Buy Trent; target of Rs 410: ICICI Direct

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ICICI Direct's research report on Trent

Revenue for the quarter grew 20% YoY to Rs 590.6 crore vs. our estimate of Rs 589.0 crore. Westside format grew 17% YoY, with like to like sales growth of 8% EBITDA margins improved marginally by 20 bps YoY to 12.0% (I-direct estimate: 12.2%), mainly on the back of a decline in rental expense as a percentage to sales by 69 bps YoY. Subsequently, absolute EBITDA grew 21% YoY to Rs 71.0 crore (I-direct estimate: Rs 71.8 crore) Other income for Q1 came in at Rs 5.7 crore vs. Rs 16.0 crore in Q1FY18. This led to restriction of PAT growth. Consequently, PAT for the quarter stayed flat YoY at Rs 38.4 crore (I-direct estimate: Rs 47.3 crore) Key takeaways from AGM: 1) the management has chalked out aggressive store expansion plans across all its formats (30+ store additions in FY19E), 2) expects the hypermarket business (THPL) to breakeven over the next three years, 3) the management has identified ‘Star Market’ format to be sustainable with store size ranging from 5,000-8,000 sq ft, 4) Zudio is a value fashion brand placed at sharper price points (one-third of products priced <Rs 1000 while the rest priced below <Rs 500), 5) For Zara, the impact of the recent import duty hike on garments may be passed on through price hike.

Outlook

We revise our revenue estimate upwards, following the management’s robust commentary on accelerated store expansion plans across all its formats (Westside, Zudio and Star Market). Furthermore, we believe, recently acquired value fashion business, ‘Zudio’, would add to incremental revenue growth. Positive operating leverage, coupled with improvement in profitability for JV/associate (THPL & Zara) would provide an additional delta in profitability for Trent. We maintain BUY rating on the stock with a revised target price of Rs 410.

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