Management Meet Note
October 20, 2015
Trent Ltd (TRENT)
Rating Matrix
Rating
:
Unrated
Target
:
NA
Target Period
:
NA
Potential Upside
:
NA
| 1350
Conservative approach with steady growth…
Key Financials
(| Crore)
FY11
FY12
FY13
FY14
FY15
Net Sales
1,591.7
1,946.3
2,248.6
2,459.5
2,383.0
21.7
(55.0)
(6.3)
9.8
40.6
Net Profit
EBITDA
7.5
(37.8)
(26.8)
(18.6)
129.3
EPS (|)
3.7
(13.9)
(8.1)
(5.6)
38.9
Valuation Summary
(x)
FY11
FY12
FY13
FY14
FY15
EV / EBITDA
32.7
134.8
54.6
45.4
16.7
P/BV
2.8
3.2
3.6
4.5
3.2
RoNW (%)
0.8
(3.2)
(2.2)
(1.9)
9.1
RoCE (%)
2.1
(1.5)
1.2
2.1
14.4
Stock Data
Particular
Market Capitalization (in crs)
Amount
4472.0
Total Debt (FY15) (in crs)
116.9
Cash (FY15) (in crs)
55.5
EV (in crs)
4533.4
52 week H/L (|)
1595 / 1095
Equity capital (in crs)
33.23
Face value
10
FII Holding (%)
20.4
DII Holding (%)
21.4
Price Performance
Return (%)
1M
3M
6M
12M
Trent Ltd
12.0
11.5
(2.4)
(1.3)
Shopper Stop
4.4
3.1
4.5
(27.6)
PFRL
(6.9)
18.7
89.5
79.0
Price Movement
1,800
1,600
1,400
1,200
1,000
800
600
400
200
0
10,000
9,000
8,000
7,000
6,000
5,000
4,000
3,000
2,000
Sep-12 May-13 Dec-13 Jul-14
Price (R.H.S)
Feb-15 Oct-15
Nifty (L.H.S)
Research Analyst
Bharat chhoda
bharat.chhoda@icicisecurities.com
Nirav Savai
nirav.savai@icicisecurities.com
ICICI Securities Ltd | Retail Equity Research
We recently met the management of Trent Ltd (Trent) to understand its
business model and its future course of action. Trent’s retail core
business comprises West side and Landmark while it has JVs with Tesco
and Inditex for Star Bazaar and Zara, respectively. Westside offers inhouse branded fashion apparels spread across 53 cities with 86 stores.
Star Bazaar is Trent’s hypermarket joint venture with British grocery &
general merchandise retailer Tesco, which currently holds 50% in the JV.
As on FY15, there are 18 Star Banner stores. Trent also has a JV with one
of the largest fashion retailers, Inditex, which owns brands Zara &
Massimo Dutti. Currently, this JV is operating 16 stores across India.
Westside: Unique model offering only in-house exclusive brands
In the quest to differentiate and gain competitive advantage in the highly
crowded organised retail market, Westside has designed its own unique
model, which focuses on private labels contributing close to 90% of its
total revenues. Apparels as a segment comprise 80% of its total revenues
with leading in-house exclusive brands. It has a wide array of assorted
merchandise, which includes Ladies western (LOV, Wardrobe, Nuon,
Gia); Ethnic (Zuba, Bombay Paisley); Lingerie (Wunder Love); menswear
(Ascot, Nuon, ETA, West Street). Apart from apparels, other segments are
cosmetics, perfumes, home furniture, footwear etc.
Westside with Landmark registered total revenue of | 1405 crore in FY15,
which has grown at a CAGR of 20.2% in FY11-15. Westside stores have
increased from 54 in FY11 to 86 as on FY15. The management indicated
that discounted sales as a percentage of total sales are around 10-15%
while average store size of Westside is ~20000-25000 sq ft. Capex per
store is | 3-3.5 crore (~| 1500 per sq ft) with expected break even
between one and two years On the store expansion front, the company
plans to open around 10-12 Westside stores in FY16 and is looking to
expand in Tier II, III cities through the franchise route, which currently
comprises around 20% of its overall stores.
Leveraging partnership with global retailers…
Tesco is an equal 50% partner in Trent Hypercity Ltd, which has a JV with
Trent with effect from March 2014. Tesco has invested in all | 1000 crore
for acquiring a 50% stake over a period of time. It operated a hyper
market chain focusing mainly on the food & grocery segment under the
‘Star’ banner in Maharashtra and Karnataka where 51% FDI in multi brand
retail is allowed. Currently, as on FY15, there are around 10 Star Bazaar
(large format stores), five Star Daily (express format store) and one store
each of Star Market (supermarket format) & Star Extra. Out of 18 Star
banner stores, 10 are located in Maharashtra while eight are in Karnataka.
Exhibit 1: Consolidated Financial Performance
(| Crore)
FY10
FY11
FY12
FY13
FY14
FY15
1,105.4
1,591.7
1,946.3
2,248.6
2,459.5
2,383.0
EBITDA (| crore)
5.4
21.7
(55.0)
(6.3)
9.8
40.6
Net Profit (| crore)
1.6
7.5
(37.8)
(26.8)
(18.6)
129.3
38.9
Net Sales (| crore)
EPS (|)
0.8
3.7
(13.9)
(8.1)
(5.6)
Price / Book (x)
4.6
2.8
3.2
3.6
4.5
3.2
EV/EBITDA (x)
39.7
32.7
134.8
54.6
45.4
16.7
RoCE (%)
2.7
2.1
(1.5)
1.2
2.1
14.4
RoE (%)
0.3
0.8
(3.2)
(2.2)
(1.9)
9.1
Revenues of Trent Hyper City (THL) came in at | 790 crore in FY15,
registering CAGR of 12.7% in FY11-15. Garments as a percentage of
overall sales in Star Bazaar are around 17-18% comprising 100% private
labels. In the food & grocery segment, private labels contribute around 78% of revenues. Gross margins in the Star Bazaar format are around 2025% while capex per store is around | 1800-2000 per sq ft. It sources
~70% of vegetables directly from farms and plans to expand its stores
mainly in mini hypermarket (Star market) & express format (Star Daily).
Trent also operates a JV with Inditex group for Zara & Massimo Dutti
where it holds 49% and the rest is owned by Inditex. Revenues of Zara as
on FY15 were at | 721 crore, which currently operates 16 stores across
India. The management indicated that investment in JV with Inditex is just
a financial investment and is not long term strategic in nature.
Operationally, this JV is purely under the control of the Inditex
management. Trent also benefits from bargaining power as an anchor
tenant with Zara stores as a part of JV.
Key financials
Steady revenue growth
Consolidated revenues of Trent had grown at 22.2% while there was a
decline in FY15 revenue by 3.1%, mainly on account of a change in THL’s
status from subsidiary to JV with effect from June 2014. THL also had to
close down a store in Chennai and reduce the total Star Bazaar stores of
Gujarat from four to two, which were eventually transferred to FHL, a
wholly owned subsidiary of Trent to comply with multi-brand FDI rules of
those states.
Exhibit 2: Revenue growth trend (FY10-15)
3,000.0
2,248.6
2,500.0
2,383.0
FY14
FY15
1,946.3
2,000.0
1,500.0
2,459.5
1,591.7
1,105.4
1,000.0
500.0
FY10
FY11
FY12
FY13
Net Revenue
Source: Company, ICICIdirect.com Research
ICICI Securities Ltd | Retail Equity Research
Page 2
Exhibit 3: EBITDA & EBITDA margins trend
60.0
40.6
40.0
20.0
21.7
9.8
5.4
(20.0)
FY10
FY11
FY12
FY13
FY14
FY15
(6.3)
(40.0)
(60.0)
(55.0)
EBITDA
2.0%
1.5%
1.0%
0.5%
0.0%
-0.5%
-1.0%
-1.5%
-2.0%
-2.5%
-3.0%
-3.5%
EBITDA Margin
Source: Company, ICICIdirect.com Research
The consolidated EBITDA margin of Trent for FY15 was at 1.75%, which
was mainly on account of lower profitability for Star Bazaar stores while
standalone margins, which include Westside & Landmark were at 4.04%
in FY15.
Exhibit 4: PAT trend over FY10-15
140.0
120.0
100.0
80.0
60.0
40.0
20.0
(20.0)
(40.0)
(60.0)
129.4
1.5
2.5
FY10
FY11
FY12
FY13
FY14
(18.7)
FY15
(37.9)
(46.4)
Net Profit
Source: Company, ICICIdirect.com Research
Trent’s net profit for FY15 was at | 129.4 crore, which was mainly driven
by profit on sale of stake in THL (| 158.4 crore) to Tesco.
Exhibit 5: RoCE & RoE trend
16.0
14.0
12.0
10.0
8.0
6.0
4.0
2.0
(2.0)
(4.0)
(6.0)
14.4
9.1
2.7
2.1
0.8
0.3
FY10
FY11
1.2
(1.5)
(3.2)
FY13 (2.2)
ROCE
ROE
FY12
2.1
FY14 (1.9)
FY15
Source: Company, ICICIdirect.com Research
ICICI Securities Ltd | Retail Equity Research
Page 3
RATING RATIONALE
ICICIdirect.com endeavours to provide objective opinions and recommendations. ICICIdirect.com assigns
ratings to its stocks according to their notional target price vs. current market price and then categorises them
as Strong Buy, Buy, Hold and Sell. The performance horizon is two years unless specified and the notional
target price is defined as the analysts' valuation for a stock.
Strong Buy: >15%/20% for large caps/midcaps, respectively, with high conviction;
Buy: >10%/15% for large caps/midcaps, respectively;
Hold: Up to +/-10%;
Sell: -10% or more;
Pankaj Pandey
Head – Research
pankaj.pandey@icicisecurities.com
ICICIdirect.com Research Desk,
ICICI Securities Limited,
1st Floor, Akruti Trade Centre,
Road No. 7, MIDC,
Andheri (East)
Mumbai – 400 093
research@icicidirect.com
ICICI Securities Ltd | Retail Equity Research
Page 4
Disclaimer
ANALYST CERTIFICATION
We /I, Bharat Chhoda, MBA; Nirav Savai MBA authors and the names subscribed to this report, hereby certify that all of the views expressed in this research report accurately reflect our views about the
subject issuer(s) or securities. We also certify that no part of our compensation was, is, or will be directly or indirectly related to the specific recommendation(s) or view(s) in this report.
Terms & conditions and other disclosures:
ICICI Securities Limited (ICICI Securities) is a Sebi registered Research Analyst having registration no. INH000000990. ICICI Securities is full-service, integrated investment banking and is, inter alia, engaged
in the business of stock brokering and distribution of financial products. ICICI Securities is a wholly-owned subsidiary of ICICI Bank which is India’s largest private sector bank and has its various
subsidiaries engaged in businesses of housing finance, asset management, life insurance, general insurance, venture capital fund management, etc. (“associates”), the details in respect of which are
available on www.icicibank.com.
ICICI Securities is one of the leading merchant bankers/ underwriters of securities and participate in virtually all securities trading markets in India. We and our associates might have investment banking
and other business relationship with a significant percentage of companies covered by our Investment Research Department. ICICI Securities generally prohibits its analysts, persons reporting to analysts
and their relatives from maintaining a financial interest in the securities or derivatives of any companies that the analysts cover.
The information and opinions in this report have been prepared by ICICI Securities and are subject to change without any notice. The report and information contained herein is strictly confidential and
meant solely for the selected recipient and may not be altered in any way, transmitted to, copied or distributed, in part or in whole, to any other person or to the media or reproduced in any form, without
prior written consent of ICICI Securities. While we would endeavour to update the information herein on a reasonable basis, ICICI Securities is under no obligation to update or keep the information current.
Also, there may be regulatory, compliance or other reasons that may prevent ICICI Securities from doing so. Non-rated securities indicate that rating on a particular security has been suspended
temporarily and such suspension is in compliance with applicable regulations and/or ICICI Securities policies, in circumstances where ICICI Securities might be acting in an advisory capacity to this
company, or in certain other circumstances.
This report is based on information obtained from public sources and sources believed to be reliable, but no independent verification has been made nor is its accuracy or completeness guaranteed. This
report and information herein is solely for informational purpose and shall not be used or considered as an offer document or solicitation of offer to buy or sell or subscribe for securities or other financial
instruments. Though disseminated to all the customers simultaneously, not all customers may receive this report at the same time. ICICI Securities will not treat recipients as customers by virtue of their
receiving this report. Nothing in this report constitutes investment, legal, accounting and tax advice or a representation that any investment or strategy is suitable or appropriate to your specific
circumstances. The securities discussed and opinions expressed in this report may not be suitable for all investors, who must make their own investment decisions, based on their own investment
objectives, financial positions and needs of specific recipient. This may not be taken in substitution for the exercise of independent judgment by any recipient. The recipient should independently evaluate
the investment risks. The value and return on investment may vary because of changes in interest rates, foreign exchange rates or any other reason. ICICI Securities accepts no liabilities whatsoever for any
loss or damage of any kind arising out of the use of this report. Past performance is not necessarily a guide to future performance. Investors are advised to see Risk Disclosure Document to understand the
risks associated before investing in the securities markets. Actual results may differ materially from those set forth in projections. Forward-looking statements are not predictions and may be subject to
change without notice.
ICICI Securities or its associates might have managed or co-managed public offering of securities for the subject company or might have been mandated by the subject company for any other assignment
in the past twelve months.
ICICI Securities or its associates might have received any compensation from the companies mentioned in the report during the period preceding twelve months from the date of this report for services in
respect of managing or co-managing public offerings, corporate finance, investment banking or merchant banking, brokerage services or other advisory service in a merger or specific transaction.
ICICI Securities or its associates might have received any compensation for products or services other than investment banking or merchant banking or brokerage services from the companies mentioned
in the report in the past twelve months.
ICICI Securities encourages independence in research report preparation and strives to minimize conflict in preparation of research report. ICICI Securities or its analysts did not receive any compensation
or other benefits from the companies mentioned in the report or third party in connection with preparation of the research report. Accordingly, neither ICICI Securities nor Research Analysts have any
material conflict of interest at the time of publication of this report.
It is confirmed that Bharat Chhoda MBA; Nirav Savai MBA Research Analysts of this report have not received any compensation from the companies mentioned in the report in the preceding twelve months.
Compensation of our Research Analysts is not based on any specific merchant banking, investment banking or brokerage service transactions.
ICICI Securities or its subsidiaries collectively or Research Analysts do not own 1% or more of the equity securities of the Company mentioned in the report as of the last day of the month preceding the
publication of the research report.
Since associates of ICICI Securities are engaged in various financial service businesses, they might have financial interests or beneficial ownership in various companies including the subject
company/companies mentioned in this report.
It is confirmed that Bharat Chhoda MBA; Nirav Savai MBA Research Analysts do not serve as an officer, director or employee of the companies mentioned in the report.
ICICI Securities may have issued other reports that are inconsistent with and reach different conclusion from the information presented in this report.
Neither the Research Analysts nor ICICI Securities have been engaged in market making activity for the companies mentioned in the report.
We submit that no material disciplinary action has been taken on ICICI Securities by any Regulatory Authority impacting Equity Research Analysis activities.
This report is not directed or intended for distribution to, or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction, where such distribution,
publication, availability or use would be contrary to law, regulation or which would subject ICICI Securities and affiliates to any registration or licensing requirement within such jurisdiction. The securities
described herein may or may not be eligible for sale in all jurisdictions or to certain category of investors. Persons in whose possession this document may come are required to inform themselves of and
to observe such restriction.
ICICI Securities Ltd | Retail Equity Research
Page 5