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Bigger, Bolder and Nimbler

We recently interacted with the management of Trent to understand the current demand scenario, expansion plans and challenges if any. Management sounded confident in maintaining the expansion and growth momentum in FY23 for Westside and Zudio both. The company also believes that its grocery format – STAR has started to stabilize for good. We maintain our positive stance on the business model of Trent and maintain our ADD rating on the stock with TP of Rs1,445. We expect Trent to continue to outperform its peers in terms of consistency in SSG.

Westside continues to perform well

Westside’s annual sales run-rate of Rs50bn (as per 4QFY22 press release) remains on target as per the implicit feedback from the management. The newer stores are of larger size of 21,000sqft as against the older store size of 17,000sqft. This is a conscious decision taken by the company so as to have an option to keep wider product assortment across all the categories. Westside believes themselves to be a brand builder than a retailer. This is reflected in their private labels only strategy. Almost 100% of the products sold in Westside are their own labels. The Company will maintain the momentum of store expansion of FY22. Store expansion is across the geographies and tiers. Westside as of now has refrained from opening stores in T3/T4 towns. Westside does not strictly follow a cluster based approach while putting up new stores. Despite that the inventory risk for Westside is minimal. It keeps similar merchandise across all its 200 odd stores defying the saying that there is a different India every 100km.

Zudio’s strong growth trajectory to continue

The management’s thought process behind Zudio is that customer entering the Zudio store should feel respectful. He or should not feel that they have entered an average quality, discounted retail outlet. This thought process is reflected in the excellent customer service and product quality offered at far superior prices at the Zudio outlets. Everything in Zudio is sold below Rs999 and almost 80-85% is sold below Rs599. Like in Westside, almost entire merchandise is private label in case of Zudio. The Company will try and maintain the momentum of last year in terms of store expansion. Company opened 100 Zudio stores in FY22. Store size for Zudio is 7-8k sqft. Given the smaller store format, it is easier to open new stores for Zudio vs. Westside. Management believes that getting quality merchandise at superior prices to be the trickiest part of their job. The Company is involved in the entire value chain of product development – from design to manufacturing. The vendors who manufacture it are not necessarily exclusive to Zudio

Star format close to getting it RIGHT

Management believes that it very close to get the unit economics right for Star. We believe that last three of the four quarters were profitable for Star. Prior to that Star would be loss making. Once the unit economics are settled at existing stores, company will then go ahead with the store expansion as per the management. Fresh merchandise – vegetables and fruits perform better in terms of profitability at Star.

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