Buy Trent; target of Rs 2100: ICICI Direct

ICICI Direct's research report on Trent

TRENT continues to consistently (eight consecutive quarter) deliver best-in-sector quarterly performance at all levels (revenue, LFL, retail expansion, operating profit). LFL at 12% is highest in the apparel sector. Retail expansion rate (40% YoY) continues to inspire confidence in the relative success of the Zudio franchise. Entry of Reliance, Shoppers Stop etc at the value price point (~INR 500) with new retail formats is likely to intensify competition but we believe Zudio is likely to lead the category growth with the benefits of scale (552 stores, ~INR 47bn revenue in FY24E), differentiation and operational efficiency. Retail expansion is tracking well (40 Zudio and 7 Westside stores added), while store closures stood at 4 in Zudio and 4 in Star. Net margin stands in good health. Maintain BUY.

Outlook

We maintain BUY rating with a DCF-based target price of INR 2,100 (was INR 1,600). Key downside risks: (1) slower than expected pick-up in discretionary consumption, (2) rise in competitive intensity from peers (Reliance Trends, Max, Pantaloons etc) and (3) execution challenges in Zudio. Key upside risks: success of Zudio and other pilot formats.