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MOSL: TRENT (Buy)-Stellar results-strong growth to continue

TRENT: Stellar results; strong growth to continue

(TRENT IN, Mkt Cap USD1.7b, CMP INR357, TP INR440, 23% Upside, Buy)

• Beat on all counts: Healthy growth in Westside fuelled strong 4QFY19 revenue/EBITDA growth of 27%/32% (standalone basis); Zudio (the recently launched value format) too seems to have recorded profitable growth. The 4QFY19 results are better than our estimates and 9MFY19 numbers, which indicated much lower EBITDA growth. Standalone revenues grew at a robust 27% YoY to INR6.7b (11% beat). Gross profit/EBITDA was up 19%/36% YoY at INR3.2b/INR338m. GM contracted 290bp YoY to 47.4%, potentially due to high contribution from its low-margin Zudio business. However, EBITDA margin improved 30bp YoY as Zudio achieved scale and delivered better margins, evident from the faster pace of its EBITDA growth. Adjusting for exceptional losses and tax gains, PAT grew 18% YoY to INR138m. FY19 revenue/adjusted PAT grew 23%/5%.
• Westside growing at a steady pace; Zudio too scaling up: Westside saw est. revenue growth of 20-21% YoY, while the balance growth was contributed by Zudio, which is estimated to have revenue growth of ~4-5x to INR546m v/s the corresponding quarter. Westside’s growth is led by strong estimated SSSG of 11-12% and potentially 6-7 store adds (v/s est. of 5 stores).
• Expect strong growth to continue: Westside reported a healthy 9% SSSG; store additions were robust at 27 stores in FY19. We expect the pace of growth to continue with 9% SSSG and 23-24 store additions in FY20/21. Zudio has seen strong est. 2-3x growth in FY19; expect about 43% revenue CAGR over FY19-21E. Subsequently, we expect consol. revenue/PAT growth of 18%/62% (largely unchanged).