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Cautious optimism; healthy store additions

Trent’s Q4FY21 revenue growth at 7% YoY was in line with our / consensus estimates; while EBIT (pre Ind-AS 116) at Rs570mn was higher than estimates mainly owing to inventory reductions. Westside revenues remained broadly flat YoY and implied Zudio revenues grew ~40% YoY on healthy store additions (added 16 stores in Q4FY21 and 37 in FY21).

Sales have seen a sharp drop since mid-Mar’21 on account of partial lockdowns in various states and local restrictions. Rs1.1bn working capital was released in FY21 led by sharp Rs1.9bn reduction in inventory. Factoring-in the impact of recent lockdown, we reduce our FY22E estimates, but maintain FY23E estimates. Maintain BUY with a revised DCF-based target price of Rs895/sh (earlier: Rs845) on better margin / cash generation.

Key risks: extended lockdowns, and lower discretionary spends.

* Standalone revenues up 7% YoY to Rs7.7bn. Westside revenues remained flat YoY at Rs5.9bn with LTL revenues down 4% YoY in Q4FY21. Implied Zudio revenues grew ~40% YoY and constituted ~20% of revenues. Online channel grew >150% in Q4FY21 with 5% of Westside revenues being recorded through online channels in both Q4FY21 and FY21. As at Mar’21-end, the company had over 6mn members in the Westside loyalty programme. Management remains cautiously optimistic on the medium-term outlook and expects strong recovery from Q2FY22E.

* Accelerated store expansion plans: Company added 9 Westside stores in FY21 taking the total to 174, while it added 37 Zudio stores in FY21 taking the total to 133 including SIS stores. An additional 19 Westside and 15 Zudio stores were fitted out during the quarter and are expected to open once the covid-related restrictions ease. Trent usually targets to add 100 fashion stores every year.

* Reported gross margin improved sharply by 671bps YoY to 53.2% mainly led by inventory reductions (lower fresh purchases). Company recognised Rs117mn relating to rent reductions in Q4FY21 and Rs890mn for FY21. Employee expenses were down 10% YoY. EBIT (pre-Ind AS116) stood at Rs570mn vs. EBIT loss YoY.

* FY21 (reported) revenues from operations were down 36% YoY to Rs20.5bn, EBITDA was lower by 63% YoY and adjusted PAT loss stood at Rs510mn against PAT of Rs1.5bn in FY20 due to the pandemic. The net effect of Ind-AS 116 on PBT was an adverse impact of Rs350mn in FY21. While H1FY21 was impacted by lockdowns, Trent posted healthy PAT of Rs1.3bn in H2FY21.

* Company generated OCF of Rs1bn in FY21 led by Rs1.9bn reduction in inventory YoY to Rs4bn. Net capex in FY21 was Rs0.8bn with an additional Rs0.9bn invested in subsidiaries / JVs / associates. Hence, standalone net cash stood at ~Rs4bn as at Mar’21. Mr Philip Auld, ED has retired w.e.f 1st May’21.

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