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Trent: Competition dampens margins

Jul 25, 2001

The Tata Group retailing arm, Trent Limited, has registered a significant 45% decline in its net profit to Rs 23 m in 1QFY02. This is despite an encouraging 36% growth in sales during the quarter. A 65% decline in its other income is largely reponsible for the depressed profitability.

(Rs m) 1QFY01 1QFY02 Change
Net Sales 128 175 36.1%
Other Income 32 11 -65.2%
Expenditure 110 156 42.1%
Operating Profit (EBDIT) 18 18 0.4%
Operating Profit Margin (%) 14.2% 10.5%  
Interest 0 0  
Depreciation 5 6 17.8%
Profit before Tax 45 24 -47.8%
Tax 4 1 -75.0%
Profit after Tax/(Loss) 41 23 -45.1%
Net profit margin (%) 32.0% 12.9%  
No. of Shares (eoy) (m) 245.4 13.1  
Diluted Earnings per share* 0.7 6.9  
Current P/e ratio   8.9  

Other income for the current quarter, is lower compared to that of the corresponding quarter of the previous year, as the previous quarters included interest on delayed refund of income tax of three years and interim dividend received before June 30, 2000. The decline in other income can also be partly attributed to general decline in interest rates.

Trent has reported that retail sales forming part of net sales increased by 82% over the corresponding quarter of the previous year. But this has come at the cost of realisations. The company is facing difficult market conditions and has had to resort to discounts to perk up volumes. This is probably the reason why Trent's expenditure has grown at a faster clip than its sales, resulting in significant decline in operating margins.

Trent is slated to add three more 'Westside' stores by the year end. This may add to the company's topline in the future. But given the difficult market it is facing, recovery in the near term looks unlikely. At Rs 61 the stock trades at a P/E of 9x its annualised 1QFY02 earnings.

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