HOLD

Result Update Trent Ltd Target Price

11th August 2021 Retail 990

Lockdown Impacts operations; Recovery Stands Protracted!

(CMP as of August10, 2021)
Trent Ltd. (Trent) witnessed a significant impact on the operations in Q1FY22 where recovery
was weak on a QoQ basis. Standalone revenue came at Rs 327 Cr (est. Rs 312 Cr) vs Rs 96 Cr CMP (Rs) 944
in Q1FY21, up 240% YoY on a lower base and ease in lockdown restrictions in April and Jun’21. Upside /Downside (%) 5%
Fashion Business (Westside and Zudio) operated for 46% of the trading days, up from 26% in
the corresponding previous period. However, by the quarter-end, the stores were operational for High/Low (Rs) 969/549
over 80% of the trading days. The latter part of the first quarter witnessed the lockdown Market cap (Cr) 33,575
relaxations, considerably aiding sentiment and improving consumer traction. Gross Margins at
Avg. daily vol. (6m) Shrs. 8,46,221
54% (our estimate: 47%) were significantly up YoY on account of better product mix and
improved sales due to lockdown relaxations and positive consumer sentiments in the latter part No. of shares (Cr) 35.5
of the quarter.
Consequently, EBITDA came in at Rs -32 Cr on account of lower sales and higher operational Shareholding (%)
expenditure despite savings in the rent expenses. Other income at Rs ~52 Cr includes Rs 35 Cr
Dec-20 Mar-21 Jun-21
on account of savings on rental cost in Q1FY22. It reported a net loss of ~Rs 90 Cr against a
loss of ~Rs 139 Cr in Q1FY21 on account of saving in the rent forming part of other income, Promoter 37.0 37.0 37.0
better cost management, and ease in lockdown leading to improved consumer sentiments. The FIIs 29.4 29.9 30.3
management highlighted over 90% of stores being operational on most days of a week with local
restrictions being increasingly eased in the recent weeks. In Aug’21, 184 Westside and 137 MFs / UTI 6.2 5.9 6.3
Zudio stores are operational by far. Furthermore, an additional 13 Westside and 12 Zudio stores Banks / FIs 0.0 0.0 0.0
are fitted out and are ready to open. These 25 stores are likely to open post restrictions easing
Others
up and/or local municipal approvals are in place. The company’s FY21 balance sheet remains 27.4 27.1 26.4
strong, aided by healthy CFO generation and it also turned debt-free as the company paid off its
existing debt. Online channel registered robust traction as it grew over 200% YoY in Q1FY22 Financial & Valuations
and for the first time, over 5% of Westside revenues were recorded through online channels. Y/E Mar (Rs. Cr) 2022E 2023E 2024E
Furthermore, with the management’s aim to retain its cost efficiencies, it is cautiously optimistic
Net Sales 4,019 5,127 6,155
on the recovery outlook and expects customer demand to rebound in Q2FY22.
EBITDA 695 923 1,114
We believe Trent is well-placed to bounce back post COVID-19 pandemic, driven by its success
Net Profit 147 271 438
in the ‘Westside’ concept (exclusive brands at competitive prices), the ramp-up of value fashion
format ‘Zudio’, sustainable margins (led by superior store metrics, supply chain optimization, and EPS (Rs.) 559 699 867
diligent focus on cost rationalization) backed by a strong balance sheet. We maintain our SOTP PER (x) 4.1 7.6 12.3
based TP to Rs 990 (Rs 790, previously) and maintain our current rating to HOLD given EV/EBITDA (x) 227.9 123.9 76.6
the negative impact of the second COVID-19 wave leading to lockdowns across states.
ROE (%) 52.3 39.4 32.4
Key result takeaways ROCE (%) 12.9 11.9 10.4
 Focus on store expansion and value fashion bodes well: In FY21, Trent added 9-
Westside stores, 53 Zudio stores, and 2 Landmarks stores despite COVID-19 led Growth Estimates (%)
disruptions. Given the quicker demand recovery in Tier 1 and 2 cities as against metros, Y/E Mar FY22E FY23E FY24E
Trent’s unwavering focus on store additions in Westside/Zudio formats beyond metros would
aid healthy recovery moving forward. Furthermore, an additional 13 Westside and 12 Zudio Sales 96 28 20
stores are fitted out and are ready to roll out as restrictions are eased and approvals are in EBITDA 241 33 21
place. With value fashion gaining more importance in the COVID-19 period owing to lower PAT - 84 62
discretionary spending, its aggressive store additions in its Zudio format (value fashion
format) would drive growth going ahead.
ESG disclosure Score**
 Healthy balance sheet to tide over tough times: Trent’s Mar’21 balance sheet was
strongly supported by healthy operating cash flow generation. Furthermore, it has turned Particulars Score
debt-free by repaying Rs 299 Cr debt in Q2FY21 (aided by Rs 950 Cr fundraise from its Environmental 44
parent Tata Sons). Trent intends to leverage its strong parentage and healthy balance sheet Social 48
to fund store additions plans as well as a tide over uncertain times. 32
Governance
 Consolidated Performance: For Q1FY22, consolidated revenues stood at Rs 492 Cr, up
98% YoY. The loss was at Rs 127 Cr vis-à-vis Rs 178 Cr in Q1FY21. The consolidated Total ESG Disclosure Score 17
results also incorporate the IndAS 116 lease accounting requirements. Its net effect on the Source: Bloomberg, Scale: 0.1-100
reported profit before tax for the quarter was an adverse impact of Rs 28 Cr.
 Improving membership: WestStyleClub loyalty program gained significant traction and Relative performance
registered the highest paid enrolments during the year. Given the attractive membership 140
benefits, the average bill values registered encouraging growth. As of 31 st March, the
company recorded over 6 Mn new members in the Westside loyalty program. 120

100
Key Financials (Standalone) 80
(Rs Cr) FY21 FY22E FY23E FY24E
60
Net Sales 2,048 4,019 5,127 6,155
40
EBITDA 204 695 923 1,114 Feb-20 Apr-20 Jul-20 Oct-20 Jan-21

Net Profit (45) 147 271 438 Trent BSE Sensex

EPS (Rs) (1.4) 4.1 7.6 12.3 Source: Capitaline, Axis Securities
PER (x) NA 227.9 123.9 76.6
EV/EBITDA (x) 178.6 52.3 39.4 32.4
Gaurav Uttrani
ROE (%) (1.8) 5.6 9.6 13.6 Research Analyst
ROCE (%) 3.3 9.2 12.4 14.7 Email: gaurav.uttrani@axissecurities.in

Source: Company, Axis Research

SuvarnaJoshi(Sr. Reseach Analyst)
Email:suvarna.joshi@axissecurities.in

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Standalone Financial Highlights for Q1FY22
Axis Sec Axis Sec
Rs Cr Q1FY22 Q1FY21 YoY (%) Q4FY21 QoQ % FY21 FY20 YoY (%)
Est Var
Net Sales 327 312 5 96 240 774 (58) 2,048 3,178 (36)

Gross Profit 175 147 20 13 1,270 411 (57) 1,018 1,574 (35)

Gross Margins % 54 47 657 bps 13 4028 bps 53 40 bps 50 50 18 bps

Staff Cost 76 31 144 61 25 68 12 255 313 (19)

Other Operating expenses 131 84 55 71 84 207 (37) 375 698 (46)

EBITDA (32) 31 NA (119) NA 137 NA 388 563 (31)

EBITDA margins (%) (10) 10 NA (124) NA 18 NA 19 18 121 bps

Depreciation 62 58 7 59 6 62 1 236 231 2

Interest 69 57 20 57 19 62 11 238 238 (0)

Other Income 52 27 97 53 (1) 72 (28) 204 152 35

PBT before Exp. Items (110) (57) NA (182) NA 86 (229) 118 246 NA

Exceptional items (6) - NA - - (6) - (6) (0) -

PBT (117) (57) NA (182) NA 79 NA 112 246 NA

Tax (incl deferred) (26) (14) NA (43) NA 22 NA (21) 91 NA

PAT (90) (43) NA (139) NA 57 NA 133 155 NA

PAT margins (%) (28) (14) NA (145) NA 7 NA 6 5 NA

EPS (2) (1) NA (4) NA 2 NA (1) 4 NA

Source: Company; Axis Securities

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 Financials (Consolidated)

Profit & Loss (Rs Cr)

Y/E March FY21 FY22E FY23E FY24E
Net sales 2,048 4,019 5,127 6,155
Growth, % NA 96 28 20
Raw material expenses 1,030 2,049 2,599 3,121
Gross Profits 1,018 1,969 2,528 3,035
Gross Margins % 50 49 49 49
Employee expenses 255 398 508 609
Rent 184 257 328 394
Ads & promotions - - - -
Other Expenses 375 619 769 917
EBITDA 204 695 923 1,114
Growth, % NA 241 33 21
Margin, % 10.0 17.3 18.0 18.1
Depreciation 236 294 319 338
Other Income 204 100 92 96
EBIT 172 502 696 872
Growth, % (64) 191 39 25
Margin, % 8 12 14 14
Interest paid 238 305 334 287
Pre-tax profit (66) 197 362 585
Tax provided 21 (50) (91) (148)
Profit after tax (Adjusted) (45) 147 271 438
Growth, % NA NA 84 62
Source: Company, Axis Securities

Balance Sheet (Rs Cr)

Y/E March FY21 FY22E FY23E FY24E
Equity 2,516 2,610 2,827 3,212
Debt 2,903 2,903 2,903 2,903
Other Non-Current Liabilities 20 20 20 20
Total Liabilities 5,439 5,533 5,751 6,135

Net Fixed Assets 2,894 2,793 2,741 2,636

Net Intangible Assets 63 63 63 63
Other Non-Curr Assets 1,435 1,435 1,435 1,435
Inventories 395 716 913 1,096
Trade Receivables 21 22 28 34
Other Current Assets 830 860 960 1,060
Trade Payables 220 385 464 557
Other Current Liabilities 47 47 47 47
Net Current Assets 979 1,166 1,391 1,587
Cash & Equivalents 67 75 119 413
Net Tax Assets 2 2 2 2
Total Assets 5,439 5,533 5,751 6,135
Source: Company, Axis Securities

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Cash Flow (Rs Cr)
Y/E March FY21 FY22E FY23E FY24E
Pre-tax profit (66) 197 362 585
Depreciation 236 294 319 338
Others 130 305 334 287
Opt Profits before working capital 300 796 1,015 1,210
Chg in working capital 113 (187) (225) (196)
Total tax paid (0) (50) (91) (148)
Cash flow from operating activities 413 559 699 867

Capex (103) (193) (268) (233)

Proceeds from sale of FA 22 - - -
Current & Non-Current Investments 97 - - -
Interest income 23 - - -
Income from Investments 5 - - -
Investment in Subsidiaries, JV, Associates (90) - - -
Repayment of Advances 7 - - -
Cash flow from investing activities (39) (193) (268) (233)

Free cash flow 310 366 431 634

Equity raised/(repaid) - - - -
Debt raised/(repaid) (78) - - -
Interest Paid (238) (305) (334) (287)
Dividend Paid (36) (53) (53) (53)
Cash flow from financing activities (351) (358) (387) (340)

Net chg in cash 23 8 44 294

Opening cash balance 44 67 75 119
Closing cash balance 67 75 119 413
Source: Company, Axis Securities

Ratio Analysis (%)

Y/E March FY21 FY22E FY23E FY24E
Per Share data
EPS (INR) (1.4) 4.1 7.6 12.3
Growth, % NA NA 83.8 61.7
Book NAV/share (INR) 71 73 80 90
DPS (INR) - 1.5 1.5 1.5
Return ratios
Avg Return on assets (%) (0.8) 2.7 4.8 7.4
Avg Return on equity (%) (1.8) 5.6 9.6 13.6
Avg Return on capital employed (%) 3.3 9.2 12.4 14.7
Working Capital Days
Inventory Days 70 65 65 65
Receivable Days 4 2 2 2
Payable Days 39 35 33 33
Working capital days 35 32 34 34
Valuation
PER (x) NA 227.9 123.9 76.6
Price/Book (x) 13.3 12.9 11.9 10.4
Div Yield (%) - 0.2 0.2 0.2
EV/Net sales (x) 17.8 9.1 7.1 5.9
EV/EBITDA (x) 178.6 52.3 39.4 32.4
EV/EBIT (x) 211.4 72.5 52.2 41.3
Source: Company, Axis Securities

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 Trent Ltd Price Chart and Recommendation History

(Rs)

Date Reco TP Research

28-Sep-20 BUY 786 Initiating Coverage
09-Nov-20 BUY 786 Result Update
05-Feb-21 BUY 786 Result Update
03-May-21 HOLD 790 Result Update
11-Aug-21 HOLD 990 Result Update

Source: Axis Securities

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About the analyst

Analyst: Gaurav Uttrani

Contact Details: gaurav.uttrani@axissecurities.in

Sector: Agriculture and Consumer Discretionary

Analyst Bio: Gaurav Uttrani is a Chartered Accountant (ICAI) with about 2 years of experience in Equity market
and research.

About the analyst

Analyst: Suvarna Joshi

Contact Details: suvarna.joshi@axissecurites.in

Sector:FMCG, Consumption sector, Sp. Chemicals, Mid-Caps

Analyst Bio: Suvarna Joshi is MBA (Finance) from Mumbai University with about 10years of experience in Equity
market and research.

Disclosures:

The following Disclosures are being made in compliance with the SEBI Research Analyst Regulations 2014 (herein after referred to as the Regulations).
1. Axis Securities Ltd. (ASL) is a SEBI Registered Research Analyst having registration no. INH000000297. ASL, the Research Entity (RE) as defined in the
Regulations, is engaged in the business of providing Stock broking services, Depository participant services & distribution of various financial products. ASL is a
subsidiary company of Axis Bank Ltd. Axis Bank Ltd. is a listed public company and one of India’s largest private sector bank and has its various subsidiaries
engaged in businesses of Asset management, NBFC, Merchant Banking, Trusteeship, Venture Capital, Stock Broking, the details in respect of which are available on
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3. ASL has no material adverse disciplinary history as on the date of publication of this report.
4. I/We, Gaurav Uttrani, (Chartered Accountant) and Suvarna Joshi, PGDBM (Finance), author/s and the name/s subscribed to this report, hereby certify that all of the
views expressed in this research report accurately reflect my/our views about the subject issuer(s) or securities. I/We (Research Analyst) also certify that no part of
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have any financial interest in the subject company. Also I/we or my/our relative or ASL or its Associates may have beneficial ownership of 1% or more in the subject
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6
the same time. ASL will not treat recipients as customers by virtue of their receiving this report.

DEFINITION OF RATINGS

Ratings Expected absolute returns over 12-18 months

BUY More than 10%

HOLD Between 10% and -10%

SELL Less than -10%

NOT RATED We have forward looking estimates for the stock but we refrain from assigning valuation and recommendation

UNDER REVIEW We will revisit our recommendation, valuation and estimates on the stock following recent events

NO STANCE We do not have any forward looking estimates, valuation or recommendation for the stock

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