Trent's aggressive footprint expansion and strong LTL growth of 16% YoY translated into a robust 53% YoY revenue growth; however, the backended store additions increased the costs disproportionately thereby reducing EBITDA growth to a mere 12% YoY.
Why to buy?
Westside and Zudio's store-level economics remains healthy as evident from: a) the strong LTL growth, b) Westside's annualized revenue run-rate which was almost double its FY22 level ( >INR50b) and c) our channel checks. We expect revenue/EBITDA growth of 45%/58% over FY22-24, respectively, on continued aggressive store additions and healthy LTL growth. We retain our BUY rating given Trent's strong growth opportunity.
Trent's industry-leading performance was driven by: a) strong SSSG and productivity, b) continuation of aggressive store additions, and c) Zudio's strong value format proposition. Trent's performance remains much ahead of its peers and offers a huge runway for growth over the next 3-5 years.
Trent's standalone revenue grew by a strong 53% YoY to INR11.9b backed by healthy 16%/21% YoY LTL growth, Westside and aggressive store adds.
Brokerage says, "According to our calculation, Westside saw 40% YoY revenue growth to INR7.5b, while Zudio's topline jumped 83% YoY to ~INR4.2b. For FY22, both Westside and Zudio witnessed revenue growth to INR7.5b and INR4.2b respectively."
Trent's gross profit margin contracted 410bp YoY to 49.1% in 4QFY22. However, the margin was unusually high in 4QFY21 due to limited EOSS sales. Gross margin improved 170bp/270bp v/s 4QFY19/4QFY20.
The broker says, "We have maintained our FY23-24 revenue/EBITDA estimates factoring in revenue/EBITDA CAGR of 45%/58% over FY22-24E led by strong revenue recovery above pre-COVID levels, and 100/35 store additions for Zudio and Westside, respectively, over the same period."
They added, "We have ascribed 31x EV/EBITDA to the standalone business (Westside and Zudio; 15% premium over the last five years until pre-Covid and 10% premium over our retail coverage universe given its superlative growth), 1x EV/Sales to Star Bazaar and 15x EV/EBITDA to Zara on FY24E, thereby arriving at our TP of INR 1,430. Maintain BUY."
The stock has been picked from the brokerage report of Motilal Oswal. Investing in equities poses a risk of financial losses. Investors must therefore exercise due caution. Greynium Information Technologies, the author, and the brokerage house are not liable for any losses caused as a result of decisions based on the article.