Neutral Trent; target of Rs 620: Motilal Oswal

Motilal Oswal 's research report on Trent

Trent’s consolidated revenue/PAT grew 33%/9.2% to INR34.9b/INR1.1b in FY20. Standalone revenue growth of 26% was led by strong performances from Westside (+16%) and Zudio – its freshly established Value Fashion Retail brand (+2.5x, 16% contribution). The brands were supported by strong same-store sales growth (SSSG) and store adds. While the current COVID-19 situation has impacted store adds, the management’s comments have eased some concerns. A) India’s Retail industry ranks among the top 5 retail markets globally (consumer category targeted by Westside). B) Value Fashion accounts for ~75% of the market (consumer category targeted by Zudio). C) The industry focus is on supporting in-house brands in achieving margin accretion and better control over the product life cycle (100% private labels). These three factors underscore TRENT’s growth levers. The company revealed that 70 stores had resumed operations on the easing of the COVID-19-led lockdown, but our channel check suggests >200 stores (~80%) are now operational.

Outlook

We value Westside and Zara at 35x EV/EBITDA (five-year average multiple and 25% premium to our retail universe given its better execution and balance sheet) and Star at 1x EV/sales on FY22E. Thus, we arrive at TP of INR620, leaving limited upside. Subsequently, we downgrade to Neutral from a Buy rating.