Buy Trent - Fairwealth Institutional Research

Trent Limited, a Tata Group company is engaged in the business of retailing and owns and manages a number of retail stores such as Westside stores, Star Bazaar and Landmark stores. Westside is one of the largest retail stores in India. Trent has outlets in cities like Mumbai, Delhi, Hyderabad, Bangalore, Pune, Baroda and many other tier-2 cities. Company also holds 79% interest in Landmark Ltd. engaged in the business of books, toys and stationary. In 2009, the company entered into a MoU with Inditex Group of Spain to develop and promote Zara stores in India. During last quarter Trent posted an increase of 165% in their Net Profit to rise to Rs 9 cr.

Investment Thesis:

- Star Bazaar plans to launch ethnic wears in private labels this festive season as private labels are 20-25% cheaper than the normal brands and hence shoudl boost up the sales this season. Other cheap grocery and general items will also be launched in Star Bazaar stores to harness the consumer shopping spree during festivals in India.

- The company has the leverage of having international players as their partners. Inditex Group from Spain and Tesco from Britain are one of the leading store owners in the world and Trent gets useful operational and management ideas from them.

- Recent government announcement of hike in FDI in multi-brand retail to 100% will benefit Trent in the future as it already has partnerships with foreign retail players. India has emerged as one of the fastest growing retail markets in the world and currently has 5th ranking overall in terms of market voulme. Indian retail industry is expected to grow almost 3 folds to USD 1.5 billion in next 10 years.

- Trent has an advantage of having Tata as its parent company which will help it in securing better deals in the future. Foreign players will certainly prefer Trent Ltd over other retail owners in India owing to its strong parentage.

- Q2FY13 Results: Trent Ltd posted good numbers for Jul-Sep quarter. Net Sales stood at Rs 230 Cr which was 7% up from last year. PAT showed a lot of improvement yoy and rose 165% to Rs 9 cr this quarter. Operating margins improved as well and stood at 1.9% Vs - 3.4% yoy. PAT margin improved from 1.6% to 6.2% this quarter. EPS too received a boost and improved from Rs 1.39 to Rs 4.68.

Valuation: Trent is expected to grow at a rate of 14% CAGR for next 3 years. FDI in retail sector could be a game changer for Trent in coming years. It already has business partnerships with top retail brands in the world and should attract foreign investment easily. Trent has planned to add 11 more stores to Westside this quarter and this will boost revenues during the next financial year. We expect an increase in 7-8% in EBITDA margins during second half of FY13. At CMP of Rs 1163, we recommend a BUY rating for the stock with a target price of Rs 1345, implying an upside of 16% in the medium term.

Source : Equity Bulls

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