Home / Markets / Mark To Market /  Trent shares jump as investors cheer strong revenue growth in Q3

Trent Ltd reported a solid revenue growth in the December quarter (Q3FY23), boosting investor sentiment. Shares of the retailer soared around 7% in morning trades on Thursday on the National Stock Exchange. The 61% year-on-year increase in standalone revenue was led by Zudio’s store expansion and 17% like-for-like growth in Westside. As a result, three-year revenue compound annual growth rate (CAGR) stood at almost 36%.

Westside is Trent’s flagship concept and offers branded fashion apparel and Zudio is the company’s value fashion concept.

It is, however, worth noting that margin performance was below expectations. Gross margin at 45.4% was lower by as much as 586 basis points (bps) year-on-year and 158bps sequentially. One basis point is one-hundredth of a percentage point. 

Further, Ebitda (earnings before interest, tax, depreciation and amortization) margin contracted by 619bps year-on-year to 15.5%. According to the company, a year-on-year comparison is not accurate as Q3FY22 accounted for rent waivers and reversals relating to inventory provisioning. Even so, an increasing mix of Zudio stores, which operates at the lower price point range, weighed on margin performance, said analysts.

Trent’s three-year Ebitda CAGR was nearly 25%. This is lower than revenue CAGR on account of strong addition of new stores (operating leverage hasn’t kicked in), said analysts at Kotak Institutional Equities in a report on 8 February.

In the nine-month period ended December, Trent added 11 Westside stores and 93 Zudio outlets. Despite the aggressive store addition, it has seen limited balance sheet risk or weakness in operations, point out analysts at Motilal Oswal Financial Services.

Further, “While the discretionary category is seeing a challenging demand environment, Trent has continued to grow at a healthy pace with steady same store sales growth," said Motilal Oswal analysts. Having said that, investors would do well to track signs of slowdown in urban demand.

Shares of Trent have risen about 23% in the past one year. But this also means valuations are not exactly cheap, which is a concern.

Vineetha Sampath
Vineetha Sampath is a chartered accountant and is experienced in the field of research analysis. She joined Mint's Mark to Market team recently and this is her first stint in journalism.
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