Trent

Private Labels Save The Day; Co Boasts Of Lowest Leverage Among Listed Retailers

MUMBAI-BASED retailer Trent is one of the few retailers to have beaten the broader market. The stock has given whopping returns of 224% in the past one year as compared to 96% returns posted by the benchmark index. In the same period, ET Retail index was up 75%. It managed to beat the slowdown blues because of its focus on private labels.

Started in 1998, Trent runs a lifestyle chain Westside, Star Bazaar, a hypermarket chain, Landmark, a books and music chain and Fashion Yatra, a complete family fashion store. Additionally, Trent has cemented partnerships with proven players such as Tesco, the British retailing giant, Spain's Inditex Group (Zara) and Benetton of Italy to expand its portfolio. The only organised retailer with close to 90% private labels, Westside has 41 stores in 23 cities across India, selling clothes, footwear, fashion accessories and home products. The company's Westside stores caters to the mid-segment of consumers in tier-1 and tier-2 cities while Star India Bazaar is present in the value segment. Going ahead, Trent hopes to have 50 hypermarkets in five years, which should generate a turnover of Rs 3,000 crore.

With 3.8% net profit margins, Trent plans to increase the share of its private label products. It reported a 5.9% growth in revenue for the quarter ended September 30, 2009 to Rs 136.4 crore as compared to Rs 128.9 crore in the same quarter last year. Net profit for the same period registered a 49% growth at Rs 5.3 crore compared to Rs 3.5 crore a year ago.

Currently, at 0.19 debt-to-equity ratio, Trent is the least leveraged amongst listed retailers. The stock is currently trading at a P/E multiple of 63x and valued at less than one time its sales (market capitalisation to sales) compared to Pantaloons (0.9x) and Koutons (1.3x). At a price-to-book value (P/BV) of 1.08x, Trent is much cheaper than its peers Pantaloon's (1.1x) and Koutons (3.7x).

At the annualised EPS of Rs 27.1, its one-year forward P/E will be 30x. Though the business model is right, it is the speed of scalability that needs to be improved. With an improved growth, the company will be able to justify its high earnings multiple.