Shares of retail company Trent Ltd fell over 3% on Friday, on a day when the benchmark Nifty 50 index was up 1.8%. One possible reason for the fall in the shares is the disappointing margins in the September quarter (Q2FY23). Standalone gross margin contracted as of 515 basis points (bps) year-on-year (y-o-y).
Higher operating expenses such as staff costs in the earnings before interest, tax, depreciation and amortization (EBITDA) level added to the woes. Thus, the Ebitda margin fell 693 bps year-on-year to 14.8% in Q2. The consolidated EBITDA margin also declined.
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“In the absence of adequate disclosures, it is difficult to ascertain the reason for the weak margins,” analysts at Jefferies India said in a November 10 report. – Increased operating costs,” he said. Judio Trent’s value is the retail nature.
The result is an increase of about 38% in income before tax and extraordinary items. 243 crores, even though there was a strong 78% growth in revenue. Trent has achieved consistent revenue growth. Last quarter’s revenue is up about 122% as compared to Q2FY20 (a pre-covid quarter).
Emerging categories including beauty and personal care, innerwear and footwear now contribute over 15% of standalone revenue. The company’s flagship concept, Westside, saw 20% similar growth as compared to Q2FY20. That’s not bad, though that figure has fallen from 24% in the first quarter of FY13.
In the second quarter, the company added nearly 50 stores, taking Trent’s portfolio to more than 500 stores in the Westside and Judio formats. Trent said the customer base in Star’s business is improving and continues to be another engine of growth. Overall, consolidated Q2 net profit was flat.
Despite a fall in Trent’s shares following the announcement of Q2 results, investors are sitting on handsome gains with the stock appreciating 33% so far in CY22. This could limit the strong near-term upside. Although the potential for development is huge. “Trent continues to outperform its peers and offers a huge runway for growth over the next three to five years,” said a report by Motilal Oswal Financial Services on November 11.
“We have maintained our FY23-24 revenue/EBITDA forecast, taking into account the consolidated revenue/EBITDA compound annual growth rate of 52%/72% over FY22-24, driven by continued revenue growth and Zudio/ For 130/35 due to store addition. Westside,” it added. Margin and Star business performance are key watchables.
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