Motilal Oswal said in its memo that “Trent’s successful store performance, healthy store economics and aggressive growth strategy provide a huge avenue for growth over the next three to five years as the company targets a 25% annual revenue growth We expect 37% revenue growth in FY22-24, justifying a higher stock valuation We have assigned a 31x FY24E EV/EBITDA to the standalone business (Westside and Zudio, 15% bonus for the last five years until the pandemic and 10% bonus to our Retail coverage universe), 1x EV/sales to Star Bazaar and 15x EV/EBITDA to Zara to arrive to our new TP of INR 1,430 (revised up from INR 1,180 earlier) Weak demand in Tier 2-3 cities, as validated by our channel checks, remains the main short-term risk term. Keep BUY.”

The main stock triggers for future performance according to ICICI Securities are the addition of 215 stores between Westside and Zudio for FY23-24E, the liquidity position remains strong with cash and investments worth ₹Over 600 crore which will see him weather the current situation better than his peers, Zudio continues to be Trent’s growth engine. We expect its revenue to grow at a CAGR of 48% in FY 22-24E and over the long term the company aims to grow its revenue at a CAGR of 25%+.

Highlighting key takeaways from Trent’s annual report, ICICI Securities said in its report that Zudio remains the fastest growing fashion brand in India with revenue exceeding ₹1000 crore in FY22. As the brand reached scale, the brand recorded its highest EBIT margin of 6% in FY22 (FY21: ~1%), the Westside format exceeded pre-Covid levels from H2FY22 with a positive SSSG (FY22 gross income: ₹2,900 crore), Zara India reported strong revenue growth of 61% YoY (115% of pre-Covid levels) despite muted store additions, Star Bazar losses widened YoY yearly, mainly due to higher discounts and more accurate pricing, Two to three new fashion concepts are in progress, one of which would be a standalone store in beauty format (brand: ‘Landmark Xcite’) and on a standalone basis , the company recorded EBITDA margins of 7.9% (pre-Ind AS 116) in FY22 (FY20: 9.0%) . At the consolidated level, EBITDA margins are down to 4.2%, mainly due to its subsidiary Booker India.

“Trent has been an outstanding performer with approximately 35% CAGR share price appreciation over the past five years. Robust performance in difficult times and industry leading performance will continue to justify higher valuations. for Trent. Therefore, we are maintaining our BUY rating on the stock. We like Trent at ₹1470 based on SOTP valuation,” ICICI Securities said.

The opinions and recommendations made above are those of individual analysts or brokerage firms, and not of Mint.

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