Recommendation From Specialty Retail Sectors

This column gives you scrip chosen by the research team during the fortnight that is fundamentally strong and expected to give good capital appreciation over a time period of 1 year

Trent 

GOOD TO FOLLOW THIS TREND! 

HERE IS WHY Growth potential Strategic acquisitions Increasing disposable income 

Trent Ltd operates in the retail sale of readymade garments. The company's segments include retailing and others. It primarily operates stores across three formats: Westside, Star and Landmark. 

Westside offers men, women and children’s apparel, footwear and accessories along with furnishings, decor and a range of home accessories. It offers products in almost 61 cities across over 108 stores. The Star hypermarket and convenience store chain offers a range of products, including staple foods, beverages, health and beauty products, apparel, home furnishings, vegetables, fruits, dairy and non-vegetarian products. Landmark is a family entertainment format that offers a range of toys, front-list books and sports merchandise. Westside offers in-house fashion brands, such as Wunderlove, Sassy Soda, Studio West, Zuba, Bombay Paisley, Denim Shop and Gourmet West, among others. Trent has a joint venture with the Inditex group for Zara stores. 

Trent Ltd’s standalone revenue for the first quarter of FY19 came in at Rs 590.61 crore, registering an increase of 18.3 per cent YoY. The company's EBITDA for the quarter rose by 21.3 per cent YoY to Rs 70.96 crore with a corresponding margin expansion of 30 bps. Its EBITDA margin for the quarter stood at 12 per cent. The net profit for Q1FY19 for the quarter remained largely stable at Rs 38.36 crore as against Rs 38.15 crore in corresponding quarter of the previous year. However, looking at QoQ performance, the company’s net profit has spiked almost 230 per cent over the preceding quarter. 

For the financial year 2018, the company’s consolidated revenue was Rs 2157.5 crore as against Rs 2371.3 crore in FY7. The net profit for full year 2017-18 increased marginally by 2.5 per cent to Rs 87 crore from Rs 84.9 crore in the last fiscal. In terms of valuations, the stock is presently available at price to earnings (P/E) multiple of 100.9x on TTM earnings, which looks reasonable compared to industry P/E of 108.32x. Considering the potential growth going forward, the company looks reasonably placed in terms of valuations. In terms of EV/EBITDA, the stock of Trent is trading at 49.4x on TTM EBITDA. 

The company is expanding its retail network of Westside, which is the flagship business of TRENT, by more than almost 50 per cent in the coming three years. To encash opportunity from growing fast fashion craze in India, the company acquired Zudio from THPL in FY18. Zudio stores have 100 per cent own brands and offer latest trends at affordable prices. It has a presence across seven exclusive stores and 15 shops in shop locations under the ‘Star’ banner. Notably, the company’s joint venture with world’s best apparel retailer Zara augurs well for the company. The company is eyeing growth from its value-added fashion products in the years to come. Faster store expansion in the Westside format with calibrated store expansion in other formats like Zudio, Zara and Star market is likely to give boost to its revenue in the upcoming years. Furthermore, the increasing disposable income is expected to lead to more consumption of discretionary items, which bodes well for players like Trent. Owing to all these factors, we recommend our readerinvestors to BUY this scrip.