Value Stock Pick For June: Tata Group Company Stock That Can Jump 30%

Motilal Oswal has recommended buying the stock of Trent Ltd, a Tata Group company for a 30% upside from current levels. The company has a buy recommendation on the stock with a price target of Rs 1430.

Why to buy the stock of Trent?

According to Motilal Oswal, Trent's aggressive footprint expansion and strong Like-To-Like (LTL) growth of 16% YoY translated into a robust 53% YoY revenue growth in 4QFY22. "Westside/Zudio added 26/100 stores in FY22 respectively. Overall, Westside/Zudio added 30%/51% more stores over the last one year/two years, respectively. Westside and Zudio's store-level economics remains healthy as evident from strong like-to-like growth and Westside's annualized revenue run-rate which was almost double its FY22 level ( >INR50b). Emerging categories such as beauty and personal care, innerwear and home also continued to gain traction with customers," the firm has stated.

According to Motilal Oswal, Trent's performance remains much ahead of its peers and offers a huge runway for growth over the next 2-3 years. "We estimates revenue/EBITDA CAGR of 45%/58% over FY22-24E led by strong revenue recovery and aggressive store additions for Zudio and Westside," the broking firm has said.

Industry leading performance

Earlier in its April report on the company, Motilal Oswal noted that 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.

"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. 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," the broking firm has said.

Valuations and view

Motilal Oswal has 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 its target price of Rs 1,430, with a buy call on the stock.