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Trent: Other income saves the day - Views on News from Equitymaster
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Trent: Other income saves the day
Jun 1, 2010

Trent Ltd has announced its FY10 results. The company has reported a 9.3% YoY and 50% YoY growth in sales and net profits respectively. Here is our analysis of the results.

Performance summary
  • On a standalone basis, revenues grow by 9.3% YoY led by rebound in consumption.
  • As against Rs 114 m loss in FY09, the company reports loss of Rs 110 m in FY10.
  • Higher other income led net profits report 50% YoY growth.
  • During the year, the company opened seven Westside stores taking the total number of Westside stores to 43 and the total number of stores under various formats 52 (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.
  • It has also amalgamated Satnam Developers and Finance Pvt. Ltd. and Satnam Realtors Pvt. Ltd effective 12th March, 2010. The appointed date for the scheme is 1st April, 200. Accordingly, the results of the company for the year ended 31st march, 2010 include figures of SDPL and SRPL and hence are not comparable with the corresponding previous year.

Financial performance snapshot
  Standalone Consolidated
(Rs m) FY09 FY10 Change FY09 FY10 Change
Net sales 4,964 5,426 9.3% 8,247 10,622 28.8%
Expenditure 5,078 5,536 9.0% 8,591 11,069 28.8%
Operating profit (EBDITA) (114) (110)   (344) (447)  
EBDITA margin (%) -2.3% -2.0%   -4.2% -4.2%  
Other income 502 674 34.2% 605 754 24.6%
Interest 13 60 360.6% 96 79 -17.8%
Depreciation amortisation 92 119 28.3% 159 221 38.6%
Profit before tax 283 385 36.0% 6 8 37.6%
Exceptional item - 114   - 84  
Tax 15 96 533.3% 3 77 2195.1%
Profit after tax 268 402 50.3% 2 15 566.2%
Minority share - -   (1) (2)  
Pre acquisition profit/(loss) - -   (8) 1  
Net profit       10 16  
Net profit margin (%) 5.4% 7.4%   0.0% 0.1%  
No. of shares (m) 19.5 20.0        
Diluted earnings per share (Rs)*   20.1      
P/E (x)   40.2        
(*trailing twelve month earnings)

What has driven performance in FY10?
  • Trent Ltd, the lifestyle retailer reported 9.3% YoY growth in net sales during the FY10. The growth has been backed by unveiling of new collection during the festive and marriage seasons and signs of economic revival. Second half of the fiscal has been particularly good for the company, especially in case of topline growth. This is because the company has witnessed marginal decline in sales in 1HFY10.

  • With revival in economy the company has been able to find takers for its lifestyle retailing offerings, scaling cost of operation and poor performance in 1HFY10 led to loss of Rs 110 m in FY10.

  • Despite reporting loss at the operating level, the company ended the year in the black. This is on account of 34% YoY growth in other income and exceptional items (profit on sale of minority stake of its subsidiary Landmark Ltd to Private Equity Fund). Excluding the same, loss at net level would have been at Rs 385 m.

  • It is clear that the core business has failed to generate profits or return on capital employed. The surplus funds enabled the company report higher earnings. The company has never been as aggressive as its peers. It has been scaling up its lifestyle retail business gradually. One may also conclude it saying that, it has been a laggard. However, with economic revival and post restructuring of its business formats it plans to expand its retail footprint. The company has rich cash balance on its books and is also mulling rights issue to fund its growth plans.

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 looks promising. While there is scope to explore opportunities and grow, it’s rough road and a long way to go. The company’s business model is skewed towards lifestyle retailing, where revival comes in slower as compared to the value retailing business. Moreover, discretionary spending is the first one to take hit in times of economic downturn. While these are the industry wide issues, what concerns us more is the company’s dependence on income other than retailing business. At the current price of Rs 808, the stock is trading at a price to earnings multiple of 40.2 times its trailing twelve month earnings.

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