Buy Trent, target price Rs 610: Motilal Oswal
rent’s cost of retailing should rise due to high store additions in FY20, which would weigh on its EBITDA margins.
By ETMarkets.com | Updated:
Getty Images
Motilal Oswal has given a buy rating to Trent with a target price of Rs 610. The SOTP-based target price values Westside and Zara at 34 times EV/EBITDA and Star at 2 times EV/sales on FY22E. The company currently trades at FY22E EV/EBITDA of 20 times.
The reported 4QFY20 revenue/EBITDA were 4 per cent/28 per cent above estimates due to cost savings in opex. Jan-Feb’20 revenues grew ~33 per cent year on year, highlighting strong performance in the pre COVID-19 period. The brokerage has cut standalone FY21E/FY22E revenue estimates by 10 per cent/9 per cent due to the prolonged lockdown. However, channel checks indicate healthy revenue recovery in stores that have resumed operations.
Investment Rationale
The retail sector is the worst hit due to the current Covid-19 lockdowns, which has led to a drop in social events and lower disposable income. The apparel sector is expected to take a longer time to recover and return to the high growth stage witnessed earlier. Further, Trent’s cost of retailing should rise due to high store additions in FY20, which would weigh on its EBITDA margins. Trent is expected to deliver standalone revenue/PAT CAGR of 9 per cent/50 per cent over FY20-22E on robust growth led by new stores.
The brokerage maintains its bullish stance on Trent. Healthy business model and strong balance sheet should help the company tide over the current Covid crisis with limited inventory risks.
Financials
Promoter/FII Holdings
Promoters held 37 per cent stake in the company as of March 31, 2020, while FIIs held 21.2 per cent, DIIs 15.6 per cent and public and others 26.2 per cent.
The reported 4QFY20 revenue/EBITDA were 4 per cent/28 per cent above estimates due to cost savings in opex. Jan-Feb’20 revenues grew ~33 per cent year on year, highlighting strong performance in the pre COVID-19 period. The brokerage has cut standalone FY21E/FY22E revenue estimates by 10 per cent/9 per cent due to the prolonged lockdown. However, channel checks indicate healthy revenue recovery in stores that have resumed operations.
Investment Rationale
The retail sector is the worst hit due to the current Covid-19 lockdowns, which has led to a drop in social events and lower disposable income. The apparel sector is expected to take a longer time to recover and return to the high growth stage witnessed earlier. Further, Trent’s cost of retailing should rise due to high store additions in FY20, which would weigh on its EBITDA margins. Trent is expected to deliver standalone revenue/PAT CAGR of 9 per cent/50 per cent over FY20-22E on robust growth led by new stores.
The brokerage maintains its bullish stance on Trent. Healthy business model and strong balance sheet should help the company tide over the current Covid crisis with limited inventory risks.
Financials
ADVERTISEMENT
For the quarter ended March 31, 2020, the company reported consolidated sales of Rs 842.93 crore, down -14.71 per cent from last quarter sales of Rs 988.29 crore and up 21.40 per cent from last year's same quarter sales of Rs 694.33 crore. The company reported net profit after tax of Rs 32.65 crore in the latest quarter. Promoter/FII Holdings
Promoters held 37 per cent stake in the company as of March 31, 2020, while FIIs held 21.2 per cent, DIIs 15.6 per cent and public and others 26.2 per cent.
Too busy to trade in stocks? Invest in Mutual Funds with ET Money!
Bookmark or read stories offline -
Download ET Markets APP
Download ET Markets APP
ADVERTISEMENT
