- 11 Nov 2022
- ICICIdirect Research
STRONG REVENUE PERFORMANCE BY TRENT HIGH OPEX SUBDUES MARGINS
TRENT - 6795 Change: 52.20 (0.77 %)News:
Trent’s Q2FY23 revenue print is a strong beat on our estimates. Sales on a favourable base grew 78% YoY to Rs 1813.6 crore (I-direct estimate: Rs 1714.3 crore). Gross margins and EBITDA margins generally tend to be lower in Q2 mainly owing to EOSS (average gross margins in Q2: 46-48%). However, Q2FY22 was an unusual quarter wherein the company had recorded 52%+ gross margins. Hence on a significantly high base, gross margins declined by 510 bps YoY to 47.0% (I-direct estimate: 47.9%, Q2FY20: 47.8%). Furthermore, significantly higher opex (up 85% YoY) resulted in EBITDA margins declining by 690 bps YoY to 15% (I-direct estimate: 17%). Absolute EBITDA grew by 21% YoY to Rs 267.5 crore (I-direct estimate: Rs 296.6 crore, three-year CAGR: 27%). Other income grew by 80% YoY to Rs 168.0 crore (mainly includes dividend income from subsidiaries). Subsequently PAT grew by 48% YoY to Rs 186 crore. Adjusting for other income, PAT was at Rs 105 crore (I-direct estimate: Rs 100 crore, three year CAGR: 40%)
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Zudio continues to gain market share in the value fashion space with robust growth. It has been the new growth engine for Trent given its scalable business model (one-third size of Westside format) and strong acceptance in Tier II/III cities with sharp price point assortment (ASP < Rs 500). 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). Continued to significantly accelerate store additions with opening of 65+ stores in H1FY23. Capex too grew 3x YoY to Rs 193 crore in H1FY23. Continues to have healthy balance sheet with cash & investments worth Rs 370 crore
Impact:
Neutral