Stock Analysis, IPO, Mutual Funds, Bonds & More

Buy Trent, target Rs 500: ICICI Direct

Trent is a midcap company, operating in retail sector.

Updated: Jul 09, 2019, 01.31 PM IST
ThinkStock Photos
The brokerage has set a one-year horizon for the stock to hit the target price.
ICICI Direct has given a buy recommendation on Trent with a target price of Rs 500.

Shares of Trent traded Rs 431.8 around 1:10 pm on 9 July, 2019. The brokerage has set a one-year horizon for the stock to hit the target price.

Investment rationale by the brokerage-

Westside continues to register healthy SSSG
Westside continues to be one of the most successful, established franchises in the women’s wear category.

With steady same store sales growth (SSSG-8 per cent) and aggressive store addition (added 25 stores: highest store addition historically in a single year); revenues from the Westside format grew robustly by 17 per cent year-on-year (YoY) in FY19.

Private label brands continue to dominate the product portfolio with the share now touching 97 per cent (from 80 per cent in FY13).

On the profitability front, gross margins for Westside format declined 210 bps YoY to 57.9 per cent, mainly owing to price rationalisation in selected categories of menswear and kids wear.

However, on account of controlled opex, Ebitda margins remained constant at 11 per cent YoY. With the recent capital infusion (nearly Rs 950 crore) by promoters, the brokerage expects the store addition pace to further accelerate.

"We bake in higher store addition for Westside during FY20, FY21E (30 stores against previous estimate of 22 stores) and expect revenues to grow at a CAGR of 23 per cent in FY19-21E," said the brokerage.

Zudio- next growth engine in making
Acquired in FY18, ‘Zudio’ is a value fashion apparel player.

It addresses the fast and edgy fashion needs of the customers at sharper price points (two-third product offerings less than Rs 500) with infrastructure and backend processes closely aligned with Westside. This enables it to drive better efficiencies.

Zudio has adopted accelerated store expansion programme, as it added 33 stores taking total store count to 40 standalone Zudio stores (it also has a presence in 16 star locations).

Revenues grew 42 per cent YoY to Rs 204 crore. Though gross margins profile for Zudio is lower compared to Westside (nearly 40 per cent against 60 per cent), certain independent stores generated nearly Rs 14,000/sq ft (one of the highest among industry players).

Capital infusion by promoters to accelerate store expansion
"The expected capital infusion (Rs 950 crore) by promoters (Tata Sons) is likely to act as a key catalyst for healthy revenue growth, said the brokerage.

The capital to be raised can provide a strong fillip for store addition pace. A substantial amount is also expected to be invested in enhancing warehousing capacity and supply chain.

The management is working on a pilot project wherein the lead time (from designing stage to store) is expected to be compressed to 40 days from the current about two months.

This would entail higher investments in inventory (intermediary goods) and an effective distribution chain.

"Incorporating the recent developments, we revise our estimates upwards and expect revenues to grow at a CAGR of 23 per cent in FY19-21E with Ebitda margin expansion of 130 bps to 10 per cent by FY21E. Enhanced revenue visibility along with higher promoter commitment signifies positive momentum in core business performance metrics. Hence, we reiterate our buy rating with an SOTP target price of Rs 500," said the brokerage.

Also Read

ICICI Direct maintains hold on Time Technoplast, target price Rs 60

Hold Pokarna, target Rs 140: ICICI Direct

ICICI Direct recommends reduce on Avenue Supermarts, target price Rs 1450

Buy Pokarna, target Rs 215: ICICI Direct

Add Your Comments
Commenting feature is disabled in your country/region.

Other useful Links

Copyright © 2020 Bennett, Coleman & Co. Ltd. All rights reserved. For reprint rights: Times Syndication Service