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Revenue recovery, strong liquidity to aid future growth

Trent has recorded impressive recovery on the growth front, with growth reverting to the positive territory. Revenue for the quarter grew 7% YoY (6.7% QoQ) to | 773.7 crore. Westside revenues (~80% of sales) were broadly at last year’s levels with negative SSSG of ~4% (negative SSSG of 28% in Q3FY21). Zudio continues to perform well with back of the envelope calculations suggesting 30%+ growth in Q4FY21. Revenue trajectory had continued to improve on a month on month basis but a sharp drop in revenues was witnessed following the temporary partial lockdowns in various states from mid-March onwards.

Digital platforms witnessed robust 150% growth in Q4FY21 on a low base. For the first time, over 5% of Westside revenues were recorded through online channels in Q4 as well as in the financial year. This was the second consecutive quarter wherein it recorded a strong beat on gross margins with expansion of 670 bps YoY to 53.2% (despite higher share of Zudio revenues). Margins may also include reversal in inventory provisions taken in the previous quarters.

Following the strong gross profits, EBITDA margins came in at 17.7% (Q3FY21: 24.8%, Q4FY20:12.9%). Absolute EBITDA grew 47% YoY to | 136.6 crore. Other income came in at | 72 crore (up 2x from Q4FY20) of which | 11 crore pertains to lease rent waiver. On account of a steady operational performance and benign base of Q4FY20, Trent reported PAT of | 56.9 crore vs. | 2.6 crore in Q4FY20 (Q3FY21: | 79.6 crore).

Store addition pipeline remains healthy for FY22E

On the back of healthy b/s, Trent was among the few retailers that reiterated its stance of aggressively adding stores in FY21. During the financial year, it added 52 Zudio stores (total 133) and nine Westside stores (total 174). Trent has a healthy store addition pipeline (19 Westside, 15 Zudio stores) and would open once Covid related restrictions are eased. The company continues to aggressively add Zudio stores given scalability of brand (average store size ~6000 sq ft, one-third of Westside store) and given its shaper price points offerings (two-third of products priced < | 500). We pencil in 226 store additions between Westside and Zudio for FY21-23E.

Valuation & Outlook

The management remains cautiously optimistic on the medium-term outlook, with demand expected to rebound strongly from Q2FY22E onwards. Despite the retail sector being the worst impacted in FY21, Trent has displayed a resilient show. While H1FY21 was severely impacted (net loss: | 187 crore), Trent through its strong brand patronage witnessed a sharp recovery in H2FY21 (net profit: | 136 crore). On the balance sheet front, Trent has significantly focused on reducing working capital and freeing up cash through redeployment of old inventory and reducing fresh buys.

Liquidity position remains healthy with cash & investments worth | 752 crore as on FY21. Owing to the near term headwinds, we revise our revenue, EBITDA estimates downwards by ~12%, 15%, respectively, in FY22E. The company has converted certain fixed expenses to variable, which would protect margins in case of uncertainties. We build in revenue and earnings CAGR of 15% and 36%, respectively, in FY20-23E. We maintain BUY with a revised target price of | 900 based on SOTP valuation (earlier TP: | 820).

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