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Trent: Bouyed by the festive season - Views on News from Equitymaster
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Trent: Bouyed by the festive season
Jan 27, 2010

Performance summary
  • Revenues grow by 19.4% YoY led by rebound in consumption. Apart from signs of economic revival, pickup in sales could be attributed to festive and marriage season sales.
  • Operating costs grow at a slower rate as compared to net sales resulting in 2.9% expansion in EBITDA margins.
  • Despite nearly six-fold growth in interest expense, profit before tax (PBT) report growth of 33.6% YoY. This is mainly on account of a good show at the operating level and stable to marginal growth in other income.
  • Net profits report whopping growth of 170% YoY. The same is the result of exceptional item (profit on sale of minority stake of its subsidiary Landmark Ltd to Private Equity Fund). Otherwise, i.e. excluding exceptional item, bottomline reports 23.6% YoY fall.
  • During the quarter, the company opened two Westside stores taking the total number of Westside stores to 42 and the total number of stores under various formats 51 (Westside, Sisley and Fashion Yatra).
  • With effect from 1st August, 2008, the company transferred its Star Bazaar business as a going concern to its 100% subsidiary Trent Hypermarket Ltd. Hence, performance is not truly comparable on a year on year basis.


(Rs m) 3QFY09 3QFY10 Change 9mFY09 9mFY10 Change
Net sales 1,230 1,468 19.4% 3,819 4,027 5.4%
Expenditure 1,223 1,426 16.6% 3,890 4,035 3.7%
Operating profit (EBDITA) 7 42 525.3% (71) (8)  
EBDITA margin (%) 0.5% 2.9%   -1.9% -0.2%  
Other income 105 110 4.5% 375 368 -1.9%
Interest 3 19 490.2% 10 41 318.4%
Depreciation & amortisation 30 28 -7.9% 78 76 -3.4%
Profit before tax 78 105 33.6% 216 243 12.5%
Exceptional item - 114   - 114  
Tax 20 60 205.8% 40 95 137.0%
Profit after tax 59 159 170.1% 176 262 48.8%
Net profit margin (%) 4.8% 10.8%   4.6% 6.5%  
No. of shares (m)       19.5 19.5  
Diluted earnings per share (Rs)*         18.1  
P/E (x)         44.9  

What has driven performance in 3QFY10?
  • Trent Ltd, the lifestyle retailer reported 19.4% YoY growth in net sales during the 3QFY10. The double digit topline growth seems to have been backed by signs of economic revival and unveiling of new collection during the festive and marriage seasons.

  • A lifestyle retailer like Trent Ltd is more exposed to impact of economic slowdown as disposable income takes a hit. This quarter’s performance should be viewed in the backdrop of dismal performance of 3QFY09. Thus, there is a low base effect too.

  • Operating costs grew at a slower pace as compared to growth in topline. This resulted in 2.9% expansion in operating margins. The same has been the result of the company’s ability to contain growth in costs (control on inventory levels and advertising expenses) across the board. In fact in this quarter the company has been able to lower its staff costs by 3.7% YoY. Apart from cost control measures, the benefits of scaling of retail space have started flowing in. With revival in economy the company is seem to have found to find takers for its lifestyle offerings.

  • At the profit before tax (PBT) level, profits were higher by 33.6% YoY. Apart from good show at the operating level, stable to marginal growth in other income supported the growth in earnings. If one excludes other income, then the company has reported loss of Rs 5 m at the PBT level. The same is the result of nearly six-fold growth in interest costs. However, one must note that the quantum of loss excluding other income has come down (loss in 3QFY09 Rs 27 m). This highlights improvement in core business activity.

  • At the net level, the company has reported whopping 170% YoY growth in profits. The same is the result of exceptional gains (profit on sale of minority stake of its subsidiary Landmark Ltd to Private Equity Fund) reported by the company during the period under consideration. Otherwise, i.e. excluding exceptional item, bottomline reports a 23.6% YoY fall.

What to expect?
Given that the management is focused on the strategy of setting up new stores and is looking at similar retail initiatives, the long-term growth prospects of the company look promising. The company’s business model is skewed towards lifestyle retailing, where revival would come in slower as compared to the value retailing business. Further, considering the company’s dependence on income other than retailing business, we would advice investors to practice caution. At the current price of Rs 812, the stock is trading at a price to earnings multiple of 44.9 times its trailing twelve month earnings.

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