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Trent stock is trending again on expectations of good recovery ahead

The total income of Trent Ltd that operates Westside and Star Bazaar stores increased 25% to `367.66 crore for the fiscal third quarter compared with `294.25 crore a year-ago. Premium
The total income of Trent Ltd that operates Westside and Star Bazaar stores increased 25% to `367.66 crore for the fiscal third quarter compared with `294.25 crore a year-ago.

  • In the December quarter, Trent contained its revenue drop to about 17% year-on-year. Revenue decline in the September and June quarter stood at 45% and 87%, respectively. This was helped by gradual easing of covid-19 curbs and improving consumer traction

MUMBAI: Shares of retailer Trent Ltd traded more than 5% higher in early deals on Tuesday on the National Stock Exchange. Note that the shares hit a new 52-week high on 4 March and have appreciated by about 35% in the past one month.

According to Akhil Parekh, analyst at Elara Securities (India) Pvt. Ltd, “Despite lock down in the June 2020 quarter, the company has done well on its expansion plans."

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In its December quarter press statement Trent had said that in FY21, it opened 28 new stores (20 Zudio, 6 Westside, 2 Landmark). According to Parekh, “This trend of store expansion will continue to accelerate in the March 2021 quarter and onwards. Footfall and sales recovery too remains on track."

A Mint report citing a top company executive said, Trent expects to earn 10% of its sales from its new shopping site westside.com in the next four years. Westside is Trent’s flagship concept, accounting for a big chunk of its total revenues.

As such, this fiscal, the company has seen consistent improvement in its recovery from the pain inflicted by covid-19 disruptions. In the December quarter, Trent contained its revenue drop to about 17% year-on-year. Revenue decline in the September and June quarter stood at 45% and 87%, respectively. This was helped by the gradual easing of covid-19 restrictions and improving consumer traction. While announcing its December quarter results, Trent had maintained that in January 2021--end of season sale month--traction for full price merchandise at Westside was consistent with levels witnessed year-on-year.

“Based on strong recovery in profitability we have adjusted our earnings per share estimate for FY21E at -2.3 (versus previous estimate of -2.9). For FY22E and FY23E we broadly maintain our previous estimates," said analysts from IDBI Capital Markets & Securities Ltd in a report on 5 February.

Analysts reckon Trent’s healthy balance sheet and faster sales growth warrant premium valuations. Even so, the sharp run up in the stock in the recent past, does make valuations expensive. Based on Bloomberg data, the stock trades at about 47 times EV/Ebitda on FY22 numbers. EV is enterprise value and Ebitda stands for earnings before interest, tax, depreciation and amortisation.

To that extent, meaningful upsides could well be limited in the coming days. The pace of sales recovery remains a significant parameter too track in future.

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