Trent, the retail arm of Tata Group, has the potential to reach a high of ₹1,670 per share from its current market price of ₹1,475, an upside of more than 13 percent, according to domestic brokerage house Bonanza Portfolio.
The brokerage is optimistic about the company and has pointed to its rapid growth over the past few years, with the top line increasing from ₹2,157 crore in FY18 to over double that amount at ₹4,498 crore in FY22 (61 percent CAGR) and store expansion to 500+ stores on a consolidated basis.
The brokerage stated some of the key triggers for the stock included the strong execution capabilities by Westside, a ramp-up in overall performance due to a key growth driver - Zudio, and a strong liquidity position on the back of the industry's best revenue growth and profits from Zara.
Bonanza said that Zudio has shown excellent scaling-up capabilities. The store count has shot up from just 7 stores in FY18 to a massive 233 stores as of FY22. Zudio grew its footprint by 100 stores in the last financial year and is now more accessible than ever before with a growing density of presence in multiple micro markets.
The brand has recorded 2x plus revenue growth, surging to ₹480 crore in FY21 from ₹204 crore in FY19, it says.
In addition, Westside’s execution capabilities and improving key metrics will provide growth momentum, it said. Westside is one of the most successful business models in retail fashion, contributing 75 percent of Trent’s sales through consistent growth of 8 percent–9 percent pre Covid and sustainable expansion (200 stores as of FY22), resulting in robust like-for-like (LFL) recovery (-70 percent LFL at Q1 FY22 vs. 16 percent LFL by Q4 FY22).
Trent’s cumulative store count has been on an upward trend from 189 stores in FY18 to 554 plus stores at present with an approximately 24 percent CAGR, owing to Westside’s private labels strategy with 90 percent share, leading to a focus on cost efficiency. This aids in lower inventory and better control of sourcing and the supply chain, with revenue and EBITDA CAGR of 15.8 percent and 25 percent, respectively, during FY18–22.
Trent’s dual growth engines, Westside & Zudio, having sizable footprint expansion, robust LFL recovery and strong topline growth have huge potential for growth, as per the brokerage.
"We expect Trent to deliver revenue/EBITDA/PAT CAGR of 61%/14%/88% from FY22-25E and powerful return ratios to sustain them, with ROE and ROCE expected to reach 11% and 24% by FY24E, respectively," it said.
Over the last year, the stock has risen from ₹998 to the current level of ₹1,475, generating a return of over 45 percent. The stock has delivered a return of over 190 percent in the last three years and more than 339 percent over the last five years.
For the September quarter, Trent reported an increase of 41 percent in its standalone net profit at ₹185.8 crore. This was largely due to strong revenue growth, which came in higher at ₹2,001.6 crore, up 79.46 percent from ₹1,115.3 crore in the same quarter last year.
It reported an operating profit of ₹267.5 crore for the September quarter, an increase of 20.87 percent when compared to ₹221.3 crore in the year-ago quarter. The company recorded its highest operating expenses at ₹1,566.1 crore during the quarter as against ₹799.1 crore during the same quarter last fiscal.
EBITDA margin came in at 14.59 percent, down by 709 basis points (bps) from the same quarter last year. Sequentially, the EBITDA margin fell 381 basis points.
Trent is a mid-cap stock with a market capitalization of ₹52,038 crore.
Trent's flagship brand, Westside fashion stores, offers an exclusive range of its own brand apparel, footwear, and many more items, with operations in 89 cities and over 215 stores as of Q2 FY23.
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