Tata Group's retail company Trent is on the radar of brokerage firms. The stock hit its 52-week high of ₹1,347.10 on BSE on April 7, 2022, and is now down about 11% from that level.
On July 19, Centrum Broking initiated coverage on the stock with an 'add' rating with a target price of ₹1,280.
"Trent, one of the most successful retailers in India, has built durable moats by significantly scaling up its retail footprint, establishing itself as a powerful design house and expanding under different retail formats. Trent’s standalone (Westside and Zudio) sales and EBITDA have grown at a CAGR of 17% and 33% over FY13-22 with EBITDA margin improvement from low single digits to 16.3% in FY22," Centrum pointed out.
Aggressive store expansion in the last few years is one of the biggest positives for Trent. Centrum Broking highlighted that over the past four years, Trent opened 301 stores in Westside and Zudio.
"Over the past 10 years, management has patiently tried and tested the sustainability of the business model before replicating it on a pan-India basis. We believe this expansion spree will continue over the next two years and increase store counts from 433 in FY22 to 578 by FY24E," Centrum said.
Westside has clocked in high single digits of SSG (same-store sales growth) every year over the past 10 years through its private label strategy, fast fashion model and strong control over the supply chain, Centrum said.
Zudio store count has gone fivefold from 40 to 233 and increased sales contribution to standalone operations from 8% to 27% (FY22 contribution is based on estimates) over FY19-22, Centrum Broking added.
The brokerage firm further added that Trent's core value proposition is fashionable merchandise at sharp pricing. Value fashion makes up more than 75% of the total apparel market in India. Everything at Zudio is priced below ₹999.
"We expect Zudio to ramp up store base from 233 to 323 and sales to grow at CAGR of 41% to ₹1,990 crore over FY20-24E," said the brokerage firm.
The broking firm expects Trent's standalone sales/EBITDA/PAT to grow at a CAGR of 25/23/36% respectively over FY20-24E.
"We remain bullish on the business fundamentals of Trent and initiate with an 'add' rating and target price of ₹1280, valuing standalone (Westside and Zudio) operations and Zara at 33 times EV/EBITDA FY24E while Star at 1.5 times FY24E sales," said Centrum.
Another brokerage firm Edelweiss has a 'buy' call on the stock with a target price of ₹1,550.
Edelweiss attributes Trent’s success over the last decade to customer affinity towards Westside, which has helped drive industry-leading same-store sales growth.
With Zudio picking up pace, and the opportunity size in value retail being much larger, it is expected to drive Trent’s next leg of growth over the coming decade, Edelweiss believes.
"Factoring Zudio’s better profitability, we increase FY23/FY23 EBITDA by 5% and keep multiples unchanged which gives us a revised target price of ₹1,550 ( ₹1,439 earlier). Valuations are at a premium but Trent’s success and execution with Westside’s scale-up drive the belief it can replicate the same with Zudio," said Edelweiss.
However, sub-optimal economics for Zudio’s new stores, e-commerce, and increase in losses from subsidiaries, especially Booker India, remain key concerns.
Disclaimer: The views and recommendations made above are those of individual analysts or broking firms and not of MintGenie.
