The brokerage said it likes Trent’s ability to conceptualize and scale up new formats within short periods of time. It also forecasts a healthy revenue/EBITDA/PAT CAGR of 28/29/32% over FY2023-25E. However, rich valuations of the stock drive a reduce rating and SoTP-based fair value of Rs 1,320.
Trent is a leading fashion retailer selling 100% in-house brands across the apparel, innerwear, accessories, and footwear categories. The company is best known for its flagship Westside format (59.5% of FY2023E standalone revenue) but has rapidly scaled up the Zudio format as well (39.9% of FY2023E revenue).
“Our DCF for the standalone business bakes in a healthy FY2022-60E revenue CAGR of 13%, gradual EBIT margin expansion to 12%, and WACC of 12.1%, imputing December 2024 P/E of 60X. The slowdown in consumer spending and loss of market share to other brands/formats are key risks to Trent’s model,” it said.
However, the brokerage firm further stated that rising spending on branded apparel and geographic expansion of stores would be key growth drivers.
“We believe Trent’s business model is scalable. The sharp increase in the store count of Zudio, with RoACE similar to the core Westside format, gives us confidence that Trent has a suitable platform comprising various functions such as real estate acquisition, store management, and supply chain, which can be replicable across formats. We believe a premium is justified, given Trent’s superior growth trajectory and larger TAM, the brokerage said.
Shares of Trent fell about 3% to Rs 1,240.5 in Friday’s trade. The stock has plunged around 15% in the last month and has fallen 7% year-to-date.
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