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Trent: Operational performance improves - Views on News from Equitymaster
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  • Oct 28, 2002

    Trent: Operational performance improves

    The Tata Group retailing arm, Trent Limited, has reported a 36% growth in topline. However, lower other income and higher taxes during the quarter resulted in a marginal 2% dip in net profits of the company. Operationally, the performance is better than what was reported in June quarter 2002.

    (Rs m) 2QFY02 2QFY03 Change 1HFY02 1HFY03 Change
    Net Sales 197 267 35.7% 371 465 25.1%
    Other Income 26 11 -56.8% 37 61 63.0%
    Expenditure 187 238 26.8% 344 444 29.3%
    Operating Profit (EBDIT) 9 29 218.2% 28 20 -26.8%
    Operating Profit Margin (%) 4.7% 11.0%   7.4% 4.3%  
    Interest 0 0 - 0 0 -
    Depreciation 6 7 19.7% 12 13 13.7%
    Profit before Tax 30 34 13.9% 53 68 27.5%
    Tax 3 8 157.3% 4 19 364.9%
    Prior period items 0 0 - 0 69 -
    Profit after Tax/(Loss) 27 26 -2.4% 49 118 141.4%
    Net profit margin (%) 13.5% 9.7%   13.2% 25.5%  
    No. of Shares (eoy) (m) 13.1 13.1   13.1 13.1  
    Diluted Earnings per share* 8.1 7.9   7.5 18.1  
    Current P/e ratio (incl. extraordinary items)   20.9     9.1  

    In June quarter, Trent saw a topline growth of 13% in value terms and 25% in volume terms. Had it not been for the interest on income tax refund (Rs 38 m) and the write back of tax provisions of earlier years (Rs 69 m), Trent would have finished the June quarter with a Rs 15 m net loss. Compared to this, in September quarter, Trent recorded 41% growth in retail sales. Also, due to the sales growing at a faster clip than operating costs, Trent's operating profits improved significantly during the September quarter.

    Cost break-up
    (Rs m) 2QFY02 2QFY03 Change 1HFY02 1HFY03 Change
    Material costs -18 -13 -27.7% -20 -27 36.3%
    Purchase of finished goods 91 131 42.7% 157 232 48.0%
    Staff costs 15 16 9.8% 32 39 22.1%
    Other expenditure 99 104 4.6% 175 200 14.6%
    Total expenditure 187 238 26.8% 344 444 29.3%

    Trent plans to take its tally of 'Westside' stores to 20 in the next three years. This will aid the company's topline growth in the future and help it attain a critical mass. Higher topline is likely to give it economies of scale and help it plan its supply chain even better. However, that's in the long term. In the short term, Trent is likely to continue facing difficult conditions due to the overall competitiveness in the market.

    At Rs 165 the stock trades at a P/E of 9.1x its annualised 1HFY03 earnings. But if we exclude the extraordinary income of Rs 69 m from its numbers in 1HFY03, the valuation shoots up to 22x 1HFY03 annualised earnings. Though the stock has seen institutional interest in the recent past, a 22x P/E is quite high in our view for the medium term.



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