Trent Ltd - Better positioned to leverage huge opportunity - ICICI Securities

Key takeaways from Trent's Q1FY21 results include: a) company plans to pursue aggressive store additions in H2FY21E - plans to add 30 Westside, 75 Zudio and 20 Star Market stores in FY21 as highlighted during recent AGM; b) currently 90% of the network is operational with 35% footfalls while revenues are 55% compared to last year; c) sharp focus on cost rationalisation would achieve medium-term efficiencies; and d) increased emphasis on digital platform. We believe Trent is likely to emerge stronger when normalcy returns and is better positioned to leverage the huge available opportunity, given its value product offerings and robust balance sheet. Factoring-in extended lockdown due to Covid-19, we reduce our standalone FY21E EBITDA by 17%; while increase FY22E EBITDA by 5% owing to higher store additions and increase our DCF based target price to Rs675/share (earlier Rs525). Maintain BUY.

- Standalone revenues declined 87% YoY to Rs963mn owing to Covid-19 lockdown. Revenues for the April (0%), May (8%) and June (32%) respectively compared to last year. Currently, >90% stores are operations where the footfalls are 35% while revenue is 55% of last year. Management expects demand will gradual return to normalcy over next 12 months. Revenues from online platform has grown 50% YoY in the period post the Covid lockdowns. Trent has recently launched Westside.com in addition to sales through Tata Cliq and targets 10% revenue contribution (1.6% of sales n FY20) from online in medium term.

- EBITDA loss for the quarter stood at Rs1.2bn. The extended store closures due to lockdowns led to an incremental provisioning of Rs400mn in inventories which the company may review, given improved traction in recent EoSS. Employee cost was down 18% YoY; while other expenses were down 58% YoY. Other income increased 2.3x YoY to Rs546mn which includes Rs360mn relating to reduction of rent and other charges for the period of store closures. Net loss for the quarter stood at Rs1.4bn. Share of loss from associates/ JV stood at Rs389mn in Q1FY21.

- Trent added six stores (4 Zudio, 1 Westside and 1 Landmark) in Q1FY21. Trent has aggressive plans to add 30 Westside, 75 Zudio and 20 Star Market stores in FY21. Accordingly, the capex is guided at Rs1.5-2bn for FY21. To recap, Trent added 63 stores (20 Westside, 41 Zudio and 2 Utsa) in FY20. Besides, opening of 21 stores (4 Westside and 17 Zudio) under fit-outs was impacted owing to Covid'19.

- Near-term focus on preserving cash: Trent has started prioritising cash conservation and cost reductions, especially with respect to discretionary spends. Trent raised Rs9.5bn in FY20 (utilised Rs8.3bn mainly for debt repayment) through preferential route to promoters and has enabling resolution to raise Rs6bn equity (through QIP or rights issues) in FY21.

Shares of TRENT LTD. was last trading in BSE at Rs.567 as compared to the previous close of Rs. 575.2. The total number of shares traded during the day was 41301 in over 2777 trades.

The stock hit an intraday high of Rs. 587.9 and intraday low of 548.55. The net turnover during the day was Rs. 23676848.

Source : Equity Bulls

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