Trent Limited, a Tata group company is one of the leading players in the organized retail sector in India with presence across lifestyle retail, value retail and other business formats. Based on a consolidated FY12 P/S multiple of 1.5, the fair value for the company works out to Rs 1190.

1. September 25, 2010
TRENT LTD HOLD Recommendations <= 1 year 1 - 2 yrs 2 - 5 yrs
Strong Buy
Trent Limited, a Tata group company is one of the leading players in the organized retail Buy
sector in India with presence across lifestyle retail, value retail and other business formats. Hold
Reduce
• The company expects to roll-out nearly 25 stores under its various formats in FY11 by
Sell
spending nearly Rs 1.5-1.7bn including 8-10 Westside stores, 7-8 Star Bazaar Strong Buy – Expected Returns > 20% p.a.
Buy – Expected Returns from 10 to 20% p.a.
hypermarkets and 4-5 Landmark book and music stores, among others. Hold – Expected Returns from 0 % to 10% p.a.
• While Westside has shown marked improvement in the last 2-3 quarters, the company’s Reduce – Expected Returns from 0 % to 10% p.a. with possible downside risk
Sell – Returns < 0 %
hypermarket and book & music retail businesses are expected to show improvement over
the coming quarters as discretionary spending rises amid higher same store sales (SSS)
growth.
• The company intends to replicate the success of higher share of private labels in its STOCK DATA
BSE / NSE Code 500251/ TRENT
hypermarket business, as has also been the case with international players worldwide
Bloomberg Code TRENT IN EQUITY
• The company is well funded with a debt-equity ratio of less than 0.5. Recently it has No. of Shares (Mn) 20.1
Sensex / Nifty 19,942/5,991
successfully raised nearly Rs 4.9bn from the preference share route which would be PRICE DATA
compulsorily converted to equity by Sept 2012, raising concerns on equity dilution. CMP Rs (22nd Sept' 10) 1,081.3
Beta 0.45
• We estimate Trent Ltd’s revenues to grow at a CAGR of 32.6% over FY2010-12 to Rs Market Cap (Rs mn) 21,680
19.4bn by FY2012. We further estimate that PAT would grow at a CAGR of 245% over 52 Week High-low 1196 - 604
Average Daily Volume 21,528
FY2010-12 to Rs 186mn in FY2012 from Rs 16mn in FY2010. STOCK RETURN (%)
30D 3M 6M 1Y
Based on a consolidated FY12 P/S multiple of 1.5, the fair value for the
Trent Ltd 3% 23% 32% 66%
company works out to Rs 1190. Sensex 8% 12% 15% 18%
Nifty 8% 13% 15% 19%
Financial Snapshot SHARE HOLDING PATTERN (%)
Projections (Rs Mn) FY08A FY09A FY10A FY11E FY12E Promoter 31.3
Institution 30.9
Revenue 7,180 8,497 11,054 15,096 19,445 Non Institution 37.8
Y-o-Y Growth % 17.8% 18.3% 30.1% 36.6% 28.8% Total 100.0
EBIDTA 687 314 460 753 922 1 Year Price Performance (Rel. to Sensex)
Y-o-Y Growth % 1.5% -54.3% 46.5% 63.6% 22.4%
PAT after MI & EO 336 10 16 149 186
Y-o-Y Growth % -0.9% -96.9% 50.0% 853.6% 24.8% 90
80
EPS Rs 8.0 0.5 0.8 7.4 7.6 70
Sensex Trent Ltd
BVPS Rs 159.6 153.4 292.6 299.9 352.9 60
EBIDTA % 9.6% 3.7% 4.2% 5.0% 4.7% 50
40
NPM % 4.7% 0.1% 0.1% 1.0% 1.0%
30
ROE % 5.0% 0.3% 0.3% 2.5% 2.1% 20
P/S Ratio 1.4 1.1 10
0
P/B Ratio 3.6 3.1
-10
* EPS, BVPS adjusted for rights issue shares -20
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2. September 25, 2010
BUSINESS PROFILE
Trent Ltd is one of the foremost retailers in India and is part of the larger Tata Group. Begun in 1996, Trent Ltd was initially
named “LAKME Ltd” but later moved its cosmetic business and its subsidiary to Lakme Lever Ltd, a joint venture with
Westside has 90 per
Hindustan Lever Ltd. From there, the firm has grown, acquiring Littlewoods International (India) Pvt Ltd in 1998 which was cent of its merchandise
as private label brands
then renamed Trent Ltd.
ensuring higher
Lifestyle Retail: The Company is owner and controller of Westside chain of department stores, present in over 29 cities margins
with 46 stores. The chain is a well-established brand in the lifestyle retail segment and is into retailing of readymade garments
for men, ladies and children, footwear, accessories, gifts and artifacts, furnishings, toys, and a range of home accessories etc.
Value Retail: In the value retail segment, the company is currently present via its Star India Bazaar model. The hypermarket
chain offers a wide choice of products, ranging from grocery, beverages, health and beauty products, farm and dairy produce,
in-house apparels, etc. The Company’s association with Tesco Plc, UK’s leading retailer is expected to bring operational
Landmark has
efficiencies to this business as it plans to source merchandise for Star Bazaar from Tesco’s planned wholesale cash and carry continued to offer the
business in India, benefiting from Tesco’s supply chain expertise. Currently the Company has 7 stores across Ahmedabad, largest collection of
books in the country
Bangalore, Chennai and Mumbai which it plans to increase to 50 in the next 3-4 years. with over 100,000 titles
Specialty Retail: Landmark stores - the books plus music, toys and furnishing format - has 27 operational stores across the in each of the larger
stores.
country including airport and hotel stores. The recently opened 42,000-sq ft Landmark store at the Palladium, High Street
Phoenix Mills, in Mumbai received an overwhelming response with 7000 walk-ins on the very first day.
Trent also has a franchisee arrangement with Benetton of Italy for Sisley stores for India and has a tieup with Inditex of
Spain for Zara stores.
Retail Business Expansion Across Formats
Retail Chains Business Format FY08 FY09 FY10 FY11E FY12E
Westside Lifestyle Retail 28 36 43 51 56
Star Bazaar Value Retail 3 4 7 15 29
Landmark Specialty Retail 18 23 27 32 37
Others - 0 7 7 11 13
Total Stores 49 70 84 109 135
Timely Pickup in Expansion as the economy recovers….
The company has a capital expenditure plan of Rs 1.5-1.7bn for the current fiscal for the expansion of all its formats such as
Since H2FY10, higher
Westside (apparel), Star Bazaar (food and grocery) and Landmark (books and accessories). The company expects to roll-out pace of economic
nearly 25 stores under its various formats in FY11. That includes 8-10 Westside stores, 7-8 Star Bazaar hypermarkets and 4-5 recovery led to
improved performance
Landmark book and music stores, among others. of Westside stores
The company plans to invest around Rs 2.75bn to open 50 new stores over the next 3-4 years in its hypermarket format Star
Bazaar. However, aggressive addition of Star Bazaar Hypermarkets is expected to continue to put pressure on the bottom line
of the company at least for the next 2-3 years as the company expects a break-even for Star Bazaar only after it attains a critical
mass of 25 stores, even as business format would witness a double-digit growth this fiscal.
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3. September 25, 2010
BUSINESS PERFORMANCE
Strong Revenue Growth ahead….
The standalone FY10 revenues rose 9.31% to Rs 5.4bn as against Rs 4.9bn during FY09. The Net profit also rose
Net profit to grow at a
50.30% to Rs 402mn as against Rs 267mn during the previous year ended March 2009. On a consolidated basis also, CAGR of 245% over
it reported a 30% growth in revenues, which came in at Rs. 11bn as against Rs 8.5bn in FY09. However, the FY10-12
profitability was impacted by losses at Star Bazaar and Sisley. During Q1FY11, the revenues rose 28.87% to Rs 1.5bn
as against Rs 1.19bn during the previous quarter ended June 2009.
Annual Revenues & Margins Quarterly Standalone Performance
25000 12% 1800 20%
1600 18%
20000 10% 1400 16%
Revenues (Rs mn)
Revenues (Rs mn)
1200 14%
Margins(%)
Margins(%)
8% 12%
15000 1000
10%
6% 800
8%
10000 600
4% 6%
400 4%
5000 2% 200 2%
0 0%
0 0%
Revenue (Rs mn) PAT Margins EBITDA Margins Net Revenue (Rs mn) EBITDA Margins
Peer Group Comparison
Revenue EBIDTA PAT Margin P/ S P/B CMP FV
Companies ROE %
(Rs. mn) Margin (%) (%) (x) (x) (Rs.) (Rs.)
Trent Ltd 11,054 4.2% 0.1% 0.3% 2.0 3.7 1081 10.0
Pantaloon Retail (India) 97,869 9.7% 0.7% 2.6% 1.1 3.9 486 2.0
Shoppers Stop 15,852 6.9% 2.3% 14.4% 1.4 8.6 616 10.0
Provogue (India) 4,741 14.4% 4.4% 2.4% 1.5 0.9 63 2.0
* FY10 consolidated figures , June Y/E for Pantaloon Retail
Peer Comparison
Historically, the company has been slow as compared to its peers in terms of expanding its retail chains. However, in Pickup in expansion
during downturn
the last few quarters, the pace of expansion has picked up with nearly 20 store additions since FY09. Besides, the
expected to save on
company is also expected to benefit on reasonable rental agreements as well as higher same store sales (SSS) going rentals
forward. The company is also well funded with debt-equity ratio below 0.5.
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4. September 25, 2010
VALUATION
We estimate Trent Ltd’s revenues to grow at a CAGR of 32.6% over FY2010-12 to Rs 19.4bn by FY2012.
Based on a consolidated
We further estimate that PAT would grow at a CAGR of 245% over FY2010-12 to Rs 186mn in FY2012 from FY12 P/S multiple of 1.5, the
Rs 16mn in FY2010. fair value for the company
works out to Rs 1190.
As we expect the 25-30% of the revenue growth from the relatively low margin Food & Grocery (F&G)
hyper mart business, which will take another 2-3 years to contribute to the consolidated bottom-line, we
have conservatively valued the consolidated entity at a 1 year forward Price / Sales (P/S) multiple of 1.5.
Based on a consolidated FY12 P/S multiple of 1.5, the fair value for the company works
out to Rs 1190.
We recommend a ‘HOLD’ rating on the stock.
Financial Analysis and Projections
Particulars (Rs Mn) FY08A FY09A FY10A FY11E FY12E
Net Revenue 7,180 8,497 11,054 15,096 19,445
Other Income 372 355 406 315 430
Total Income 7,552 8,852 11,460 15,411 19,876
Operating Expenditure 6,864 8,538 10,999 14,658 18,954
Depreciation 125 159 221 238 255
EBIT 562 155 240 515 667
EBIT Margin (%) 7.8% 1.8% 2.2% 3.4% 3.4%
Interest 150 149 148 282 349
Profit Before Tax 413 5 91 233 318
Less: Tax 72 3 77 79 108
Profit After Tax 340 2 15 154 210
Minority Interest 4 -8 -1 5 24
PAT After MI & EO 336 10 16 149 186
PAT Margin (%) 4.7% 0.1% 0.1% 1.0% 1.0%
ROE (%) 5.0% 0.3% 0.3% 2.5% 2.1%
EPS (Rs) 8.0 0.5 0.8 7.4 7.6
BVPS (Rs) 159.6 153.4 292.6 299.9 352.9
Valuation Ratios (x) FY11E FY12E
P/S Ratio 1.4 1.1
P/B Ratio 3.6 3.1
* EPS, BVPS adjusted for rights issue shares
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5. September 25, 2010
Board Of Directors
Director Name Current Position Description
Mr. F. K. Kavarana is Non-Executive Chairman of the Board, Non-Independent Non-Executive Director of Trent Ltd. He
is a Director of Tata Sons Ltd. and Tata Industries Ltd., the apex holding companies of the Tata Group. He is Chairman
of several Tata Companies in India and abroad. Between 1994 and 2000, he was Executive Director of Tata
Engineering & Locomotive Co. Ltd. (now Tata Motors Ltd.), India’s largest automobile manufacturer. Prior to that he
was Vice-Chairman & Managing Director of Tata International AG, Switzerland, responsible for the Tata Group’s
overseas operations and investments. Before joining the Tata Group in 1975, he held key positions with McKinsey &
Co. Inc., in London and Washington D. C. - as well as the Bowater Corporation in London and Europe. He has advised
F K Kavarana Chairman
international financial institutions, including the World Bank, as well as industrial companies on strategic and
organizational issues. Mr. F. K. Kavarana Graduated with Bachelor of Commerce (Hons) Degree from the University of
Bombay in 1963, and with an Masters of Business Administration from the Wharton School, University of
Pennsylvania in 1970. He is also a Fellow of the Institute of Chartered Accountants in England and Wales. Names of
the other Public Companies Mr. F. K. Kavarana holds Directorships as on 31st March, 2005 are Tata Sons Ltd., Tata
Industries Ltd., Tata Tea Ltd., Titan Industries Ltd., Tata Projects Ltd., Tata Infotech Ltd., Tata AIG Life Insurance Co.
Ltd. , Tata AIG General Insurance Co. Ltd. , Sitel India Ltd., Tata Asset Management Ltd., Center for Entrepreneurship.
Mr. Noel Naval Tata has been appointed as Non-Executive Vice Chairman of the Board of Trent Ltd w.e.f. August 19,
N N Tata Vice Chairman 2010. He has served as Managing Director of the Company till August 12, 2010. He has a Bachelor of Arts in
Economics from University of Sussex. He has experience in Marketing, Administration and Investments.
Mr. A.D. Cooper is an Independent Non-Executive Director of Trent Limited. His qualification includes Bachelor of
A D Cooper Director Commerce,' Fellow Chartered Accountant, Associated Certified Management Accountant. He has experience in
Finance and Management.
Mr. K. N. Suntook has been appointed on the Board of Directors of Trent Limited as an Independent Non-Executive
K N Suntook Director Director w.e.f. 22 August, 1995. Mr. Suntook has experience in general and legal, in particular. His qualifications are
Bachelor of Arts, Bachelor of Law (Advocate), Fellow Company Secretary.
Mr. Zubin S. Dubash has been appointed as a Director of Trent Limited with effect from August 18, 2010. He was
appointed as an Additional Director of the Company on April 26, 2010. Prior to joining WNS, Mr. Dubash served as
Executive Director of the Indian Hotels Company Ltd (Taj Group of Hotels). He was directly responsible for strategic
planning, business development and finance for the Taj Group. He has also served as a Director of Tata Financial
Zubin S Dubash Additional Director
Services, a division of Tata Sons Ltd and was involved in advising Tata Group companies on their corporate finance
requirements. Mr. Zubin Dubash holds a Bachelors Degree in Commerce from Mumbai University and a Masters in
Business Administration from The Wharton School, Philadelphia. He is also a Chartered Accountant from the Institute
of Chartered Accountants in England and Wales.
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