Maintained neutral rating on Trent: ENAM Securities

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Maintained neutral rating on Trent: ENAM Securities

Broking house, ENAM Securities is not so bullish on Trent. It has maintained neutral rating on the stock.

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Broking house, ENAM Securities is not so bullish on Trent . It has maintained neutral rating on the stock.

The ENAM Securities report on Trent:

"Trent has reported a topline of Rs 3.9 billion and net profit of Rs 288 million for FY06 on a consolidated basis, translating into a 47% YoY jump in profit. The company has been able to control costs, reflecting in the 70 bps jump in its retail business operating margin to 7%. Total retail space of its flagship Westside stores as on 31st March 2006 was 0.6 million sq. ft."

Q4FY06 Highlights

"For Q4FY06, Trent has reported retail sales of Rs 908 million, which is a 44% jump on a YoY basis, and has been able to maintain its EBIT margin at 5% levels. On a QoQ basis, retail sales declined by 4.8% while net profit grew 9.8%. The average sales per square foot has increased 5% over FY05 to Rs 7,000."

"Trent opened 2 new Westside stores in Q4FY06 taking the total number of stores to 23. In all, the company rolled out 6 stores in FY06. Trent added 235,000 sq.ft. of retail space in FY06."

"Advertising, selling and distribution costs, as a percentage of sales, decreased 250 bps from 9% in FY05 to 7.5% in FY06. Also, other income at Rs 56 millio Y06 is estimated to carry a yield of 11% as against 7.7% in FY05."

"Out of the rights issue proceeds of Rs 1.18 billion, the company has utilized only Rs 561.4 million, with the balance held as investments."

To expand at a faster pace:

"Trent is expected to roll out 4 new stores in FY07, taking the total Westside stores from 23 to 27. Trent has also signed an agreement with the leading developer, DLF Universal to retail one or more of its brands in the next 12 DLF malls, which should speed up rollouts."

Faster rollout, upgrade to Neutral:

"At CMP (Rs 710), the stock trades at 22x FY07E earnings and 14x EV/ EBIDTA. Given that the stock has corrected significantly, and in view of more aggressive rollouts from its tie-up with DLF, we are upgrading the stock to sector Neutral."