Trent: A good year on many fronts

7 Jun 2023 , 10:12 AM

Trent delivered a robust performance in FY23 – growth in sales per sq.ft across both Westside and Zudio, a historical high Ebitda margin in Westside and a rapid pace of store additions in Zudio. While FCF was only marginally positive due to store expansion, ROIC improved sharply to 21% (vs 11% in FY20), driven by higher sales throughput and lower fixed asset per sq.ft. Store network across the Zara JV, Star and Booker India subsidiary witnessed consolidation in FY23, while profitability improved.

Robust performance across Westside and Zudio: 

Trent’s flagship format – Westside — had a good year, with 14 net store additions (taking the store footprint to 214), sales per sq.ft increasing by a 4% Cagr over FY20-23 (among the highest vs peers) to Rs11,973 and Ebitda margin reaching an all-time high of 13%. Trent’s value fashion format – Zudio – had a remarkable year with 119 net store additions (taking the store footprint to 352) and sales per sq.ft witnessing sharp acceleration to reach ~Rs18,000. Analysts of IIFL Capital Services estimate Ebitda margin in Zudio at 4.7% in FY23.

Sharp improvement in standalone ROIC: 

In the standalone business, FCF was marginally positive; subdued on account of store expansion. Despite margin contraction, post-tax ROIC improved sharply to 21% vs ~11% in FY20. Key drivers of ROIC improvement during this period — increase in overall sales per sq.ft, decrease in net fixed assets per sq. ft and a lower tax rate.

JVs, associates and subsidiaries: 

While Zara JV witnessed a sharp increase in sales per store (20% Cagr over FY20-23) to Rs1.25bn, store footprint at 20 stores implies zero net store additions in past 5 years. Store network in Star was consolidated to 63 stores (vs 70 in FY22); while losses in the JV with Tesco (Trent Hypermarket) moderated, these continue to be above Rs1bn. Booker India (51% subsidiary) also witnessed consolidation of store network and moderation in losses vs. FY22.