Brokerage house Motilal Oswal Financial Services recommends buying the Tata Group firm Trent as it sees the stock rising over 30 percent in the next 12 months. The brokerage has a target price of ₹1,430 on the stock, which is currently trading at ₹1,084 (as of June 9, 2022).
The stock has risen nearly 30 percent in the last 1 year and 7.5 percent in 2022 year-to-date (YTD). In comparison, the benchmark Nifty50 is up 4 percent in the past 1 year and down 6 percent in 2022 YTD.
In Q4, the firm reported a consolidated net loss of ₹20.87 crore for the fourth quarter ended in March 2022. The company had posted a net profit of ₹17.44 crore in the March quarter a year ago. However, its revenue from operations came in at ₹1,328.86 crore in Q4FY22, up 46.74 percent as against ₹905.55 crore in the same quarter last year.
"The business was impacted in January and February 2022 by the third wave of the pandemic. Nevertheless, consumer sentiment recovered strongly thereafter. During March, our fashion concepts registered growth compared to pre-pandemic levels," said Trent in the earning statement.
As per the brokerage, Trent's aggressive expansion of footprint and strong like-to-like growth of 16 percent year-on-year translated into a robust 53 percent revenue growth in the March quarter (Q4FY22). Westside and Zudio added 26 and 100 stores in FY22, respectively. Overall, Westside and Zudio added 30 percent and 51 percent more stores over the last one year and two years, respectively, it added.
"Westside and Zudio's store-level economics remains healthy as evident from strong like-to-like growth and Westside's annualised revenue run-rate which was almost double its FY22 level. Emerging categories such as beauty and personal care, innerwear and home also continued to gain traction with customers," stated MOSL.
It further pointed out that Trent's performance remains much ahead of its peers and offers a huge runway for growth over the next 2-3 years.
"We estimate revenue or EBITDA CAGR of 45 percent and 58 percent over FY22-24E led by strong revenue recovery and aggressive store additions for Zudio and Westside, respectively."
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, said MOSL. 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 last five years, the stock has surged over four times. The stock jumped from around ₹263 in April 2017 to around ₹1,084 currently, rallying as much as 333 percent in this time.
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.
Established in 1998 and part of the Tata group, Trent is one of the leading players in the branded retail industry in India. It operates a chain of retail stores primarily under the Westside brand in India. It also operates hypermarket and supermarket stores under the Star Market brand, which offer food and groceries, home care, apparel, home decor, health and beauty products. Further, it offers apparels and footwear for men, women, and children under the Zudio brand; and ethnic apparels, beauty products, and accessories under the Utsa brand.
Commenting on the performance, Trent Chairman Noel N Tata said: "Our fashion concepts displayed resilience to pandemic-related challenges in FY22. Our continued emphasis on network growth during the preceding two years is starting to yield results as the pandemic impacts fade."