The retailing arm of the Tata Group, Trent Limited, continues its growth journey. The company's sales have increased by 60% YoY in 2QFY02 and by nearly 48% in the consolidated first half of FY02. But the company's expenses too have shot up thus resulting in a 16% drop in net profit in the September quarter.
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The faster escalation in expenditure is the cost the company is paying for rapid expansion. Also, the downturn seems to have forced the Trent management to offer discounts etc. in order to generate volumes. As a result, though retail sales forming part of net sales increased by 74% over the corresponding quarter of the previous year, the operating margins have shrunk.
Though Trent's aim of increasing operating income through opening of new Westside stores is on course, its other income has taken a beating in the first half of FY02 owing to declining interest rate environment. It should be noted that Trent suffered a dimunition in the value of investments in FY01. The company had to make provisions of Rs 50 m to make good the diminution and thus now seem to be cautious of investing in market related activities.
Going by its performance, Trent is likely to benefit from any upturn in the economic activity, which would further add to its topline and hopefully, at that time the company can keep its costs under control. At the current market price of Rs 70 the stock is trading at over 9x annualised 1HFY02 earnings. Investors seem to be interested in the counter in anticipation of an improvement in the economic activity, but then it is easier anticipated than done.
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