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MOSL: TRENT (Buy)-Fabulous outperformance defying macro trends

TRENT: Fabulous outperformance defying macro trends

(TRENT IN, Mkt Cap USD3b, CMP INR594, TP INR700, 18% Upside, Buy)

 

• In 3QFY20, Trent has displayed strong 13%/35% beat on EBITDA/PBT (post Ind-AS116) with 10% SSSG, at a time when other retailers are facing the brunt of slowing consumer spends.
• We have largely maintained FY20/FY21 EBITDA estimates, building in the healthy 9% SSSG. Trent, though expensive on headline multiples, is expected to command premium valuations given its continued stellar growth coming from its moat – the apparel segment. Maintain Buy. 

Strong 33% revenue growth; LTL EBITDA grows 40% YoY

• Trent’s revenues were up 33% YoY to INR8.7b (in-line), led by strong performance of Westside stores that witnessed an impressive 22% YoY revenue growth and 10% SSSG, considering other retailers are facing the brunt of slowing consumer spending.
• Post Ind-AS116, PAT was up 38% YoY to INR557m, while pre Ind-AS116 PAT was up 60% YoY to INR645m (7% beat). However, this is after the contribution of INR399m other income, which rose 3.2x on the recent fund raising.
• Pre Ind-AS116, EBITDA showed strong 40% YoY growth to INR1.01b, on surprisingly flat SG&A despite aggressive store adds. Gross margin was lower by 240bp due to (a) increasing revenue contribution from the lower-margin Zudio format, and (b) increase in employee/rent cost of 23%/58% due to the potentially strong pace of store adds.
• Our channel checks suggest that Westside/Zudio have added about 25/60 stores so far in 9MFY20.