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Strong performance continues

Standalone (Westside and Zudio) sales grew by 78% YoY and 2.2x of 2QFY20 to Rs18.1bn. As we had highlighted in our preview note that the impact of inflation on consumer audience of Trent is expected to be least. Westside’s LFL growth stood at 20% over 2QFY20. Standalone gross margins stood at 47% declining 510bps YoY though only 70bps below 2QFY20 margins. The decline can be attributed to a normalized EOSS sales after a gap of 2 years. Led by this, standalone EBITDA margins declined 690bps to 14.8%. Total store count for Westside and Zudio crossed 500 from 450 in previous quarter. Positive PAT contribution (Rs140mn) by JV and Associates (Star, Zara and Massimo Dutti) for second consecutive quarter continues to be a key positive for future. We maintain our ADD rating on the stock. We increase our EPS estimates by 2% each for FY23/24 and roll forward to FY25. We continue to value the Standalone (Westside and Zudio) and Zara at 33x EV/EBITDA and Star at 1.5x sales of 1HFY25E estimates. We increase our TP from Rs1,445 to Rs1,572.

Westside and Zudio continues the strong momentum

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 20% vs. 2QFY20. 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 with a growth of 32% YoY. Across the concepts, emerging categories including beauty and personal care, innerwear and footwear witnessed traction from customers. Emerging categories contributes 15% of stand-alone revenues. With strong footprint expansion, healthy underlying consumer demand and right product assortment, we expect Westside and Zudio to contribute Rs64/77/90bn to the sales in FY23/24/25. We expect margins to improve to 18.5/18.9/19.2% in FY23/24/25 vs. 17.7 in FY20.

Star eyeing turnaround, records highest quarterly revenue

Over the past 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. Star recorded its highest quarterly sales in the quarter. Management believes Star will be the additional growth engine to company’s portfolio in times ahead. Despite the improving performance, we expect Start to continue to incur losses. However, the losses will be reduced from Rs1.4bn in FY22 to Rs0.5bn in FY25.

Zara to continue to remain in demand

Zara – a 49% Associate company continued to grow at steady pace. Despite pandemic, Zara’ sales have grown at CAGR of 8% and pre-tax profits at 14% over FY20-22. We expect Zara’s sales/EBITDA to grow at CAGR of 18/20% respectively over FY22-25E.

Valuation

We maintain our bullish stance and ADD rating on the stock. We increase our EPS estimates by 2% each for FY23/24 respectively and roll forward to FY25. We continue to value the Standalone (Westside and Zudio) and Zara at 33x EV/EBITDA and Star at 1.5x sales of 1HFY25 estimates. We increase our TP from Rs1,445 to Rs1572.

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