Shares of Tata Group's retail arm Trent have consistently given astonishing returns to its investors. Just in the last five years, the stock has surged over four times. The stock jumped from around ₹263 in April 2017 to around ₹1,223 currently. It has added 65 percent just in the last 1 year.
The surge in the stock comes on the back of strong financial performance, robust track record, healthy store additions, a strong recovery from the impact of the pandemic and profitable diversifications in emerging categories.
Post the exceptional performance, domestic brokerage house Motilal Oswal has upgraded the stock to buy and revised the target price to ₹1,430 per share from ₹1,180 earlier.
Continues to grow at an accelerated pace
As per the brokerage, the firm’s growth in the last couple of years has been stupendous to say the least, growing at 15 percent over FY20-22E despite the impact of the COVID-19 pandemic.
"Its footprint addition has been strong (27 percent over FY20-22E) and much ahead of the industry. Even existing stores have done very well, with 9 percent same-store sales growth (SSSG) over the preCOVID period," said MOSL.
It added that based on its channel checks on store additions and performance of existing stores, it has revised its FY24E revenue and EBITDA up by 5.8 percent and 6.5 percent, respectively and is now building in 37 percent and 57 percent revenue and EBITDA CAGR on the back of a recovery from the COVID-19 pandemic.
Interestingly, all this growth has been largely funded internally, it noted.
Zudio – The winner in Value Retail
The brokerage further noted that the revenue from Zudio has more than doubled to ₹1100 crore in FY22E from ₹480 crore in FY20, despite the impact of the COVID-19 pandemic. The same should grow 3 times over the next two years to ₹3300 crore, it estimates. Its channel checks
across multiple cities suggest that six-month-old Zudio stores are garnering an annualized revenue run-rate of ₹10 crore, it noted.
Outlook and risks
Trent's successful store performance, healthy store economics, and aggressive growth offer a huge runway for growth over the next three-to-five years, said MOSL. It expects 37 percent revenue growth over FY22-25, 4 percent above its retail coverage universe, which warrants a premium valuation.
The key downside risk is a potential GST rate hike on apparel to 12 percent from 5 percent, which can adversely impact demand, especially in the price-sensitive value retail segment. Increasing raw material prices can also compel apparel retailers to undertake another round of price hikes, which can also adversely impact sales volumes, it added.
In the December quarter, the net profit of the parent company of Westside reported a strong performance with its profit jumping 2.4 times over the pre-COVID levels on the back of strong revenue.
It reported a 79 percent YoY jump in Q3 standalone net profit to ₹199 crore while its revenue zoomed 85.8 percent YoY to ₹1,350 crore. The revenue rose as consumer sentiment continued to recover in 3QFY22 on a strong festive season. Compared to pre-COVID levels (3QFY20), revenue grew 55 percent.
The company also reduced its expenses to ₹1,383.62 crore in the quarter, compared to ₹3,175.07 crore in the same time last year.
In the quarter under review, Westside's same-store sales growth (SSSG) jumped 40 percent YoY and 9 percent from Pre-COVID levels.
Westside and Zudio added 6 and 30 stores, respectively in 3QFY22, reaching 197 and 177 stores each.
“While the Omicron wave impacted sales in January, it was mitigated in part by the strong online traction for Westside and the recovery in the last fortnight has been encouraging,” the firm stated in the earnings release.
Speaking post-earnings, Noel N Tata, Chairman, Trent Ltd said, “The third quarter witnessed a strong business rebound and we have been pleasantly encouraged by the rapid recovery in customer offtake. In many ways, the playout in Q3 is indicative of the performance potential of our brands, both in terms of growth as well as profitability."
He added, "our prospects remain robust owing to an accelerating shift to branded products, the emergence of digital/ seamless channels of engagement and a growing appetite for aspirational yet strong value propositions."
Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of MintGenie.