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Trent, one of the most successful retailers in India, has built durable moats by significantly scaling up its retail footprint, establishing itself as a powerful design house and expanding under different retail formats. Trent’s standalone (Westside and Zudio) sales and EBITDA have grown at CAGR of 17% and 33% over FY13-22 with EBITDA margin improvement from low single digits to 16.3% in FY22. We expect its standalone sales/EBITDA/PAT to grow at CAGR of 25/23/36% respectively over FY20-24E. We remain bullish on the business fundamentals of Trent and initiate with an ADD rating and TP of Rs1280, valuing standalone (Westside and Zudio) operations and Zara at 33x EV/EBITDA FY24E while Star at 1.5x FY24E sales.

Aggressive store expansion

Over the past four years, Trent opened 301 stores of Westside and Zudio. To put things into perspective, until FY18, the company had 132 stores (Westside at 125 and Zudio at 7) while at the end of FY22, the count has moved up to 433 (Westside at 200 and Zudio at 233). Over the past 10 years, management has patiently tried and tested sustainability of the business model before replicating it on a pan-India basis. We believe this expansion spree will continue over the next two years and increase store counts from 433 in FY22 to 578 by FY24E. With improved scale, we expect 1) TRENT to post sales CAGR of 25% over FY20-24E, 2) achieve economies of scale & improve pricing power with vendors in the long term, and 3) improve synergy, leading to cost savings.

Best in class execution

Westside has clocked in high single digits of SSG every year over the past 10 years through its private label strategy, fast fashion model and strong control over supply chain. It has developed strong customer loyalty, which can be judged by sustained rise in footfalls of 2x, bill size CAGR of 7% and 2x increase in Clubwest members over FY17- 22. Despite the pandemic inflicted two years, Westside maintained sales/sqft of Rs10k over the same period.

Growth lever: Zudio ready to capture value for money market

Zudio store count has gone fivefold from 40 to 233 and increased sales contribution to standalone operations from 8% to 27% (FY22 contribution is based on estimates) over FY19-22. Its core value proposition is fashionable merchandise at sharp pricing. Value fashion makes more than 75% of total apparels market in India. Everything at Zudio is priced below Rs999. We expect Zudio to ramp-up store base from 233 to 323 and sales to grow at CAGR of 41% to Rs19.9bn over FY20-24E.

Valuations

We expect Trent to open 145 new stores over the next two years and expect its standalone sales/EBITDA/PAT to grow at CAGR of 25/23/36% respectively over FY20- 24E. We remain bullish on the business fundamentals of Trent and initiate with an Add rating and TP of Rs1280, valuing standalone (Westside and Zudio) operations and Zara at 33x EV/EBITDA FY24E while Star at 1.5x FY24E sales

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