As covid-19’s impact subsides, Trent could recover sooner1 min read . Updated: 11 Oct 2020, 09:45 PM IST
Westside, which accounts for a big share of its revenue, is expected to play a key role in driving earnings
Indian apparel retailers have suffered a lot due to the pandemic as the need to dress-up reduced drastically. Plus, operations were shut for a good part of the June quarter owing to the lockdown.
Given this, FY21 will be miserable and Trent Ltd will not be immune to that. “FY21 will be a washout year and we forecast a more than 40% year-on-year decline in (Trent’s) standalone revenue," said analysts from Jefferies India Pvt. Ltd in a report on 8 October.
Nevertheless, as the impact of covid-19 subsides and economic activity gains pace, Trent should find itself better placed compared to peers. Its flagship concept, Westside, which contributes a big share to revenue, is expected to play a key role in driving earnings.
According to Axis Securities Ltd, factors that may drive recovery post-FY21 include “1) Westside’s success in retail concept (only format to consistently deliver healthy same-store sales growth and high store metrics among peers) driven by exclusive and trendy offerings at competitive prices. 2) Significant growth opportunities in Zudio format driven by aggressive store additions beyond metros and rise in consumer preference towards value fashion owing to the pandemic-led financial constraints." Zudio is Trent’s value fashion business.
As such, Trent’s prospects appear better from a medium-term perspective. “We bake in a strong recovery, driving a 18% stand-alone revenue compound annual growth rate (CAGR) over FY20-23," said Jefferies analysts. “FY21 would also be a significant loss in the stand-alone entity, a first in at least 15 years but three-year Ebitda CAGR should be about 20%."
Note that while Trent’s revenues grew by around 30% year-on-year in the first three quarters of FY20, results for the last two quarters have understandably been marred by the pandemic. Revenue growth dropped to 8% in the March quarter. The June quarter saw revenues decline by a whopping 87%. Hereon, a delay in revival in discretionary spending by consumers is a key concern.
Muted near-term earnings outlook may well keep meaningful upsides at bay in the stock, which has recovered smartly from the lows of 2020. Even so, the shares are still nearly 15% away from their pre-covid highs seen in February on the NSE.