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Trent: Beyond FY03

Jun 19, 2003

Trent, the Tata group's retailing arm, recently declared its FY03 results. The company posted a 36% YoY growth in revenues, while net profits rose by 65%. Trent continues to grow its topline on the back of the expansion initiatives taken during the year. We take a deeper look at the numbers, which seem to be enthusing.

(Rs m) 4QFY02 4QFY03 Change FY02 FY03 Change
Net Sales 209 301 44.4% 820 1,115 36.1%
Other Income 36 9 -73.5% 86 86 -0.6%
Expenditure 188 262 39.5% 751 1,029 36.9%
Operating Profit (EBDIT) 21 39 88.2% 68 87 26.7%
Operating Profit Margin (%) 10.0% 13.1%   8.3% 7.8%  
Interest 0 0 46.2% 0 0 -30.6%
Depreciation 6 6 4.1% 24 27 15.3%
Profit before Tax 50 42 -15.9% 130 145 10.8%
Provisions/extraordinary items (16) (26) 60.6% (16) 46 -
Tax 6 (5) - 12 22 82.5%
Profit after Tax/(Loss) 28 22 -22.5% 102 169 65.3%
Net profit margin (%) 13.5% 7.2%   12.5% 15.1%  
No. of Shares (eoy) (m) 13.1 13.1   13.1 13.1  
Diluted Earnings per share (Rs)* 8.6 6.6   7.8 12.9  
P/E ratio (x)   26.7     13.7  
*(annualised)            

During FY03, retail sales (constitute 93% of total sales), grew by over 44%. This shows that the company aggressiveness in setting up more departmental stores in major metros. Trent already has 10 ‘Westside’ stores in major metros and plans to set up stores in cities having a population of over 100,000. This is in line with its strategy of opening 20 stores within next three years from the present 10 stores.

Cost break-up
(Rs m) 4QFY02 4QFY03 Change FY02 FY03 Change
Increase/Decrease in stock 8 13 61.2% (52) (34) -34.2%
Consumption of raw materials 7 10 43.8% 49 31 -36.7%
Purchase of finished goods 69 108 57.9% 316 506 60.2%
Staff costs 17 16 -3.1% 69 77 11.9%
Other expenditure 88 115 31.0% 370 449 21.4%
Total expenditure 188 262 39.5% 751 1,029 36.9%

In FY03, operating margins however, have dipped marginally. But the encouraging thing is that operating profit margin has increased from 10% in 4QFY02 to 13% in 4QFY03. In the March quarter, the company has been able to reduce its other expenditure and staff costs. These expenses as a percentage of net sales contribute (36% and 5% respectively) as against 42% and 8% respectively during the previous period.

As the company increases its distribution network, the cost of servicing the incremental branch decreases, thus bringing economies of scale in its operations. As we go forward, we expect margins to show further improvement. Net profits have fallen by over 22% during 4QFY03, which is largely due to a 74% decline in other income. The company has attributed the fall to diminution of value of investments. While net profit seems to have risen by 65% for FY03 on the first look, if one were to exclude gains from the tax write-off, net profit growth is lackluster.

At the current price of Rs 177, the stock is trading at a P/E multiple of 14x FY03 earnings. The planned increase in distribution network and the emergence of organized retailing poses significant growth opportunity for Trent in the long run. As a key player in this segment, we expect Trent to capitalize on the same.


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