Results Review for Trent and CDSL

Trent (NS:)

Trent\\'s topline growth continues to be stellar. Standalone revenue grew 53.5% YoY to INR25.4bn (HSIE: INR21.4bn). Zudio continues to anchor this exceptional growth. All fashion formats delivered 12% SSSG. The F&G format Star is also finding its bearings (33% YoY almost entirely SSSG-led) as it works to improve its value proposition/sales density. The change in mix and front-loading of expansion-related costs led to an EBITDAM contraction of 398bps (14.4%, Pre-IND AS EBITM stood at 8.8% vs 10.2% in Q1FY23).

Note: EBITDA grew 11% to INR3.66bn (in-line, INR3.62bn). We largely maintain our FY25/26 EBITDA estimates and our SELL rating, with a SOTP-based TP of INR1,350/sh (includes 37x Sep-25 EV/EBITDA for the standalone business). V-Guard Industries: V-Guard results positively surprised, as revenue increased by 19% YoY (13% excluding Sunflame) vs HSIEs estimate of 13%, with broad-based growth across categories. The electronics segment grew by a strong 20% stabilizer saw strong growth in the south and east regions, which compensated for weakness in the north market. South revenue grew by 10%, while non-south grew by 17% YoY.

Gross margin, which expanded by 250bps YoY to 32.5%, is likely to sustain the momentum due to (1) a softening RM basket (2) liquidation of high-cost inventory (especially water heaters) and (3) improved product mix (electronics segment to grow ahead of 8-9% CAGR). However, achieving and sustaining a double-digit EBITDA margin is still uncertain (crossed double-digit margin only three times during the last 10 years). The company has been reinvesting for a long time and its operating print has been volatile. With 35x P/E on FY25, we believe the stock is trading at a rich valuation. We value V-Guard at 30x P/E on Jun-25E EPS to derive a TP of INR 240. Maintain REDUCE.

Trent\\'s topline growth continues to be stellar. Standalone revenue grew 53.5% YoY to INR25.4bn (HSIE: INR21.4bn). Zudio continues to anchor this exceptional growth. All fashion formats delivered 12% SSSG. The F&G format Star is also finding its bearings (33% YoY; almost entirely SSSG-led) as it works to improve its value proposition/sales density. The change in mix and front-loading of expansion-related costs led to an EBITDAM contraction of 398bps (14.4%, Pre-IND AS EBITM stood at 8.8% vs 10.2% in Q1FY23). Note: EBITDA grew 11% to INR3.66bn (in-line, INR3.62bn). We largely maintain our FY25/26 EBITDA estimates and our SELL rating, with a SOTP-based TP of INR1,350/sh (includes 37x Sep-25 EV/EBITDA for the standalone business).

Q1FY24 highlights: Standalone revenue grew 53.5% YoY (INR 25.36bn vs HSIE: INR 21.67bn). Fashion brands clocked an LFL growth of 12% YoY in Q1. Zudio‘s growth continues to be a major driver for exceptional growth. In Q1, Westside/Zudio added 7/36 stores (net), taking their total store count to 221/388 respectively (other lifestyle concept stores—23). Online sales now contribute to 4% of Westside’s revenue. Emerging categories contributed 19% of standalone revenue.

Trents F&G format Star grew 33% YoY in Q1, registering an increase in sales densities (added two stores (net) in Q1; store count—65). The share of own brands within star format stood at 35% in Q1 (24% in Q1FY23). Standalone GM contracted 479bps YoY to 44.5% (HSIE: 45%) as the revenue mix continues to tilt towards Zudio (low-GM business). EBITDAM followed suit (declined 398bps to 14.4% vs HSIE: 16.7%). We suspect investments in human capital and front-loading of expansion-led costs (courtesy Zudio) played a role in the EBITDAM contraction. EBITDA grew 20% YoY to INR3.66bn (in-line; INR3.62bn). Operating EBIT margin for Q1FY24 was 8.8% (10.2% for Q1FY23). Q1 PBT grew 45.0% YoY to INR1.93bn (HSIE: INR1.94bn). PAT grew 44.5% YoY to INR1.48bn (HSIE: INR1.45bn).

Outlook: Trent continues to run circles around peers in terms of growth. Its disciplined working capital management and well-capitalized balance sheet do not allow us to fault the business. However, its heady valuation (75x + Sep- 25 EV/EBITDA—consolidated) restrains us from becoming constructive on the stock. Hence, we maintain SELL with a SOTP-based TP of INR 1,350/sh.

CDSL (NS:)

CDSL delivered a strong quarter with 20% QoQ revenue growth (highest in the last seven quarters), led by growth in annual issuer charges and recovery in transaction income (one-month impact of higher activity). The companys annuity revenue stream has registered 39% YoY growth and contributes ~42% of revenue. The increase in annuity income provides growth stability and is led by increasing demat market share. We expect the growth to recover in FY24E, supported by (1) recovery in BO account addition, (2) higher transaction revenue driven by growth in delivery volume, and (3) continuity of growth in the annuity revenue stream.

CDSL continues to be a market leader in the number of BO accounts, with a 73% market share and 85% incremental share. The insurance opportunity remains an option value and will aid growth subject to regulatory push. The investments in technology, rising regulatory and people cost will keep EBITDA margins in the 55-60% range. We have marginally changed our FY24/25E EPS estimates and maintain our BUY rating. We assign a SoTP-based target price of INR 1,470, based on 37x Jun-25E core PAT + net cash.