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MOSL: TRENT (Neutral)-Aggressive store additions drive growth

TRENT: Aggressive store additions drive growth

(TRENT IN, Mkt Cap USD4.9b, CMP INR1037, TP INR1030, 1% Downside, Neutral)

 

• TRENT saw a strong recovery in revenue (beating our estimate, up 2.3x YoY, and 25% above pre-COVID or 2QFY20 levels) on the back of a 46% addition in its store footprint. On a LTL basis, sales came in ~20% below pre-COVID levels. Westside/Zudio grew 3%/3x from its pre-COVID base. EBITDA/PAT saw a strong 67%/3.3x jump from pre-COVID levels.
• Despite revenue being below pre-COVID levels on a LTL basis, margin has been much better. Zudio has grown 3x in the last two years, despite the impact of the COVID-19 outbreak, and is expected to contribute over one-third by FY23E. We have largely maintained our FY23 estimate, factoring in 20%/23% CAGR over FY20-23E, building in a healthy recovery, and expect steady store additions to continue. The rich valuation leaves room for limited upsides from current levels. We maintain our Neutral rating.

 

Revenue fueled by store additions, down ~20% on a LTL basis

• Standalone revenue grew 2.3x YoY to INR10.2b (7.6% beat) as the business operated for 91% of the trading days Vv/s 46% in 1Q1FY22. Compared to pre-COVID levels (2QFY22), revenues was , were up by 25%. It has added increased its store footprint by 46% in the last two years. On a , so LTL basis, it is still down about 20% v/s pre-COVID levels (2QFY20)this quarter.
• Westside/Zudio added 10/7 stores in 2QFY22, taking its total store count to 191/147 stores.
• Gross margin improved to 52.1%, better than its pre-COVID margin of 48%. Gross profit rose by ~3x YoY to INR5.3b in 2QFY22, aided by a strong recovery in revenue (19% beat), despite increasing RM cost.