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* Trent continues to report strong performance despite weak consumption reported by other retailers. Standalone revenue grew 57% YoY in 1QFY25 (5-year CAGR of 40%), aided by store expansion of Zudio (+44% YoY) and double-digit SSSG in fashion concepts. This, along with GM improvement (170bp) and operating leverage, led to 67%/2.3x YoY growth in EBITDA/PAT (16%/12% beat). Star format also reported strong SSSG (+22%) with six store addition.

* Based on strong revenue productivity, aggressive store additions, margin tailwinds from moderating RM, and operating leverage, we estimate a CAGR of 41%/52% in revenue/PAT over FY24-26. The continued momentum in Star and improving store metrics offer further upside potential. We reiterate our BUY rating with a revised TP of INR7,040, given TRENT’s strong growth opportunity going forward.

Strong LFL & GM margin improves pre-Ind-AS EBIT margin

* Standalone revenue continued to report robust growth of 57% YoY to INR40b (9% beat), led by 30% store additions and double-digit LFL growth in fashion concepts.

* Gross profit grew 63% YoY to INR18.5b and margin expanded 170bp YoY to 46.2%, possibly due to RM cool off.

* Employee/other expenses grew by 64%/61% YoY to INR3.0b/INR9.3b.

* EBITDA grew 67% YoY to INR6.1b (16% beat), led by GM improvement and SSSG-led operating leverage.

* Reported EBITDA margins rose 90bp YoY to 15.3%,

* As per company, standalone Pre-Ind AS EBIT margin stood at 10.6% (up 280bp YoY/250bp QoQ).

* Pre-Ind AS EBITDA (Calc.) increased 78% to ~INR5.5b with margins expansion of 160bp to ~13.8%.

* PAT grew 2.3x YoY to INR3.4b (12% beat) led by strong SSSG, aggressive footprint growth, GM improvement and operating leverage.

Highlights from the management commentary

* Strong SSSG: Fashion concepts (Westside and Zudio and others) saw double-digit LFL growth.

* Store portfolio: Included 228 Westside stores, 559 Zudio stores and 36 stores across other lifestyle concepts. During the quarter, TRENT opened 6 Westside and 16 Zudio stores across 12 cities.

* Zara buyback: The board has approved the buyback of 140,000 equity shares held by the company in Inditex Trent Retail India (ITRIPL), an associate company, pursuant to the buyback offer made by ITRIPL at INR7,506/- per share. The buyback is subject to acceptance by ITRIPL.

* Emerging categories, including beauty and personal care, innerwear and footwear, contributed to over 20% of standalone revenues.

* Online revenues continued to grow through Westside.com and other Tata group platforms by over 30% and contributed over 5% of Westside revenues.

Valuation and view

* TRENT’s strong performance with double-digit LFL growth and robust footprint additions remains an outlier within our retail coverage universe, which is witnessing a challenging demand environment. Unlike peers that passed on the sharp RM price increases last fiscal, Trent absorbed the impact, seeing strong customer reception and is now reaping the benefits, as RM prices turn benign.

* Further, despite adding stores aggressively, the company has observed limited balance sheet risk or weakness in operations.

* TRENT’s industry-leading revenue growth, driven by healthy SSSG and productivity, robust footprint additions, and healthy scale-up of Zudio, offers a huge runway for growth over the next three to five years.

* The company’s grocery segment, Star, with merely 72 stores and FY24 revenue of INR27.5b, is seeing strong LFL growth. This presents a huge opportunity for growth. Its own brand strategy and curated range are witnessing strong customer reception.

* We increase our PAT estimates for FY25/FY26 by 10%/16%. We estimate a CAGR of 41%/44%/52% in standalone revenue/EBITDA/PAT over FY24-26, led by strong 25% YoY store addition and healthy SSSG.

* We assign 60x EV/EBITDA to the standalone business (Westside and Zudio; premium over our Retail Universe, given its superlative growth), 2x EV/sales to Star Bazaar, and 15x EV/EBITDA to Zara on FY26E, and arrive at our TP of INR7,040. Adjusting the value of Star and Zara, the stock is trading at 90x PE on FY26E for the Standalone business. We reiterate our BUY rating on the stock.

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