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Store addition trajectory for Zudio to be ~ 2x in FY24E

About the stock: Trent is India’s leading retailer with a presence across various consumer categories (600+ stores). Inherent strength of brands (Westside, Zudio, Star, Zara) and accelerated store additions have led Trent to be among the fastest growing companies in our retail coverage universe.

• ‘Westside’ (60% of revenues) has proven to be one of the most profitable business models as it primarily focuses on selling private label brands

• ‘Zudio’ (40% of sales), the value fashion brand, continues to be the next leg of growth for Trent

Key AGM Highlights:

• Consolidated revenues (including JV-Star & Zudio) surpass | 10000+ crore sales mark in FY23. Zudio has demonstrated strong ability to gain market share in value fashion segment with focus on improving profitability

• Zudio now contributes 40% to standalone revenues (from merely 16% in FY20), with gross revenues surpassing | 3200+ crore in FY23. EBIT margins improved 100 bps YoY to 7.0% Trent will continue accelerated store additions for Zudio with opening of 200+ stores in FY24 to 550+ stores (added 117 stores in FY23)

• Westside reported gross revenue worth | 4655 crore with record high EBITDA and EBIT margins of 13% and 11%, respectively, in FY23. SSSG was at healthy 49% YoY (partly aided by favourable base). With Westside firing on all cylinders, we expect the format to have registered 25%+ RoIC during FY23. Trent expects to add 30 Westside outlets in FY24

• Trent’s grocery format Star Bazar continued its calibrated store expansion strategy (added two stores in FY23) with higher emphasis on profitability. Despite muted store addition, revenue grew 35% YoY in FY23E implying healthy SSSG. Enhanced store operational performance led to PBT losses narrowing down to | 104 crore in FY23 (FY22: loss of | 138 crore)

What should investors do? In the retail space, Trent has been an exceptional performer with stock price appreciating at 40% CAGR in the last 5 years. Over the last six years (FY17-23), Trent has delivered industry leading sales growth of ~30% vs. industry average of 12%. Given the strong operating performance, Trent witnessed a sharp jump in RoE profile to 17% in FY23 (~5% in FY20).

• Robust performance during challenging times and industry leading performance will continue to warrant premium valuations to Trent. Hence, we maintain our BUY rating on the stock

Target Price and Valuation: We value Trent at | 2030 based on SOTP valuation

Key triggers for future price performance:

• We pencil in 295 store additions between Westside and Zudio for FY24-25E

• Liquidity position remains robust with cash & investments worth | 600+ crore that will enable it to tide over the current situation better than peers • Zudio continues to be the growth engine for Trent. We expect its revenues to grow at a CAGR of 31% in FY23-25E

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