Recommendation from Retail Sector
This column gives you scrip chosen by the research team during the fortnight that is fundamentally strong and expected to give good capital appreciation over a time period of 1 year.
TRENT LTD : AN ENVIABLE BALANCE-SHEET
HERE IS WHY
✓Huge growth potential
✓Good returns on capital employed
✓Good financial improvement
Established in 1998 as part of the Tata Group, Trent Ltd. is engaged in the retailing of apparels, footwear, accessories, toys, games, food, grocery and non-food products. It operates through Westside, Zudio, Star Hypermarket, Landmark, Booker Wholesale and ZARA retail formats. Westside stocks products ranging from apparel, footwear, accessories to cosmetics and perfumes as well as home accessories and gifts, amongst others. Zudio stores have departments to meet the varied shopping needs of customers that include apparel for men, women and kids, footwear and home accessories. Landmark stores offer family entertainment.
The company has reported net sales of Rs 585.38 crore in September 2020, up by 135.66 per cent from Rs 248.41 crore reported in June 2020. Its PBIDT was Rs 0.39 crore in September 2020, up by 100.32 per cent from negative PBIDT of Rs 123.75 crore reported in June 2020. It reported net loss of Rs 62.34 crore in September 2020 against net loss of Rs 145.18 crore reported in June 2020. The company’s H1FY21 balance-sheet remains strong with Rs 46 crore cash position aided by healthy CFO at Rs 119 crore. It reported net sales of Rs 3,485.98 crore in FY20, an increase of 32.53 per cent.
It had reported net sales of Rs 2,630.24 crore in FY19. The company reported PBIDT of Rs 543.95 crore in FY20, an increase of 138.87 per cent. It had reported PBIDT of Rs 227.72 crore in FY19. The company reported PAT of Rs 136.41 crore in FY20, an increase of 28.1 per cent, as against PAT of Rs 106.49 crore in FY19. The company has reported cash from operating activities of Rs 355.31 crore in FY20 as against Rs 20.98 crore it reported in FY19. Trent has pursued various cost mitigation measures and is seeking to retain realised efficiencies over the medium term.
The company follows strong product and inventory disciplines across the value chain. This includes emphasis on own branded offering, ownership of product design and selection of products, focus on speed of concept-to-market and consistency of offers across various platforms. Over the last year the company progressed with its integration of stores and online channels for Westside concept, thereby extending its reach to a growing audience. Its online channel registered robust traction as it grew over 50 per cent YoY. Trent opened four new Zudio stores and one new Westside store during the September quarter and continues to pursue store opportunities in all relevant micro markets.
Given faster recovery in demand in Tier I and II cities versus metros, Trent’s focus on store additions beyond metros would aid healthy recovery going ahead. It has also turned debt-free by paying off its existing debts. Trent’s strong parentage and healthy balance-sheet aids the company in funding its store additions plans and tide over uncertain times. The company is best placed to bounce back, driven by its success in Westside concept, sustainable margins over the medium term led by Westside’s private label-driven business model, higher focus on improving backend operations, superior store execution capability and focus on cost efficiency, healthy balance-sheet and additional capital funding and significant growth opportunities in the Zudio format driven by aggressive store additions beyond metros, etc. On the returns front, it has ROCE of 19 per cent. By virtue of these factors, we recommend our reader-investors to BUY this stock.
