ValuePickr Forum

Trent -- A value unlocking story from the house of TATA

Of late I am writing this topic after going through multiple reports about the retail industry and different players in this industry. So you can find a nice summarized view of the industry and the reason I choose this company from the sector.

The Indian organized retail although undergoing constant disruption, one thing has remained steady but consumers’ affordability is on the rise and aspirations are growing more than ever. It is expected to get tripled by FY25 with a CAGR of 22% and 27% in F&B and Appreal segment respectively. Household retail spends, too, are shifting from traditional kirana shops to modern retail formats, which are gaining share due to better price offerings and greater convenience of shopping. To cater to this demand about 4000 retail store opening is needed as per Motilal Oswal estimate.

Indian retailers have seen healthy expansion in their store footprint, driving revenue and earnings growth. Unlike the previous cycle in the early 2000s when euphoric expansion in retail footprint led to a sharp fall in store profitability and eventual rationalization and downsizing, the existing retail expansion is far more measured and primarily fueled by internal accruals and not leveraged expansion. To reduce operating cost and drive an efficient working capital cycle, we see most companies focusing on (a) leaner store layouts, (b) cluster-based growth, © private labels and (d) membership-based model. This has led to an improvement in per store economics and an expansion in the EBITDA margin across retail companies over the last 2-3 years. The outlook on the returns profile has also improved significantly.

The top-24 cities (metros, mini-metros and tier-I cities) account for 29% of total retail spending, with the Delhi and Mumbai clusters contributing about 9%. Even the top-72 cities account for 38% of total retail consumer spending, which highlights the strength of rest of India that has 71% share. Major expansion in terms of retail consumer spending is expected to come from India’s tier-2 cities. This should benefit the value apparel category, which is a much attractive option for customers. Pricing difference between unbranded and branded apparel is ~4x, but value category products come with just 2x higher pricing. Thus, more apparel players are increasingly expanding into tier-2 cities to tap this opportunity.

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In absolute terms, India is blessed with the largest millennial population (age bracket of 18-35 years) globally. With a population of over 440m, the group constitutes ~34% of the country’s total population. Further, with a median age of ~26 years, India is one of the youngest major economies and is expected to stay so in the foreseeable future. This is in contrast to other countries such as the US, large European countries, China, etc, where the median age of population is higher and an imminent situation of declining working-age population looms the markets.



The Indian millennials stand out from the rest of the population in terms of better education, lifestyle choices, consumption pattern, significant need for convenience, and brand preferences. Millennials spend a high proportion of their incremental income towards eating out and entertainment (32.7%), apparel and accessories (21.4%), and electronics (11.2%) among others. Savings account for ~10% of the income. This indicates a shift towards a consumption economy rather than a savings economy, which was a predominant feature of the preceding demography. Millennials, with their low inclination towards savings and increasing spending capacity, provide brands with vast growth opportunities. With a high and growing millennial population, modern retail, organized apparel sector should get a push.

Households with annual earnings of USD5,000-10,000 have grown at a CAGR of 17% over FY11-16 and are projected to grow at a CAGR of 12% to reach 109m in FY20. Households with annual earnings of USD10,000-50,000 have also grown at a CAGR of 20% over the last five years. Increase in the number of households with annual earnings of USD10,000-50,000 will lead to an increase in indulgence spending by the group. This will lead to an increase in expenditure on consumption categories such as Food, Fashion, Luxury Products, and Consumer Durables. It is estimated that 23% of the global middle class will be from India by FY30.
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GST has allowed business owners to start their business faster through a centralized registration process in which they do not have to worry about individual state requirements. With the implementation of GST, the movement of goods across states is becoming easier due to a standardized set of rules in place. Warehouses are not needed in every state and this will help companies reduce costs. Organized players with an all-India presence should benefit and inflows to the formal economy should increase. Digitization should allow businesses access to a larger market.

Organized retail – Huge runway of growth
Presently, the organized general merchandise players in India occupy 40-45msf area of retail space as per Technopak. This is estimated to grow to 60-65msf by CY20, that is, 14% CAGR over CY17-20 to cater to 21% organized retail growth, indicating 7% SSSG. Assuming a blended store size of 20,000, overall 1,000 new stores will be required over the next three years to cater to the growth in the organized retail market.
One of the key positives of the retail market growth is that it offers a strong and long runway for growth. With a high single-digit GDP growth, the retail space should continue to grow at 14% until FY25. This is assuming (a) overall retail market grows at 12%, at a pace of 1x nominal GDP growth, (b) organized segment continues to grow at 1x overall retail growth, and © SSSG is 6%. At 20,000sf blended store size, over the next eight years, to cater to the growth in the organized retail market, 3,900 new stores are required, highlighting the huge scope of growth for all retailers. This implies organized retail penetration of a meager 17% in 2025, highlighting the huge demand in the organized retail market.

In the helm of all the above mentioned factors it is quite obvious I will choose a company which satisfy my investment style. Although many organized retailers available in this apparel domain like Future Lifestyle, Shopper Stop, Aditya Birla Fashion etc. but I choose Trent mainly due to the below factors.

  1. It is a value unlocking story by restructuring it’s existing stores which is evident by it’s best in class SSG growth in the last year.
  2. It’s focus on store expansion to drive the revenue along with operating efficiency to improve the margin.
  3. Value retailing via Zudio brand which is poised to see exponential growth in next couple of years.

Trent mainly operate in 4 devisions:-

  1. Westside:- A premium to mid range apparel brand which contributes to 85% of Trent revenue and expected to grow at 17% CAGR.
  2. Zudio:- A value retail apparel brand which contributes 7-8% of Trent revenue and expected to grow at 50% CAGR.
  3. Zara:- Trent holds 49% stake in its JV - Inditex Trent Retail India Private Limited (InditexTrent). However, the operations of Zara and Massimo Dutti are controlled by Inditex (in entirety), whereas Trent has primarily been a financial investor. After the revival of margin in FY18 from the impact of countervailing duty, we can expect healthy 20% revenue CAGR and 16% EBITDA margin over FY19-21. With FY21E EBITDA of INR3.5b, Zara could garner healthy enterprise value of INR42b at 25x EV/EBITDA, ~33% of TRENT’s overall value. Over the next 5-7 years, this could increase to 3540%, considering the fast evolving market for premium fast fashion products and Zara’s strong product portfolio.
  4. Trent Hypermarket :- TRENT’s 50% retail venture, Trent Hypermarket (THPL), which runs the Star brand stores, was among the first to enter the food and grocery retail business. However, it is yet to become profitable – negative 7% EBITDA margin (FY19E). After operating in three different formats – Star Daily (~2,500sf store size), Star Market (~8,000sf), and Star Bazaar (~20,000sf), it is now focusing on the Star Market format. It has closed the loss-making Star Daily format and is tightening the SKU list for Star Market to improve store productivity. The launch of gross margin-accretive apparel line-up, Zudio, in all 12 Star Bazaar stores should further improve store turnover and profitability. They have built in 15 Star Market store adds annually over FY19-21 (company targets 20-25 store adds annually). This, coupled with 7% SSSG, should help THPL grow at 18% over FY19-21. The closure of loss-making Star Daily stores, the launch of Zudio and the focus on the profitable Star Market format should reduce EBITDA loss to 4% by FY21, enabling THPL to reach closer to breakeven.

Value Unlocking Story:-
Zudio has adopted a unique FOCO model, unlike the conventional COCO/FOFO model used in the industry. Therefore, a franchisee’s capex is INR15-20m for a store size of 6k sqft; in turn, a franchisee receives a fixed revenue share, while the company operates the store and retains the profitability. Typically, franchisees get ~16% revenue share and 12-15% IRR, while the company garners strong ROCE on merely one-month inventory capital.
Zudio made its debut just two years ago. Since then, it has expanded to 40 standalone stores with revenue of INR1.5b in FY19. While currently Zudio’s revenue is insignificant in TRENT’s overall consolidated revenue base of INR26.3b, we can expect it to grow tremendously in the coming years. According to my estimates, Zudio will see 70/80/100 store adds in FY20/21/22, taking its total store strength to 290 by FY22. Also, we can expect Zudio’s revenue to hit INR14.5b by FY22. Thus, Zudio is expected to contribute 26% to TRENT’s overall revenue; contribution toward EBITDA is also expected at similar level. However, the estimates are conservative and still below management’s target of 100 store adds annually, which would take Zudio’s total store count to 340 by FY22, ensuring stable 6-7% EBITDA margin. Note that our estimated average revenue/sqft of ~INR8k is much below the like-to-like INR14k/sqft indicated in the company’s Annual Report 2019 .

Why Choose Trent over others:-

  1. Trent Ltd. outperformed its apparel retail peers this year as its revenue rose the most and it opened a greater number of stores. Shares of the Tata Group company have risen nearly 39 percent year-to-date. Among peers, only Aditya Birla Fashion And Retail Ltd. has gained. Others, including Future Lifestyle Fashions Ltd., Shoppers Stop Ltd. and V-Mart Retail Ltd., tumbled.


    Trent’s revenue grew 32 percent in the first six months of 2019-20—the highest among its peers—while its operating margin was 17.7 percent, according to its exchange filings. The company is well placed in the Indian fashion retail industry to outperform, led by its focus on fast fashion and value fashion, Antique Broking said in a recent report.

  2. Nearly 85 percent of Trent’s revenue comes from the Westside store chain, with the subsidiary’s growth boosting its performance. Westside’s same store sales growth—or sales growth at an existing location that has been in operation for at least one year—has not only been the largest but also the most consistent in the past six quarters, according to Axis Capital. Its six-quarter average of the metric is around 10.2 percent. Westside is also the only company whose same-store sales growth hasn’t declined in the same period. That, according to Edelweiss, could be attributed to the company’s focus on private labels and enhancing the shopping experience. Westside, according to the brokerage, derives nearly 97 percent of its revenue by selling private brands.

  3. Trent’s Westside format added stores at a steady pace and has, according to data on its website, as many as 158 stores across India as of March. Only V-Mart and Future Lifestyle have added stores at a greater pace, Edelweiss Financial Services Ltd. said in a report. V-Mart’s expansion has come at the cost of its operating margin, the brokerage said, while Future Lifestyle’s grew on a low base. Edelweiss and Motilal Oswal Financial Services Ltd. expect Trent to open 30 to 35 stores in the Westside format in FY20. Trent recently acquired retailer Zudio from its joint venture Trent Hypermarket Pvt. Ltd., which had 40 stores as of March. CLSA Ltd. expects Trent to “aggressively” increase the Zudio store count to 120 by the end of the ongoing fiscal. Zudio’s products are priced at Rs 999 or below and the store owns all the brands that it sells. The store’s revenue grew 31 percent on an annualised basis over the past three years to Rs 204 crore as of March, according to CLSA.

  4. Trent holds 49 percent stake each in joint ventures with fast fashion giants Zara and Massimo Dutti, which operate 22 and three stores in India, respectively. The two retail brands are owned by billionaire Amancio Ortega’s Inditex Group. Both the ventures, according to CLSA, are financial, and not strategic, investments. Trent in its annual report said that revenue from the Zara JV grew at an annualised rate of 15 percent between FY15 and FY19 to Rs 1,438 crore. Massimo Dutti India, which launched in FY19, posted revenue of Rs 63 crore in FY19, according to the report. Trent is yet to respond to BloombergQuint’s emailed queries on its growth prospects and store additions.

Valuation:-
Trent is the most expensive apparel retailer, with Edelweiss indicating an FY20 price-to-earnings ratio of 82 times. That’s at a 50 percent premium to second-placed Aditya Birla Fashion. Analysts expect Trent to rise the least. The company, according to Philip Capital, is likely to maintain its premium valuation because of its rapid store expansion.
Westside/Zudio should see higher pace of store addition at 105/250 stores cumulatively over FY19-22E. Also, we can expect TRENT’s consolidated revenue/EBITDA/PAT to register CAGR of 29%/62%/62% on pre-Ind AS 116 over FY19-22E and EBITDA margins stabilising at 10.1% by FY22E. With strong contribution from margin-accretive private labels (over 90%) and faster execution capabilities of new launches, TRENT should witness healthy growth. While the recent fund raise is expected to have a near-term impact of equity dilution on earnings growth and RoIC, over a three-year period, the dilution could drive accelerated growth. Our SOTP-based TP of INR605 values Westside and Zara at 30x EV/EBITDA and Star at 2x EV/sales on Sep’21E. Due to Zudio being currently loss-making, it has suppressed Westside’s earnings. But, we can expect valuations to normalize as Zudio turns profitable over the next 3-5 years.

Discloser :- Invested hence views might be biased. Opinions are welcome.

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I have high hopes from Trent in its fashion retailing venture. But I am doubtful about their future in Hypermarket space. Looks like they are also entering wholesale market. Any idea if they plan to remain a financial investor in this venture too, like in Zara?

Trent is one of the many fashion retail companies in India which focuses on basics

  • Highly Customer-Centric ,Spending on Store Experience rather than advertising to built loyal customer Base
  • One of the best SSG (14%)in retail industry
  • Strong private label share with Faster Fashion Cycles
  • Sharper Pricing
  • Controlled expansion without hurting margins
  • Excellent Cash conversion Cycle
  • Investing in Supply chain

Risks are

  • Losses from Star Bazar , No visibility how much time it will take time to turn around
  • Rental Inflation
  • Consumption slowdown
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Regarding Star Bazar or rather entire Star portfolio - I think lot of restructuring is going on for Trent. They are focusing on the mid size Star Market, if I am not wrong and focus is to reduce the loss and increase efficiency.

If anyone has more details on the actual actions taken by the management on this front in last 1 year or so - it would give better idea if they are really walking the talk

Disc: Have a small position in Trent.

Yes what I know

FY18 and FY19 were consolidated years for Star, as the company shut all 20
loss making Star dailies (<2000 sq ft). The management believes the “Star
Market” format (5000-15000 sq. ft.) is a more sustainable one and added 19
stores in FY18-19. Currently, it has 32 Star Market stores and 12 Star Hyper
stores (~20000 sq ft). Company is following a cluster based approach with
stores in Maharashtra, Telangana, Karnataka and Gujarat.

As per the management, current star bazar have
share of own brands was at 35% (including sale of Zudio products). The company is planning to increase it to ~60%. The company is focusing on enhancing the share of fresh (fruits and vegetables) in the product portfolio.

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Thanks, i feel star will eventually turn out to be a dark horse not just for trent but also for India. With India gradually and silently moving to the other side (reminds me of the great amitabh bachan featuring ad of TOI shot on the Mumbai sea link), we need more than just a discount grocer. Star market has so far given me best in store experience. The location and size of store they are chosing now seems apt not to make it too small and inefficient and not too big to make it a fish market with people across borders also pouring in. So far a satisfied customer. Billing people do need more training but they seem to get better with every visit.

Nice Analysis @KC1986. Trent certainly seems to be doing well as compared to its Brick & Mortar peers as far as business expansion is concerned. But at the same time from a Value Investor’s point of view, I think there are few points of concern on the quantitative front, which we should give due attention :

  1. Though revenue has been increasing consistently over the years with only one or two hickups, Net profit has not followed the same growth pattern. Its been sub-par as compared to growth in revenues over a prolonged period of time.

  2. RoE is hovering around 5% over a period of ten years. Whereas for a healthy company it should be consistently in 13-15% range, As the company which consistently squeeze out more profits with its assets should be considered as better investment for long term.

3.Trent has reported consistent Negative Free Cash Flow for more than ten years now. It may have its own reasons for the same . If it were temporary (due to cyclical business challenges) then it was ok. But if we are not able to see a recovery pattern in Negative Free Cash Flow then its a cause of concern and needs to be investigated for.

  1. High Valuations : Trent has very high PE ratio of 117 .Also it has very high price to book value ratio of above 10. These both reflects a quantitative overvaluation of stock so should also be given due consideration before going for long term investment perspective.

    Also, apart from these quantitative factors I think that current environment of subdued economic growth may hamper consumption pickup in the country which might be a cause of concern for Topline growth of Trent Limited. One should then keenly observe all above factors for Trent over few more quarters before markets and valuations eventualy settles down to a comfortable level.

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Hi @cupawar,

As I have already mentioned it is a value unlocking story so it will be obvious Sales growth in previous years are not consistent and so does it’s ROCE is at lower level. About valuation I am not sure how to value a company with this kind of unlocking and restructuring using PE. I have tried to justify it using SOTP which Motilal Oswal has used although there is no denial of the fact that it is quite high. Still based on the potential market and capacity of Trent it is justified in my opinion.

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Decoding Westside Business Model from the AR of Trent

Overview
Westside accounts for around 90 percent of the Company’s revenues. Aspirational exclusive brands are the key differentiators of the business. As of March 2019, Westside had presence with 150 stores across more than 70 cities and online reach across India exclusively through Tatacliq.

Differentiated business model
Own brands contribute over 97 percent of total revenues. Westside’s “own-brand-led” business model allows active control across the value chain with respect to key aspects of design, branding, sourcing, logistics, pricing, display, promotion and selling. We deliver latest fashion trends through a portfolio of differentiated in-house brands. This business approach has been more robust and sustainable than the department store models that predominantly retail third party brands including from a ‘return on capital employed’ perspective. Empirical evidence also seems to suggest that globally, retailers who control the entire value chain are relatively more successful.

During FY19, Westside continued to focus on key initiatives such as:

  • Delivering latest fashion trends at sharp prices
  • Strengthening additional differentiator categories such as lingerie (Wunderlove), cosmetics (Studiowest) and athleisure (StudioFit) with trendy offerings.
  • Focus on latest fashion each week through a “fastfashion” anchored supply chain.
  • Accelerated store expansion program to scale up reach.
  • Active management of store portfolio through multiple initiatives.
  • Progressing omni-channel proposition through integration between stores and online.

Aided by the approach, Westside registered 9% percent like-for-like growth in sales in FY19.

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Exciting fashion brands
Westside owns a portfolio of exclusive and differentiated fashion brands. Our team from designers to customer service work each day to understand the customer’s unique fashion tastes and provide products in a fast and agile manner. We also continue to reinvent/ scale up existing brand portfolio as market and fashion trends keep evolving.
Encouraging performance across brands reflects the ability to connect with audience across segments. This also allowed a rapid exit from residual pool of third-party brands that were previously retailed from Westside. These brands were successfully replaced by own brands without impact on customer experience.
Exciting campaigns through brand videos and social media engagement further support these brands in communicating their unique identity.
Some of our key brands are listed below:
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As depicted in the chart below, the share of Wunderlove in the lingerie segment has consistently increased and has afforded exit of third party brands.
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Highly prominent stores & differentiated store experience
Exciting shopping experience coupled with superior visual merchandising, both online and in-store, are the key drivers for reinforcing brand credentials. Westside emphasizes on delivering “fashion theatre” experience through statement making stores, presence in marquee locations, striking windows & in-store displays, exciting store ambience and convenience of shopping.
During the year under review, we pursued the following key initiatives on this front:

  • Progressive upgrade of existing stores to the latest visual scheme
  • “See it buy it” synchronization of offer, hotspots and open window presentation
    These initiatives continue to deliver encouraging results including growth in walk-ins.
    image
    Active management of store portfolio
    a) Sustainable store expansion
    In FY19, Westside added 27 new stores- the highest ever in a year. Numerous micro-markets with significant growth potential are emerging across India. Westside continues to monitor opportunities in these micro-markets and pursue disciplined expansion across regions and tier 1, 2 & 3 cities with strong focus on store economics.
    Property selection happens through a rigorous set of reviews, which utilize multiple key criteria to identify promising locations with strong economics. The in-house property team is supported by a well-defined set of processes for analyzing the potential market & catchment to pursue expansion opportunities.
    An average Westside store has a footprint of around 18,000 sq. ft. Total investment in a new Westside store leased and operated by the Company is in the region of ₹ 6-7 Crores across capex, deposits and inventory. A new store requires fit-out investment of around ₹ 2,000-2,500 per sq. ft.
    b) Accelerated store modernization
    As an ongoing initiative to emphasize contemporary look & feel and improve consistency of brand experience across the store portfolio, Westside has accelerated the modernization program. In the year under review, 9 Westside stores were modernized and the customer response has been postive and encouraging.
    c) Absorptions
    We also engage in active store optimization program, which involves identifying brand diluting stores and replacing them with newer stores in the micro-markets.
    The exercise has delivered encouraging results and the Company is committed to manage the store portfolio actively by taking steps as required. In the year under review, 2 stores, which were seen to be in unviable locations/schemes and lacking a sustainable growth outlook were closed.
    d) Space management
    Efficient utilization of retail space is one of the key initiatives. Westside continues to assess stores in terms of revenues and revisit space allocated to brands with differentiated performance. Sales per square feet is one of the key measures which assesses retail efficiency in terms of space utilization and the measure has shown a growing trend for Westside.
    image


    Customer communication
    Customer listening and engagement is an integral part of shopping experience. Westside engages with its customers in following ways:
    a) In-store and social media
    In-store activities and social media are deployed increasingly as mechanisms for customer engagement. Geo-targeted digital campaigns around the catchment areas of our stores and on relevant social media channels are being leveraged to connect with the target audience.
    Separately, digital video campaigns promoting our power brands is an initiative, which has been actively pursued and has received very encouraging traction with highest number of views- 46 lakhs in FY19.
    We also engaged with our customers through associations with fashion bloggers, vloggers, influencers, popular fashion events and youth events. The innovative usage of targeted communication methods enables us in connecting with our customers better and enhancing customer satisfaction. During FY19, followers on social media including Facebook, Instagram, Twitter crossed 9 lakhs.
    b) Customer listening
    Westside ramped up its customer response management and reduced its FTR (first time response) to 1-hour average.
    We also implemented online reputation management through 360 degree customer listening and response system, which captures 100% of complaints, queries, appreciation and feedback from multiple channels on a real time basis.
    Aided by multiple initiatives including the ones mentioned above, the average bill size registered an encouraging growth of 6 percent in FY19. Bill size represents the average amount spent by each customer on their purchase. The following chart depicts the trend of this measure for Westside in recent years.
    image
    c) ClubWest
    ClubWest membership allows customers to make purchases and avail offers in all our stores. Power targeting and customized campaigns have helped us in improving contribution of the active members to over 80% and increasing shopping frequency of less active members. In FY19, our Clubwest base grew by 14% to more than 50 lakh memberships.
    image
    Operating Standards
    Westside seeks to actively refresh its offerings on an ongoing basis to synchronize with the latest fashion trends. This is made possible through an on-going emphasis on leveraging our supply chain model coupled with rigorous reviews. As we emphasize speed across the value chain, shrinkage cost is one of the bellwether measures with respect to operating efficiency at stores and distribution centers.
    image
    Integrated value chain
    Given the competitive marketplace and an audience with significant real-time exposure to global fashion trends, Westside is increasingly focusing on rapid delivery of latest fashion by sharply reducing the “concept to customer” time.
    Sourcing
    We closely engage with the suppliers to deliver quality fashion offering at fast pace. This is achieved through multiple initiatives such as driving unit efficiency, optimization of sourcing geographies, sharper fabric choices, defined supplier base, rigorous social compliance and deployment of technology to monitor production & quality milestones.
    Supply chain
    A sustainable supply chain with strong inventory disciplines is the backbone of the business. Pune and Vapi warehouse ecosystems together service the growing requirements of the business. Use of technology and strong inventory management system enable delivery of fresh fashion every week and faster replenishment on an ongoing basis ensuring over 99 percent efficiency.
    The Company is committed to invest in scaling up and upgrading the supply chain network to support sustainable business growth.
    Integrated stores and online
    Westside has exclusive online presence through Tatacliq- a Tata Group marketplace initiative.
    Significant progress was made on omni-channel initiative during the year under review. The online and in-store offering of the concept are now closely aligned.
    During the year under review, multiple initiatives were taken to strengthen the online offer as a “convenience” proposition including centralized inventory management and leveraging the existing store network in various omni-channel respects.
    A customer can enter a store, have a look at the latest fashion offer, touch and feel the products, try and buy it using their smartphones and receive it at home/office.
    Owing to the integrated model of stores and online, our customers can relate to our brands at the most convenient moment, place and way for them.
    Notwithstanding, the small share of overall revenue base, it is encouraging that online revenues continue to witness traction.

    Going Forward
    Westside is seeking to leverage the opportunity afforded by the Indian fashion retailing space with the following guideposts.
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I have done a lot of scuttlebut recently and I have seen a transformation in the westside stores. The collection in both Men’s and Women’s section has changed over the few years. They have surely learnt a lot from their JV with Zara. For eg. The patterns & colours used in Men’s clothing is similar to Zara. The lighting & display of the store has become more vibrant. The amount of formal wear has been reduced. They have really upped their collection in footwear. Store space has been rationalized buy shutting Westside Cafe & Gourmet Food. They have also gone in a big way in Fragrances, Shampoo, Bath wash and Women’s make up and Lingerie. Most importantly they have rationalized their price points. All of this is completely in house brands. So this is a big thing.

I have also visited the Zudio format and the collection there is excellent. It will be a hit in tier 2/3/4/5 as the price points are very affordable.

Star Bazaar stores has been stocking private labels in all major categories and I have tried them and they are very good. Have seen some Star Bazaars and they are always crowded.

One should also visit the TataCliq website to see their entire range. That too is doing very well.

All in all it’s a super business managed very well. They have gone through the toil of making their own brands and that takes time, effort, failures. After a long time Noel Tata has spoken about growth. And if a conservative guy like him is aggressive then you need to be vigilant.

Lets see how the story unfolds for them.

Disclosure: Small Holding. ( Grapes are sour for me. Always felt it was too expensive and it’s become even more expensive :sleepy: )

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Great insight @Shivanms
Do you know whether they are building the supply chain for west side and zudio like zara built in spain?

Excellent insight👇 how zara became so profitable by managing whole value chain…

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@debesht nice article. Not aware about the supply chain part but would be gr8 to look into. But today most of the players like ABFRL, FLFL and ofcourse Trent ae moving from a traditional 4 season model to 8/12 season model.

I remember reading that Trent has a outsourced manufacturing model but tremendous control over the designers and quality.

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It’s very interesting Idea, it’s worth looking.
Star Bazaar doing lots of changes since last 3-6 Months to attract footfall and maximise store sells, there is huge scope for the improvements.

One shall look at the Co as Premium Fashion Retailer. Brand conciseness is increasing rapidly with Indians specially affluent Young Indians.
Believe Great scope for Scalability.
Zara, West Side both doing well.
I believe it’s worth looking at, here one may give weightage to future potential than Valuations.

@Shivanms , no doubt Westside and zudio is a great business and poised to grow for long time .The only thing which is not good with Trent is capital allocation skill of management which reflects in ROIC .
Star Bazar is a problem child for Trent. Converting Start Bazar into profitable franchise will be main challenge. Currently Zara also facing margin contraction due to import duty hike in past year.

What is your thought on this?

Also got below news from net. Tesco is looking for exit from all the asia operations .

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Retail Sector Update

  • Branded Retail Share 42% of apparel sector as on June 19
  • Westside has superior store economics in Fast fashion
  • Zudio/V-Mart are better in value fashion
  • Casual wear fastest growing category (35% share in garment sector)

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@debesht. Yes, your pointers are valid. These are challanges. Only time will tell how the company faces them. On the point of whether Tesco would like to call off the JV. I really doubt. The opportunity in India is just too large to avoid and more so when Star Bazaar has just found its sweet spot with the store sizing, products, etc.

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Trent Q3FY20 Result Highlight :-

  • Revenue grew by 32% YoY
  • PBT grew by 53% YoY [The net effect of Ind AS 116 on the standalone profit before tax for the quarter and the nine months period is an adverse impact of Rs.8.74 Crs]
  • PAT grew by 38%
  • Gross Margin stable at 50%
  • Westside revenue growth comes at 22% LFL at 12%

Overall a solid performance.

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“Factoring acceleration in Zudio’s growth and profitability, we raise our FY20-22E earnings before interest, tax, depreciation, and amortisation (EBITDA) by 3-10 per cent and increase our target multiple to 30x EV/E (earlier 28x) and raise our target price to Rs 685 per share (earlier: Rs 595) based on 30xFY22E EV/E,”

“We model-in strong 35 per cent EBITDA (pre-IndAS 116) CAGR over FY19-FY22E with EBITDA margin expansion of nearly 130bps to 10.6 per cent by FY22E.”

– said ICICI Securities

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