Q1FY24 Review: Trent: Growth juggernaut continues

10 Aug 2023 , 11:11 AM

Trent reported Q1FY24 results above IIFL Capital Services estimates, driven by healthy SSS growth of 12% and continued momentum on store additions (particularly Zudio) — translating into a 53.5% top-line growth (14% above estimate). With 7/36 net store additions in Westside/Zudio, the company is broadly on track to deliver on its FY24 store addition guidance of 30/200 store additions in these formats, respectively. Analysts of IIFL Capital Services factor in the Q1 beat and accelerated pace of store additions, resulting in 0-11% upgrade in their adj. Ebitda estimates. Maintain ADD with a target price of Rs1,800. 

Stellar performance amid subdued market conditions: 

Trent delivered a robust Q1FY24 performance, above analysts of IIFL Capital Services estimates. Net sales (standalone) grew 53.5% (14% above analysts of IIFL Capital Services estimate), driven by store additions in Zudio (36 stores added in Q1, taking store count to 388) and SSS growth of 12% in Fashion concepts (Westside + Zudio). At 20%, Ebitda growth was lower with Ebitda margin contracting 398bps to 14.4%, primarily driven by gross margin contraction with salience of Zudio going up. 

Accelerated store additions to continue in Zudio: 

During the AGM in June’23, management had guided towards 30/200 store additions in Westside / Zudio formats, respectively in FY24. The company is broadly on track to achieve its FY24 guidance pertaining to store openings with 7/40 gross additions in Westside / Zudio respectively, delivered in Q1. Fashion SSS growth at 12% is healthy in a subdued demand environment, although it would be positively influenced by a relatively young profile of Zudio stores. 

Adj. Ebitda upgrade of 0%/7%/11%: 

Analysts of IIFL Capital Services factor in Q1FY24 beat as well as higher store additions in both Westside and Zudio —this is resulting in a large upgrade in their sales estimates. However, with salience of Zudio increasing faster than earlier expectations, they lower their overall Ebitda margin estimate (adj. for IND AS 116) to ~9% over FY24-26. Their adj. Ebitda estimates are witnessing upgrade of 0%/7%/11% for FY24/25/26. Valuations are rich and already factoring in the strong growth momentum, leaving little room for any execution slip-ups in their view. Analysts of IIFL Capital Services maintain their ADD rating with a target price of Rs1,800.