Neutral on Trent\, target price Rs 620: Motilal Oswal

Motilal Oswal has given a neutral rating to Trent with a target price of Rs 620. The share price moved down by 1.97 per cent from its previous close of Rs 589.70 . The stock’s last traded price is Rs 578.10.

Trent Ltd., incorporated in the year 1952, is a Large Cap company (having a market cap of Rs 20687.59 Crore) operating in Retail sector.

Financials
For the quarter ended 31-03-2020, the company reported a Consolidated sales of Rs 842.93 Crore, down -14.71 % from last quarter Sales of Rs 988.29 Crore and up 21.40 % from last year same quarter Sales of Rs 694.33 Crore Company has reported net profit after tax of Rs 32.65 Crore in latest quarter.

Investment Rationale
The brokerage said that Trent’s relative balance sheet strength has resulted in sharp stock outperformance despite near-term earnings headwinds. While its superior execution and healthy balance sheet do warrant premium valuations, the current challenging environment and weak disposable incomes could impact discretionary spend, leading to prolonged earnings recovery. The brokerage estimates FY21 revenue/EBITDA decline of 10%/25% (despite the recent strong footprint addition) before recovery would set in over FY22.

The brokerage values Westside and Zara at 35x EV/EBITDA (five-year average multiple and 25% premium to retail universe given its better execution and balance sheet) and Star at 1x EV/sales on FY22E. Thus, it has arrived at TP of INR 620, leaving limited upside.

Promoter/FII Holdings
Promoters held 37 per cent stake in the company as of June 30, 2020, while FIIs held 20.9 per cent, DIIs 15.9 per cent and public and others 26.2 per cent.