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Strong growth momentum continues

Standalone (Westside and Zudio) sales surged 5x YoY and 2x of 1QFY20 to Rs16.5bn. As we had highlighted in our retail channel check note published on 6th July’22 that Trent was expected to report best growth trajectory in the apparel category. Westside’s LFL growth stood at 24% over 1QFY20 and is running at Rs50bn of annual sales run-rate. Standalone gross margins stood at 49.3%, flattish sequentially but declined by 370bps over 1QFY20. EBITDA margins remained healthy at 18.4%. Total store count for Westside and Zudio increased by 17 during the quarter and stood at 450 at end of 1QFY23. Positive surprise in the result was the Rs340mn PAT contribution by JV and Associates (Star, Zara and Massimo Dutti). We maintain our ADD rating on the stock. We increase our EBITDA estimates by 15/14% for FY23/24 respectively. We continue to value the Standalone (Westside and Zudio) and Zara at 33x EV/EBITDA and Star at 1.5x sales of FY24 estimates. We increase our TP from Rs1,280 to Rs1,445.

Westside and Zudio continues on a very strong growth trajectory

Westside and Zudio will continue to be the key drivers for Trent’s growth trajectory over the medium term. Westside’s LFL growth stood at 24% vs. 1QFY20. We believe strong growth is on account of – higher ASP prices, strong retail footprint expansion and volume growth. Online channel including – Westside.com, Tatacliq and Tata Neu contributed 6% to the Westside’s sales during the quarter. Across the concepts, emerging categories including beauty and personal care, innerwear and footwear witnessed traction from customers. Emerging categories now contribute to over 15% of stand-alone revenues. As per the management, Westside is running at Rs50bn annual run-rate. With strong footprint expansion, healthy underlying consumer demand and right product assortment we expect Westside and Zudio to contribute Rs64bn and Rs77bn to the sales in FY23/24. We expect margins to improve to 18.5/18.9% in FY23/24 vs. 17.7 in FY20

Star probably at turnaround

Over the past many years Star has been the laggard in the Trent’s pack. It continued to incur losses. However, with tight footprint stores, sharp pricing and focus on fresh and own brand offerings Star is witnessing improved customer traction and growing sales. Store economics too are improving. Management believes that Star will be the additional growth engine to the company’s portfolio in times ahead. Despite the improving performance, we expect Start to continue to incur the losses. However, the losses will reduced from Rs1.4bn in FY22 to Rs0.9bn in FY24.

Zara to continue to grow steadily

Zara – a 49% Associate company continued to grow at steady pace. Despite the pandemic, Zara’ sales have growth at CAGR of 8% and pre-tax profits at 14% over FY20- 22. We expect Zara’s sales and EBITDA to grow at CAGR of 10% over FY22-24E.

Valuation

We maintain our bullish stance and ADD rating on the stock. We increase our EBITDA estimates by 15/14% for FY23/24 respectively. We continue to value the Standalone (Westside and Zudio) and Zara at 33x EV/EBITDA and Star at 1.5x sales of FY24 estimates. We increase our TP from Rs1,280 to Rs1,445.

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