IGI Logo

Westside and Zudio continues to deliver strong revenue momentum

Denying the consumption slowdown Trent reported consol. revenue growth of 50.5% YoY (4- year CAGR ~40%) reaffirming its growth strategy and agile on ground execution. Standalone revenues grew 52.5%. We believe with 50 new store addition (total 460 stores), revenues for Zudio would have grown ~80%+, while revenues for Star Bazar (67 stores) jumped 24% YoY entirely driven by LFL growth. We would like to highlight in FY22-23 when RM prices surged Trent did not take sharp price increase which helped in winning consumer trust now. Fashion concept format clocked LFL growth of 10%+. In Q3 company added 5 Westside and 50 Zudio stores covering 13 new cities, reaching total count of Westside: 227 and Zudio: 460. Emerging categories including beauty and personal care, innerwear and footwear contributed ~19% of standalone revenues. Online revenues led by Westside.com and other Tata group platforms contributed ~5% revenues for Westside franchise.

Despite higher share of Zudio stores, operating margin jumped to 18.1%

Consol. gross margins stood at 44.1% (+87bp) led by moderation in input prices. EBITDA at Rs6.3bn grew 94.5% despite higher other expenses (+19.8%) and employee cost (+49.3%) settling EBITDA margins at 18.1% (+410bp). PAT jumped to Rs3.7bn (+139.4%) YoY. We believe despite higher share of Zudio stores the scale up in margins could have occurred on account of more franchisee stores. Further with focus on fresh food and own brand contribution ~69% Star format witnessed improved customer traction could have helped to drive profitability in our view. Management believes Star will be the additional growth engine to company’s portfolio in times ahead.

Valuation

We note in a challenging environment across categories Trent saw strong demand momentum indicating, (1) successful marketing strategy driving value-for-money customers, (2) sharp price points leading to customer traffic, (3) right store matrix. Further continued store expansion and earning beat we have increased FY24E/FY25E earnings by 21.0%/34.7%. Though we are optimistic on Trent’s growth story, given stretched valuation we downgrade to ADD rating with a revised SOTP based TP of Rs4,198 (implying PE of 91.1x Sept’26 earnings). Risk Increase in competitive intensity, weakening of demand environment

For More Centrum Broking Disclaimer https://www.centrumbroking.com/disclaimer/

SEBI Registration No.:- INZ000205331