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  • 12 Aug 2022
  • ICICIdirect Research

TRENT REPORTS HEALTHY BEAT ON THE REVENUE FRONT

TRENT - 6878 Change: -71.65 (-1.03 %)

News: Trent reported a superlative performance with industry best revenue growth and a strong beat on almost all parameters (change in useful life of certain stores impacted PAT). Sales on a favourable base grew 405% YoY to Rs 1653 crore (I-direct estimate: Rs 1302 crore). Gross margin contraction was higher than anticipated (down 430 bps QoQ to 49.3% vs. I-direct estimate 52.3%). Lower gross margins could be possibly owing to limited price hike in Zudio format as it continues to price products at sharper price points (< Rs 500) despite significant increase in cotton prices. Subsequently, EBITDA margins came in lower than our estimates at 18.4% (vs. I-direct estimate: 19.5%). However, given the strong beat on topline, EBITDA in absolute terms came in much higher than our estimate at Rs 304.1 crore (I-direct estimate: Rs 256 crore, three-year CAGR: 23%).

View: The growth was driven by robust store addition trajectory over the last two years. Fashion portfolio now is over 450 stores (Westside & Zudio) vs. ~200 in pre-Covid levels. The growth was also driven by healthy SSSG for Westside, which was at 24% in Q1FY23 (over Q1FY20). Emerging categories like beauty and personal care, innerwear and home witnessed healthy traction and now contributes ~15% to sales. 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). Healthy beat on the topline front, warrants upward revision to our revenue estimates for FY23-24E. Furthermore, sharp increase in profits in share of associates (Zara and Star Bazar) during the quarter is a key positive and signals emphasis on cost cutting measures and its journey towards improving profitability of the ‘Star’ format.

Impact: Positive.