Trent Ltd (TRENT)

CMP: | 918 Target: | 1060 (15%) Target Period: 12 months BUY

July 22, 2021

Resilient business model to enable sharp recovery…

About the stock: Trent is India’s leading retailer with a presence across various
consumer categories (400+ stores). Inherent strength of brands (Westside, Zudio,

Company Update
Star, Zara) and accelerated store additions has led Trent to be among the fastest Particulars
growing companies in our retail coverage universe. Particular Amount
 ‘Westside’ (75% of revenues) has proven to be one of the most profitable Market Capitalisation (| Crore) 32,632.1
business models as it primarily focuses on selling private label brands Total Debt (Mar-21) (| Crore) 299.9
(EBITDA margin: 11%, consistent SSSG: 8-9%) Cash (Mar-21) (| Crore) 752.0
 ‘Zudio’ (22% of sales), the value fashion brand, continues to be the next leg EV (| Crore) 32,180.1
of growth for Trent (revenue CAGR: 50% FY18-21) 52 week H/L 948 / 540
Equity Capital (| Crore) 35.5
Key AGM highlights: We attended Trent’s annual general meeting for FY20-21. Face Value (|) 1.0

 Post lockdown relaxations, revenue recovery has been encouraging with

July sales tracking significantly higher YoY. Currently 90%+ stores have Shareholding pattern
resumed their operations Jun-20 Sep-20 Dec-20 Mar-21 Jun-21
Promoter 37.0 37.0 37.0 37.0 37.0
 In the long run, the company aims to grow its revenue at CAGR of 25%+ FII 21.5 23.8 30.0 30.5 30.8
DII 15.9 14.6 10.0 10.3 7.8
 Affirmed its aggressive store opening plans for its fashion format (Westside:
Others 25.5 24.6 23.0 22.3 24.4
35 & Zudio: 75) in FY22 (outlined capex worth | 200 crore in FY22E)
Price Chart
 Targeting online sales to reach 10% vs. current 5% over the next few years
1000 25000
 Despite pandemic challenges, Zudio exited FY21 with EBIT of | 5 crore (vs.
800 20000

ICICI Securities – Retail Equity Research

| 8 crore in FY20). Zudio reported highest ever EBIT margins of 6% in
600 15000
H2FY21
400 10000
 Westside reported sales decline of 43% YoY in FY21 with EBIT loss of | 27 200 5000
crore. Witnessed strong recovery in H2FY21 with EBIT margin of 9% 0 0

Feb-19

Feb-20

Feb-21
Oct-18

Oct-19

Oct-20
Jun-19

Jun-20
Jun-18

Jun-21
 Star Bazaar (grocery format) has progressed well in FY21 with the company
gaining market share in the region in which it operates. StarQuik (online
channel) performed exceptionally well with sales growing 124% YoY to | 78 Trent BSE 500
crore with average order value increasing 33% YoY to | 1356
Recent Event & Key risks
 Minimised discounting with lower EOSS days in FY21 (gross margin for
 Expected to add ~110 stores of
Zudio, Westside improved 100 bps, 150 bps YoY to 40%, 58%, respectively
fashion format in FY22E
What should investors do? Trent has been an exceptional performer with the
 Key Risk: (i) Slower ramp up of
stock price appreciating at ~36% CAGR in the last five years.
store network, (ii) Extension of
 We continue to remain structurally positive and maintain BUY rating lockdown restrictions leading to
store closures
Target Price and Valuation: We value Trent at | 1060 based on SOTP valuation
Research Analyst
Key triggers for future price performance:
Bharat Chhoda
 We pencil in 175 store additions between Westside and Zudio for FY22-23E [email protected]

 Liquidity position remains robust with cash & investments worth | 752 crore Cheragh Sidhwa
that will enable it to tide over the current situation better than peers [email protected]

 Expect revenue recovery to pick up pace from H2FY22 onwards and model
in revenue and earnings CAGR of 17% and 37%, respectively, in FY20-23E

Key Financial Summary

4 year CAGR FY22E FY23E 3 year CAGR
Financials FY19 FY20 FY21
(FY16-20) (FY20-23E)
Net Sales 2,630.2 3,486.0 2,593.0 22.0% 3,896.6 5,592.2 17.1%
EBITDA 227.7 544.0 171.9 563.1 848.3 16.0%
PAT 97.0 122.8 (146.2) 16.0% 129.2 317.8 37.3%
EV/Sales (x) 11.8 9.2 12.4 8.3 5.8
EV/EBITDA (x) 136.2 59.1 187.6 57.7 38.3
RoCE (%) 10.1 15.9 4.3 15.0 22.5
RoE (%) 5.9 5.1 -6.3 5.4 12.0
Source: Company, ICICI Direct Research
 Company Update | Trent Ltd ICICI Direct Research

Financial summary

Exhibit 1: Profit and loss statement | crore Exhibit 2: Cash flow statement | crore
FY20 FY21 FY22E FY23E (Year-end March) FY20 FY21 FY22E FY23E
Total operating Income 3,486.0 2,593.0 3,896.6 5,592.2 Profit after tax 122.8 -146.2 129.2 317.8
Growth (%) 32.5 -25.6 50.3 43.5 Add: Depreciation 247.2 257.3 287.0 318.2
Cost of Goods Sold 1,881.8 1,534.0 2,154.8 3,070.1 Add: Finance Cost 245.8 248.7 271.7 291.0
Gross Margin (%) 46.0 40.8 44.7 45.1 (Inc)/dec in Current Assets -163.5 215.7 -277.6 -338.3
Employee Expenses 358.5 301.9 405.2 581.6 Inc/(dec) in CL and Provisions 17.0 -23.2 13.9 171.8
Operating & Other Expenses 701.7 585.2 773.5 1,092.2 Others -60.0 -99.0 0.0 0.0
Total Operating Expenditure 2,942.0 2,421.1 3,333.5 4,743.8 CF from operating activities 409.3 453.3 424.2 760.6
EBITDA 544.0 171.9 563.1 848.3 (Inc)/dec in Investments -627.8 27.7 181.8 26.7
Growth (%) 138.9 -68.4 227.6 50.7 (Inc)/dec in Fixed Assets -110.5 -90.7 -180.0 -145.0
Depreciation 247.2 257.3 287.0 318.2 Others -22.5 -36.0 20.0 0.0
Interest 245.8 248.7 271.7 291.0 CF from investing activities -760.9 -99.0 21.8 -118.3
Other Income 144.5 201.6 140.3 145.4 Issue/(Buy back) of Equity 2.3 0.0 0.0 0.0
Inc/(dec) in loan funds -194.4 0.2 20.5 -19.0
PBT 195.4 -133.5 144.6 384.5
Less: Finance Cost & Others -330.8 -335.9 -468.0 -497.1
Share of Profit from JV -30.4 -71.4 -3.7 18.0
Others 880.0 0.8 -38.1 -73.7
Total Tax 59.0 -23.7 36.6 104.6
CF from financing activities 357.1 -334.9 -485.7 -589.8
PAT 106.0 -181.1 104.2 297.8
Net Cash flow 5.5 19.5 -39.6 52.5
Minority Interest -16.8 -35.0 -25.0 -20.0
Opening Cash 56.3 61.8 81.3 41.7
PAT after MI 122.8 -146.2 129.2 317.8
Closing Cash 61.8 81.3 41.7 94.1
Extraordinary item 0.0 0.0 0.0 0.0
Source: Company, ICICI Direct Research
Reported PAT 122.8 -146.2 129.2 317.8
EPS (|) 3.5 -4.1 3.6 8.9
Source: Company, ICICI Direct Research

Exhibit 3: Balance sheet | crore Exhibit 4: Key ratios | crore

(Year-end March) FY20 FY21 FY22E FY23E (Year-end March) FY20 FY21 FY22E FY23E
Liabilities Per share data (|) (annualised)
Equity Capital 35.5 35.5 35.5 35.5 EPS 3.5 -4.1 3.6 8.9
Reserve and Surplus 2,352.5 2,277.5 2,374.4 2,612.8 Cash EPS 10.4 3.1 11.7 17.9
Total Shareholders funds 2,388.0 2,313.0 2,409.9 2,648.3 BV 67.2 65.1 67.8 74.5
Total Debt 299.7 299.9 320.4 301.4 DPS 1.5 1.0 0.9 2.2
Other LT Liabilities 2,326.6 2,677.3 2,475.2 2,274.9 Cash Per Share 1.7 2.3 1.2 2.6
Deferred Tax Liability -110.4 -114.5 -114.5 -114.5 Operating Ratios
Minority Interest / Others 80.3 44.5 44.5 44.5 EBITDA Margin (%) 15.6 6.6 14.5 15.2
Total Liabilities 4,984.3 5,220.2 5,135.5 5,154.6 PBT Margin (%) 5.6 -5.1 3.7 6.9
Assets PAT Margin (%) 3.5 -5.6 3.3 5.7
Gross Block 953.3 986.0 1,249.0 1,394.0 Inventory days 63.6 60.3 61.0 60.0
Less: Acc Depreciation 298.6 345.5 432.9 530.5 Debtor days 1.8 2.9 2.5 2.5
Capital WIP 23.3 108.0 25.0 25.0 Creditor days 31.2 38.7 30.4 30.2
Return Ratios (%)
Total Fixed Assets 678.0 748.4 841.0 888.4
RoE 5.1 -6.3 5.4 12.0
Investments 1,543.1 1,515.4 1,333.5 1,306.9
RoCE 15.9 4.3 15.0 22.5
Other Non-current Assets 2,102.31 2,471.28 2,251.66 2,031.04
RoIC 28.0 -9.4 20.8 34.8
Goodwill 69.5 66.8 66.8 66.8
Valuation Ratios (x) (annualised)
Deferred Tax Asset 0.0 0.0 0.0 0.0
P/E 266.4 - 253.1 102.9
Inventory 607.8 428.4 651.2 919.3
EV / EBITDA 59.1 187.6 57.7 38.3
Debtors 17.1 20.8 26.7 38.3
EV / Net Sales 9.2 12.4 8.3 5.8
Loans and Advances 203.5 156.2 174.9 195.9
Market Cap / Sales 9.4 12.6 8.4 5.8
Cash 61.8 81.3 41.7 94.1
Price to Book Value 13.7 14.1 13.6 12.3
Other Current Assets 113.2 120.5 150.7 188.3
Solvency Ratios
Total Current Assets 1,003.4 807.1 1,045.1 1,435.9 Debt/EBITDA 0.6 1.7 0.6 0.4
Creditors 297.7 274.6 324.7 462.6 Debt / Equity 0.1 0.1 0.1 0.1
Other Current Liab. & Prov. 114.4 114.2 77.9 111.8 Current Ratio 2.9 2.5 3.1 2.9
Total Current Liabilities 412.0 388.8 402.6 574.5 Quick Ratio 1.0 1.0 1.1 0.9
Net Current Assets 591.4 418.4 642.5 861.5 Source: Company, ICICI Direct Research
Application of Funds 4,984.3 5,220.2 5,135.5 5,154.6
Source: Company, ICICI Direct Research

ICICI Securities | Retail Research 2

 Company Update | Trent Ltd ICICI Direct Research

RATING RATIONALE
ICICI Direct endeavors to provide objective opinions and recommendations. ICICI Direct assigns ratings to its
stocks according to their notional target price vs. current market price and then categorizes them as Buy, Hold,
Reduce and Sell. The performance horizon is two years unless specified and the notional target price is defined
as the analysts' valuation for a stock
Buy: >15%
Hold: -5% to 15%;
Reduce: -15% to -5%;
Sell: <-15%

Pankaj Pandey Head – Research [email protected]

ICICI Direct Research Desk,

ICICI Securities Limited,
1st Floor, Akruti Trade Centre,
Road No 7, MIDC,
Andheri (East)
Mumbai – 400 093
[email protected]

ICICI Securities | Retail Research 3

 Company Update | Trent Ltd ICICI Direct Research

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