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Trent FY02: Sign of things to come - Views on News from Equitymaster
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  • Jun 24, 2002

    Trent FY02: Sign of things to come

    The retailing arm of the Tata Group has finished FY02 with a much improved operational performance. The company's turnover was up by a significant 67% YoY. However, the net profit was stagnant at last year's levels. Retail sales (volumes) increased by 72% YoY.

    (Rs m) 4QFY01 4QFY02 Change FY01 FY02 Change
    Net Sales 92 209 125.7% 490 820 67.3%
    Other Income 96 36 -62.8% 171 86 -49.7%
    Expenditure 149 188 25.7% 491 751 53.1%
    Operating Profit (EBDIT) -57 21 - -1 68 -
    Operating Profit Margin (%) -61.5% 10.0%   -0.2% 8.3%  
    Interest 0 0 - 0 0 -
    Depreciation 5 6 26.1% 20 24 17.3%
    Profit before Tax 34 50 48.2% 150 130 -13.1%
    Tax -10 6 - 0 12 -
    Provisions/extraordinary items -48 -16 - -48 -16 -
    Profit after Tax/(Loss) -4 28 - 102 102 0.5%
    Net profit margin (%) -4.8% 13.5%   20.8% 12.5%  
    No. of Shares (eoy) (m) 13.1 13.1   13.1 13.1  
    Diluted Earnings per share* -1.4 8.6   7.8 7.8  
    Current P/e ratio   18.7     20.5  

    Trent's net profit was stagnant owing lower other income earned (down 50% YoY). The total profit of the company during this period declined due to substantial reduction in treasury income arising from a drop in interest rates and dividend receipts. In FY01, some of the company's investments in equity mutual funds suffered a diminution in value in line with the fall in equity markets. Consequently, a provision of Rs 50 m was made. An additional provision of Rs 20 m has been made in the current year towards the same.

    However, Trent's 4QFY02 was even better. During the quarter, the company reported a 126% growth in sales. More importantly, despite a 63% decline in other income, it managed to report Rs 28 m profit as compared to a Rs 4 m loss last year (including provision for investment dimunition).

    Cost break-up
    (Rs m) 4QFY01 4QFY02 Change FY01 FY02 Change
    Raw material 51 83 63.3% 189 313 65.2%
    Staff 13 17 26.5% 56 69 22.7%
    Others 85 88 3.2% 246 370 50.7%
    Total expenditure 149 188 25.8% 491 751 53.1%

    The most encouraging aspect in Trent's performance is that the company is finally relying on its operational performance rather than other income to generate profits. FY02 is the company's first year wherein it has reported an operating profit. Going by the company's plans to take its number of 'Westside' stores from 7 currently to 20 in next three years, this trend is likely to continue. The company's food retailing plans (in a tie-up with Indian Hotels) are also cooking.

    The markets seem to be in sync with what's happening in the company and therefore, the stock has seen a sharp spurt in recent months. At the current price of Rs 160 the stock trades at a P/E multiple of over 20x FY02 earnings. We reckon, much of the upcoming positives have already been factored in the valuations.



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