Rs29mn in Q3FY21.

Shares of TRENT LTD. was last trading in BSE at Rs.686.7 as compared to the previous close of Rs. 668.85. The total number of shares traded during the day was 47877 in over 2071 trades.

The stock hit an intraday high of Rs. 692.5 and intraday low of 668.05. The net turnover during the day was Rs. 32633562.

Source : Equity Bulls

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