Trent’s solid end to the year keeps markets hoping for more

A striking parameter in fourth-quarter financials, apart from its stellar revenue growth, is its gross margin, which expanded by 449 basis points, or 4.49 percentage points, year-on-year to 45.3%. In the third quarter, Trent’s gross margin had improved by 57 basis points to 46% after having contracted for several quarters in a row. This despite the rising revenue share of Trent’s value fashion format Zudio, where the gross margin is lower.

Trent’s fourth-quarter margin expansion can be attributed to several factors, including moderating raw material prices. The improvement in gross margin could be on account of higher full-price sales and a possible writeback of provisions during the March quarter, according to analysts from Kotak Institutional Equities.

Moreover, emerging categories including beauty and personal care, innerwear, and footwear now contribute more than 20% of Trent’s standalone revenue.

As such, Trent’s overall standalone revenue in Q4 jumped 53% year-on-year to about ₹3,187 crore on the back of robust store additions and heartening comparable, or like-to-like, sales. For all of FY24, standalone revenue growth surged 55% to ₹11,927 crore, although gross margin fell slightly by 20 basis points to 45.2%.

In its other fashion concept Westside, Trent added 12 stores during the quarter, taking the total count to 232 as at the end of March. As for the value fashion format Zudio, Trent added 86 stores during the quarter, taking the total count to 545.

Analysts estimate Zudio’s revenue growth was faster than that of Westside. Overall, Trent’s fashion concepts saw like-to-like growth of over 10% in Q4.

Investors are understandably pleased. Trent’s shares hit a 52-week high of ₹4,670 apiece on Tuesday. The robust end to FY24 has prompted analysts to raise their earnings estimates for the company for FY25 and FY26.

The Trent stock has seen solid gains, appreciating by about 46% so far in 2024. Sure, valuations have been pricey for a while now. Some also argue that the company’s superior growth deserves a premium. Given this, sustained growth would support valuations and that’s something investors will closely track.

But Jefferies India analysts have sounded a note of caution.

“Weak disclosures, however, leave a lot to imagination (e.g., balance sheet contraction due to IndAS 116 in Mar-24)," the analysts said in a report dated 29 April. “With more than $18 billion market capitalization, Trent will likely become more mainstream than in the past; hence, we see merit in following best practices from group firms like Titan and Tata Consumer Products."