Stock Overview – CMP, Target Price, Yields, 52 Week Low & High

The current market price (CMP) of Trend is Rs 1,113.30/share. The stock last week gave a negative return of 1.51%. The drop was only for the last week. The stock has given positive returns over the past month 27.82% in 1 year, 179.58% in 3 years and 338.65% in 5 years.

It touched the 52-week low at Rs 828.95/share on June 17, 2021, and the 52-week high at 1,346.85/share this year on April 7. The company’s current market price is Rs 284.35 above its 52-week low and Rs 233.55 above its 52-week high.

Based on the brokerage’s estimated target price of Rs 1,430/share and current share price of Rs 1,113.30/share, the stock has the potential to jump 29% over an investment horizon. of 12 months.

Trent’s successful store performance, healthy store economics and aggressive growth strategy provide a huge growth avenue over the next three to five years as the company targets 25% annual revenue growth.

Growth at all costs supported by a strong brand and revenues

Growth at all costs supported by a strong brand and revenues

Despite the negative impact of COVID-19 over the past two years, Trent’s own source / PAT revenue reported an encouraging CAGR of 11% / 27% in FY20 to reach Rs 39b / Rs 2 respectively, 5b, which was by far the best among his peers. . However, due to increased losses at its subsidiary (Booker India), Trent’s consolidated PAT (post-minority stake) contracted to Rs 346 million in FY22 from Rs 1.0 billion of Rupees in FY20. Consolidated EBITDA (before IND-AS 116) showed a CAGR of 7% at Rs 2.3 billion in FY20-22. Trent’s standalone revenue growth was fueled by the outstanding performance of Zudio (upper line >2x at Rs 11b), well supported by Westside which matched its FY20 revenue of Rs 27.3b. This was supported by cumulative store additions of 170/40 by Zudio/Westside over the past two years (191%/21% addition), respectively.

ROIC depressed due to investments;  Westside records healthy returns

ROIC depressed due to investments; Westside records healthy returns

Trent’s consolidated RoE/RoIC was ~2% in FY22 versus 8% in FY20. Yield ratios were low mainly due to: a) weak profits, negatively impacted by COVID19, b) investments made in loss-making joint ventures and subsidiaries, namely Trent Hypermarket (Star Bazaar) and Booker India and c) liquid investments. Excluding investments, standalone RoIC (after tax) was around 8% in FY22. However, the flagship ROI (Westside), which was around 20% in FY20 (negative in FY21), is now around 10% (after tax). This was due to a 20% decline in revenue/sq ft to Rs 10,000 from historical. Zudio broke even in EBITDA in FY22 but saw an ROI of -1%, while Star Bazaar – the consumer of capital – posted an ROI of -25% .

Healthy leverage;  cash flow used to fuel growth

Healthy leverage; cash flow used to fuel growth

Trent operates with a strong consolidated net cash position of Rs 2.5 billion, despite aggressive store additions in recent years. It utilized internal accruals as well as Rs 9b developer funding received in FY2020. In FY22, Trent’s consolidated operating cash flow was reduced to Rs 2.2bv /s Rs 4.4b during FY20, as inventory days rose to 70. This could be attributed to the aggressive addition of 65% surface area during FY20, as inventory / square foot decreased by 15%. Capex was at Rs 2.1b, ~20% lower than our operation, due to the capital efficient FOCO model, which led to a negative FCF of Rs 1.5bv/s a positive cash flow of Rs 2.4b at during the 2020 financial year. Investments of Rs 1.1 billion in joint ventures/subsidiaries (Star Bazaar and Booker) diluted cash flow with no clear understanding of the end result.

Zudio & Utsa

Zudio & Utsa

Zudio’s revenue more than doubled to Rs 11 billion in FY22 from Rs 4.8 billion in FY20 despite the negative impact of the pandemic. The same is expected to grow 3 times over the next two years to reach Rs 33b. Our channel checks suggest that the six-month-old Zudio stores are generating an annualized revenue rate of Rs 100m, or Rs 14-15k/sq. ft, nearly 20-30% larger than similar sized stores.

The brokerage said, “We understand that the company is actively pushing for the addition of 200 stores in fiscal 23E. Additionally, Utsa, which caters to ethnic clothing for women, now has six stores and remains another growth engine for the company.

Growth levers in place, justifying premium valuation, suggest buying

Growth levers in place, justifying premium valuation, suggest buying

“We expect revenue growth of 37% in FY22-24, which justifies a higher valuation for the stock. We have attributed an EV/EBITDA of 31 x FY24E to the standalone business (Westside Zudio, 15% bonus for the last five years until the pandemic and 10% bonus to our retail coverage universe), 1x EV/sales to Star Bazaar, and 15x EV/EBITDA to Zara to arrive at our new target price of Rs 1,430. Weak demand in Tier 2-3 cities as validated by our channel checks remains the main short-term risk,” the brokerage said.