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Trent Ltd: Magnificent execution accelerates pace of outperformance

News: Trent witnessed superlative recovery with sales coming higher by ~25% compared to pre-Covid levels (Q2FY20). On a favourable base, revenue grew 126% YoY to Rs.1020.4 crore (two-year CAGR: 12%). We believe Trent has continued to minimise discounting with lower EOSS days as reflected in its healthy gross margins: 52.1% (Q2FY20: 47.8%, I-direct estimate: 51.4%).  Furthermore, tight leash on operating overheads translated into the company reporting strong EBITDA margins of 21.7% (Q2FY21: 1.4%, Q2FY20: 16.2%) with absolute EBITDA increasing materially by 67% to Rs.221.3 crore, compared to Q2FY20 levels.

Views: Trent has over the years consistently outperformed peers given the strong brand patronage (Westside, Zudio, Star, Zara) and proven business model (Westside: 100% private label). The robust recovery depicts the inherent strength of the business model. We expect revenue trajectory to further accelerate in H2FY22 on the back of encouraging footfall trends and healthy square feet addition. On account of healthy beat on estimates, we revise our revenue and earnings estimates upwards for FY22/23E. We continue to remain positive on the stock.