Buy Trent Ltd For Target Rs.1100 - ICICI Direct
On track to achieve rapid revenue recovery….
About the stock: Trent is India’s leading retailer with a presence across various consumer categories (400+ stores). Inherent strength of brands (Westside, Zudio, Star, Zara) and accelerated store additions has led Trent to be among the fastest growing companies in our retail coverage universe.
* ‘Westside’ (75% of revenues) has proven to be one of the most profitable business models as it primarily focuses on selling private label brands (EBITDA margin: 11%, consistent SSSG: 8-9%)
* ‘Zudio’ (22% of sales), the value fashion brand, continues to be the next leg of growth for Trent (revenue CAGR: 50% FY18-21)
Q1FY22 Results: Covid induced lockdowns significantly disrupted the performance of Trent in Q1FY22. Green-shoots are visible with ~80% recovery rate in July.
* Standalone revenues grew 240% YoY to | 327.3 crore. On the base of Q1FY20, recovery rate was at ~43% of pre-Covid levels
* Reported EBITDA loss of | 31.8 crore (Q1FY21: (-) | 119.1 crore)
* Net loss came in at | 83.7 crore (Q1FY21: (-) | 140 crore, I-direct estimate: | 119.9 crore)
What should investors do?
Trent has been an exceptional performer with the stock price appreciating at ~36% CAGR in the last five years.
* We maintain our BUY recommendation on the stock
Target Price and Valuation: We value Trent at | 1100 based on SOTP valuation
Key triggers for future price performance:
* We pencil in 175 store additions between Westside and Zudio for FY22-23E
* Liquidity position remains robust with cash & investments worth | 752 crore that will enable it to tide over the current situation better than peers
* Expect revenue recovery to pick up pace from H2FY22 onwards and model in revenue and earnings CAGR of 17% and 36%, respectively, in FY20-23E
* In the long run, the company aims to grow its revenue at CAGR of 25%+
Alternate Stock Idea: Apart from Trent, we also like Aditya Birla Fashions (ABFRL).
* ABFRL has charted out growth strategies to become a ~US$2.8 billion entity (| 21000 crore) by FY26E, translating to 15% CAGR in FY20-26E
* BUY with a target price of | 265.
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