This Tata Group Retail Stock Surged 55.66% In 1 Year, Buy For A Target Price of Rs 1330

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Investment

oi-Vipul Das

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Trent Ltd is a retail company that is part of the Tata Group. The company’s market capitalization is Rs 38,037.16 crore. Trent’s core brand, Westside features branded fashion garments, footwear, and accessories. In the previous year, the stock has climbed by 55.66 percent, 1.20 percent on a year-to-date (YTD) basis, and 19.03 percent in the last six months. On the NSE, the stock ended the Friday session with a market price of Rs 1,067.30 per share. The stock receives a buy call from domestic brokerage firm ICICI Securities following the company’s Q3FY22 results, with a target price of Rs 1330.

Q3FY22 results of Trent Ltd according to ICICI Securities

Q3FY22 results of Trent Ltd according to ICICI Securities

  • The revenue trajectory continued to be robust with significant beat on our/consensus estimates and reported industry-leading growth over preCovid levels. Profitability was a tad lower than our estimates, mainly owing to lowerthan-expected gross margins.
  • On a favourable base, revenue grew 86% YoY to Rs 1347.8 crore (two-year compound annual growth rate-CAGR: 24%). Westside format registered revenue worth Rs 1000 crore (74% of revenue) with SSSG of 9% vs. pre-Covid levels and 49% vs. last year.
  • Reported gross margins of 51.2% (down 513 bps YoY), which were lower than our estimate 54%. Earnings before interest, taxes, depreciation, and amortization (EBITDA) margins declined 320 bps YoY to 21.6%.
  • Tracking strong operational performance, profit after tax (PAT) grew 67% YoY to Rs 133 crore.

Key investment rationale for Trent according to ICICI Securities

Key investment rationale for Trent according to ICICI Securities

  • We pencil in 244 store additions between Westside and Zudio for FY22-24E.
  • Liquidity position remains robust with cash & investments worth Rs 685 crore that will enable it to tide over the current situation better than peers.
  • On account of a healthy beat on estimates, we revise our revenue and earnings estimates upwards for FY22E. We build in revenue and earnings CAGR of 19% and 42%, respectively, in FY20-24E.
  • In the long run, the company aims to grow its revenue at a CAGR of 25%+.

Buy for a target price (TP) of Rs 1330

Buy for a target price (TP) of Rs 1330

ICICI Securities has noted that “Trent has been an exceptional performer with the stock price appreciating at ~35% CAGR in the last five years. Robust performance during challenging times and industry-leading performance will continue to warrant premium valuations for Trent. Hence, we maintain our BUY rating on the stock. We value Trent at Rs 1330 based on sum-of-the-parts (SOTP) valuation.”

The brokerage has also claimed that “Apart from Trent, we also like Aditya Birla Fashion & Retail (ABFRL). ABFRL has charted out a growth strategy to become a ~US$2.8 billion entity (Rs 21000 crore) by FY26E, translating to 15% CAGR in FY20-26E. BUY with a target price of Rs 360/share.”

Disclaimer

Disclaimer

The stock has been picked from the brokerage report of ICICI Securities. Investing in equities poses a risk of financial losses. Investors must therefore exercise due caution. Greynium Information Technologies, the author, and the brokerage house are not liable for any losses caused as a result of decisions based on the article.

Story first published: Friday, February 11, 2022, 17:15 [IST]



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