Trent Shares Gain Most In Nine Months On Q2 Beat, Upbeat Analyst Calls
Here's what brokerages made of Trent's Q2 results.
Shares of Trent Ltd. gained the most in nine months after the operator of Westside apparel stores beat analysts' estimates during the second quarter.
Analysts, too, are upbeat about the Tata Group firm's superior liquidity profile and aggressive store additions.
Key Q2 highlights (Consolidated, QoQ)
Revenue up 140% at Rs 1,178.1 crore, compared to Bloomberg's estimate of Rs 898 crore.
Ebitda at Rs 209.7 crore against an operating loss of Rs 43.1 crore. Bloomberg's estimate was Rs 169.5 crore.
Gross margin at 45.9% compared with 38.2%.
Net income at Rs 92.5 crore against a loss of Rs 126.6 crore. Bloomberg's estimate was of Rs 32.6-crore profit.
“We have been encouraged by the rapid recovery in customer offtake starting from the middle of June as the business reopened in many markets. Our fashion business has, in particular, recovered sharply and is now back to operating profitability," said Noel N Tata, chairman at Trent.
Notwithstanding near-term uncertainties, the company continues to focus on building differentiated brands and expansion of reach through stores and digital platforms, Tata said.
Shares of Trent gained as much as 9.1% to Rs 1,132.3 apiece. Of the 17 analysts tracking the company, 10 recommend a 'buy', four suggest a 'hold' and three have a 'sell' call, according to Bloomberg data. The average of 12-month price targets implies a downside of 7.5%.
Here's what brokerages made of Trent's Q2 performance:
Jefferies
Maintains 'hold' rating, raises target price to Rs 1,000 from Rs 870.
Trent reported a strong pick-up in revenues after a dismal performance in base quarters (year-on-year/quarter-on-quarter).
The highest-ever revenues as well as Ebitda and a significant beat in Q2 signal that business is on a strong footing.
A better disclosure would have helped to build estimates in a more holistic way. For now, we take a middle path and assume some benefits to be recurring.
The press release is quite shallow, and Jefferies is unsure if Q2 revenue is normalised or there is a possibility of pent-up demand, which is inflating the base. It is also concerned with the lower promotion/discount during end-of-season sales, which could have contributed to high gross margin level.
Motilal Oswal
Maintains 'neutral' rating, raises target price to Rs 1,030, implying a potential downside of 1%.
Trent's superior liquidity profile, at a time when many small/unorganised retailers are in stress, and aggressive store additions should allow it to grow at a healthy pace as the market recovers.
Zudio, with its strong value format proposition, has recovered faster given the downtrading in the market, and is witnessing a strong growth in store footprint.
Trent’s industry leading growth backed by superior execution and a healthy balance sheet warrants a premium valuation, but it is already trading at rich valuations leaving limited upside for the stock.
Dolat Capital
Upgrades to 'buy' from 'accumulate' at a target price of Rs 1,212, implying a potential upside of 17%.
Trent’s Q2 FY22 performance was significantly ahead of estimates led by new stores, faster stabilisation, strong pent-up demand, and cost mitigation measures.
Trent is India’s leading apparel retailer with proven store formats like Westside, Zudio (in standalone), and Zara (under JV). It is a structural play on India’s huge apparel opportunity.
Trent has geared up for aggressive store expansion and has shed its conservative approach. Management has patiently tried and tested sustainability of the business model before replicating it on a pan-India basis at a speedy pace.
Reducing losses in Star Bazaar and improving traction in Inditex JV augurs well over the medium term.
Trent’s rich valuation leaves limited room to err.
ICICI Securities
Maintains ‘buy’ rating, raises target price to Rs 1,230 from Rs 1,160, implying a potential upside of 18.6%.
Believes earnings of apparel brands and retail companies may surprise positively led by faster-than-expected demand recovery.
Expect consensus to turn more constructive with Q2 FY22 management commentary.
Factoring in faster-than-expected demand recovery, we increase our FY23-24 Ebitda/profit after tax estimates by 4-5%.
Key risks: Extended lockdowns, and lower discretionary spends.
IDBI Capital
Maintains ‘sell’ rating, raises target price to Rs 867 versus Rs 657 earlier, implying a potential downside of 16%.
Due to the rally in the stock price, our rating stands at ‘sell’.
Post reopening of business from mid-June this year, Trent has been able to make a quick comeback (reported profits) despite being allowed to operate for only 91% trading days.
Quarterly revenue in absolute terms driven by footfall recovery, increase in the size of customer basket, and retail expansion. Store addition rate remains healthy.
Trent will continue to disrupt apparel retailing market with high focus on value pricing, execution, access to cheap credit and differentiated positioning.
As per revised business outlook; we have upgraded our earnings per share estimate for FY22E by 30%.
Systematix Institutional Equities
Maintains ‘buy’ rating with a target price of Rs 1,200, implying a potential upside of 15.7%.
Trent is a winning business model with huge growth potential.
Like Trent for its industry-leading operating metrics like same store sales growth and Ebitda margin. Its complete control over the supply chain enables faster design-to-market time, ensuring the latest fashion is available to customers at competitive prices.
Revise our revenue and Ebitda estimates for FY22E by 3%, based on strong demand recovery in Q2 and superior margins.
Expect Trent to be a key beneficiary of apparel industry growth given its efficient business model, strong balance sheet and growth potential.
Recurring Covid-19 waves are a risk to its call.