This RK Damani stock keeps commanding premium; analysts see up to 36% upside

The stock has performed exceptionally over the last five years, delivering nearly 35 per cent returns compounded annually. A few brokerages see up to 36 per cent further upside on Trent. This is despite some concerns over near-term demand slowdown in tier 2-3 cites.

Radhakishan Damani, through his investment arm Derive Trading And Resorts, held a 1.52 per cent stake in the retailer as of March 31. Akash Prakash-led Amansa Holdings also owned 2.26 per cent stake in the Tata Group firm

Trent generates 72 per cent of its revenues from ‘Westside’ and the rest from Zudio. It also operates food and grocery format Star Bazar and fashion brand Zara in India through a JV.

“Robust performance during challenging times and industry leading performance will continue to warrant premium valuations for Trent. We maintain our BUY rating on the stock,” said ICICIdirect in a note. This brokerage has a target of Rs 1,470 on the stock.

The key triggers for the stock upside include store additions, strong show at Zudio and robust liquidity position.

The company added 125 stores in FY22 across Westside and Zudio, taking the total count to 435 stores in FY22, exceeding the management guidance of 425 stores.

Axis Securities in a recent note expected Trent to continue with its expansion drive, given its intention to build 135 stores each in FY23 and FY24 to capitalise on strong demand outlook.

ICICIdirect said it expects 215 store additions between Westside and Zudio for FY23-24.

“Liquidity position remains robust with cash & investments worth Rs 600-plus crore that will enable it to tide over the current situation better than peers. Zudio continues to be the growth engine for Trent. We expect its revenues to grow at a CAGR of 48 per cent in FY22-24. In the long run, the company aims to grow its revenue at a CAGR of 25 per cent-plus,” ICICIdirect said.

is penciling in 37 per cent revenue growth over FY22-24 that it feels warrants a premium valuation for the stock.

Among the key highlights of the annual report, analysts noted that Zudio remains the fastest growing value fashion brand in India with revenues surpassing Rs 1,000 crore in FY22. With the brand achieving scale, EBIT margin rose to 6 per cent in FY22 from nearly 1 per cent in FY21.

In the case of Westside, sales surpassed pre-Covid levels from H2FY22 onwards with positive same store sales growth (SSSG). FY22’s gross revenue for this format came in at Rs 2,900 crore.

Analysts said Zara India reported strong topline growth of 61 per cent YoY, which was 115 per cent of pre-Covid levels, despite muted store additions. That said, losses for Star Bazar widened YoY, mainly owing to higher discounts and sharper pricing

Motilal Oswal said Zudio’s revenues more than doubled in FY22 from FY20 levels, despite the adverse impact of the pandemic. The same should grow 3 times over the next two years to Rs 3,300 crore.

“Our channel checks suggest that the six-month old Zudio stores are garnering an annualised revenue run-rate of Rs 10 crore, i.e. Rs 14-15k per square feet, nearly 20-30 per cent more than stores of similar size. We understand that the company is aggressively vying for 200 store additions in FY23E. Further, Utsa that caters to Women ethnic wear now has six stores and remains another growth driver for the company,” Motilal said.

This brokerage has ascribed a 31 times FY24 EV/Ebitda valuation to the standalone business (Westside and Zudio), a 1 times EV/sales valuation to Star Bazaar, and 15 times EV/Ebitda valuation to Zara to arrive at a revised target of Rs 1,430 from Rs 1,180 earlier.

Phillip Capital sees the stock at Rs 1,379. Axis Securities has a target of Rs 1,180 on the counter.

The stock traded at Rs 1,063.80 a piece on Friday and the targets suggest 9-36 per cent upside.

(Disclaimer: Recommendations, suggestions, views, and opinions given by the experts are their own. These do not represent the views of Economic Times)