Trent 4QFY21 Results Review - Surprises positively - HDFC Securities

Mr. Jay Gandhi, Institutional Research Analyst, HDFC Securities

Trent's 4Q performance surprised positively. Standalone revenue grew 7% YoY to INR7.7bn (HSIE: 2.4%). Westside is estimated to have recovered base- line revenue (in-line), implying that Zudio overshot expectations. Bigger surprise was on GM recovery, which expanded 671bp YoY to 53.2% (HSIE: 47%). We suspect GM expansion was led by (1) write back of inventory provisions made in 1H and (2) better GMs in Zudio. 2H GM recoup helped Trent clock its typical annual GM (49.7%) in FY21. Costs continued to normalise; hence, EBITDAM beat lagged GM beat in 4Q. We revise our FY23 EBITDA estimates upwards (+9%) to account for higher EBITDAM (+100bp vs earlier). However, at 38x FY23 EV/EBITDA, there is no investment case. Maintain our SELL recommendation with an SOTP-based TP of INR 625/sh (implying 30x FY23 EV/EBITDA). Note: TP change largely mimics EPS change.

4QFY21 highlights: Revenue growth of 7% YoY (INR 7.74bn vs HSIE: INR 7.4bn) was better than expected. Westside recovered its base-line revenue (LTL growth: -4%; in-line), implying that Zudio overshot expectations. While recovery has been encouraging, management highlighted that revenue drop has been sharp post the 2nd round of lockdowns. GMs expanded 671bp YoY to 53.2% (HSIE: 47%), led by (1) write back of inventory provisions made in 1H and (2) better GMs for Zudio. 2H GM recoup helped Trent clock its typical annual GM (49.7%) in FY21. Costs continued to normalise; hence, EBITDAM beat lagged GM beat in 4Q. Adj. PBT/PAT stood at INR0.85/0.57bn respectively. Core CC cycle improved to 35 days in FY21 (39 days in FY20) - a rarity in the apparel space. Trent exited FY21 with 174/133 Westside/Zudio stores resp. Fit-outs for an additional 19/15 Westside/Zudio stores is complete and these stores would open once COVID-related restrictions are lifted.

Outlook: Trent's revenue and margin recovery have been encouraging. This, along with a disciplined handle on working capital and well-capitalised balance sheet (net cash position: INR 7.5bn) means we can't fault the business. However, valuations remain uncomfortably high (38x FY23 EV/EBITDA). Hence, we maintain our SELL recommendation on the stock with an SOTP-based TP of INR 625/sh (implying 30x FY23 EV/EBITDA).

Shares of TRENT LTD. was last trading in BSE at Rs.773 as compared to the previous close of Rs. 783.35. The total number of shares traded during the day was 23735 in over 1523 trades.

The stock hit an intraday high of Rs. 795 and intraday low of 772.5. The net turnover during the day was Rs. 18540900.

Source : Equity Bulls

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