What is keeping shares of Trent in vogue

Market


NEW DELHI: Trent Ltd’s shares have remained the flavour of the season, driven by strong performances across its key formats, Westside and Zudio. Analysts at IDBI Capital Markets & Securities have upgraded the earnings per share estimates by 8-18% over FY23-24E as per the revised business outlook, based on their channel checks.

The brokerage firm said that Trent has been consistently outperforming in its overall business since the last five years. For perspective, Trent’s revenue has grown at a compound annual growth rate (CAGR) of 17.4% over FY17-22 versus a drop of over 7% for Shoppers Stop Ltd.

“Average bill value for Westside stood not only 18-24% higher than competition like Pantaloons but also 19% above pre-covid levels,” said analysts at IDBI in a report on 20 September.

Through Zudio, Trent caters to the mass segment, which is at a lower price point. “Everything in Zudio is sold below 999 and almost 80-85% is sold below 599,” said Centrum Broking Ltd’s analysts in a report on 14 September. Demand is likely to be higher in this range and that means more customers when compared to Westside (where average selling price is relatively higher). Scaling up of Zudio stores has been at a faster rate and Trent could also benefit from converting any underperforming Westside stores to Zudio.

Given the significant retailing-experience (in private labels) and superior business-model compared to competition, IDBI analysts believe that Trent has the ability to disrupt the mass segment. “Zudio sources 100% of its merchandise from India (versus 85% for Westside). This helps in access, speed and flexibility,” they added.

But faster scaling of stores would weigh on overall margin performance and investors would do well to closely monitor this variable. In the June quarter (Q1FY23), Trent’s gross margin dropped 370 basis points from pre-covid levels (Q1FY20) to 49.3%. One basis point is one-hundredth of a percentage point.

“Management sounded confident in maintaining the expansion and growth momentum in FY23 for Westside and Zudio both,” pointed out Centrum’s analysts based on their recent interaction Trent’s management.

Investors seem to have taken note of Trent’s brighter prospects. After all, shares of Trent have appreciated by almost 50% in the past one year and are now just 4% below their 52-week high of 1,522.50 apiece seen on 18 August. But this also means valuations are expensive. Against this backdrop, IDBI analysts had a ‘Sell’ rating on the stock but given the growing business outlook, they have upgraded their rating to ‘Hold’.

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