Pent-up demand to push pricey Trent further upwards
PremiumStore additions, recovering footfall, and pent-up demand are likely to support the growth of the apparel retailer
Apparel retailers are expected to see a healthy rebound in demand with the economy opening up as restrictions to contain the spread of coronavirus ease. Trent Ltd should benefit from this. Store additions, recovering footfall, and pent-up demand are likely to support Trent’s growth.
So far this calendar year, Trent’s shares have risen 17% versus the 2% drop in the Nifty 500 index. The company’s sales in January were muted because of the impact of the Omicron variant, but February and March are likely to have seen good recovery. ICICI Securities estimates Trent’s standalone revenues in Q4FY22 to see 20% growth on a three-year compound annual growth rate basis.
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Store additions remain a key monitorable. Trent’s flagship concept, Westside, recently opened its 200th store. Zudio’s store count is more than 200.
These two store formats have seen better recovery and achieved budgeted sales with strong growth in the last two months vis-a-vis pre-covid levels, noted analysts at Motilal Oswal Financial Services.
“Based on our channel checks on store additions and performance of existing stores, we have revised our FY24E revenue/Ebitda up by 5.8%/6.5%," said the analysts in a report on 18 April. Ebitda is earnings before interest, taxes, depreciation, and amortization.
Moreover, the company is relatively well placed compared with peers. “Trent has a differentiated business positioning as they own their entire retail ecosystem (product development and retailing) instead of selling via other retailers (such as Shoppers Stop, Lifestyle). This enables the company to have direct access to customer data points on a real-time basis," said Varun Singh, analyst at IDBI Capital Markets & Securities Ltd.
Further, a wider presence across price ranges and categories is a plus point. Trent is able to sell same quality products at prices about 30% less than other branded products because of this, which should help it gain market share, especially during the current inflationary times, Singh said.
As such, investors seem to be capturing a good part of the optimism. Trent’s shares are now 57% above their pre-covid highs seen on 24 February 2020. The stock is just about 7% less than the 52-week high of ₹1,346.85 apiece seen on 7 April on NSE.
Valuations are pricey, which may cap large upsides in the near-term. Motilal Oswal’s target price for the stock based on the sum-of-the-parts valuation is ₹1,430 per share.
The resurgence in covid cases is a threat to recovery. Also, the increase in input costs could push apparel retailers to raise prices, and this can weigh on demand.
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Further, possible increase in goods and services tax rate on apparel from the 5% at present to 12% might adversely impact demand.