Trent: 4QFY01 blues - Views on News from Equitymaster

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Trent: 4QFY01 blues

Jul 5, 2001

Trent Limited, the Tata Group retailing firm, recently declared its FY01 results. The company posted a 19% decline in net profit to Rs 102 m. This was largely due to the diminution in the value of its investments. Trent had to make provisions of Rs 50 m to make good the diminution.

(Rs m)4QFY004QFY01ChangeFY00FY01Change
Net Sales18093-48.5%495490-1.1%
Other Income-1195 9117187.5%
Expenditure12014924.2%41349118.9%
Operating Profit (EBDIT)61-56-192.3%83-1-101.1%
Operating Profit Margin (%)33.6%-60.2% 16.7%-0.2% 
Interest -10 30 
Depreciation65-12.7%2120-3.7%
Profit before Tax4534-23.7%1501500.1%
Tax12-10-181.7%250-99.2%
Extraordinary provisions     (48) 
Profit after Tax334434.1%125102-18.5%
Net profit margin (%)18.2%47.3% 25.2%20.8% 
Effective tax rate (%)26.8%-28.7% 16.7%0.1% 
No. of Shares (eoy) (m)13.113.1 13.113.1 
Diluted earnings per share   9.57.8 
P/E ratio   7.39.0 

Whilst the company substantially reduced its exposure to the equity based mutual funds by placing more assets in debt instruments, it suffered losses in line with the rest of the market on its equity mutual funds. Consequently, the company made a provision of Rs 50 m towards offsetting the diminution in the value of these assets.

Even if the dimunition in the value of its investments had not occured, the profit after tax would have most likely not shown any growth over FY00. The company's turnover slumped by 1% YoY, thus bringing to a halt the company's encouraging growth rate over the last three years. It is obvious that the economic downturn has also hit Trent.

A huge 88% rise in other income also prevented a further decline in profits. Trent seems to have come back to the phase where it was in FY98 and FY99, when its other income more or less supported the bottomline and it was struggling to maintain turnover.

Its turnover suffered because of an exceptionally bad fourth quarter. In 4QFY01, turnover slumped by a significant 49% YoY. Here too, a huge other income saved the day for the company. The company has declared a dividend of Rs 6 per share, a dividend yield of around 9% at current price.

The company is likely to open 4 new stores by the end of this year, taking its tally of 'Westside' stores to 9. This is likely to help it increase turnover growth and thus profits. Eventually, Trent plans to open 15 stores in the next couple of years.

At the current price of Rs 69.5 the stock trades at 9 times its FY01 earnings. However, if we exclude the provisioning for dimunition of investments then its P/E stands at 7.3 times. Notwithstanding the current slump in 4QFY01 performance, Trent's business model looks good in the long term.


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