Trent - Finally catching the trend!

Trent (C.M.P 715.00) is the Tata group promoted retail company. It runs the Westside brand of departmental stores. Last year Trent picked up a 74% stake in landmark in an all cash deal. Landmark is a Chennai based  books, stationery and music retailer that is fast expanding across all the cities of India.

Consolidated Sales for Trent for Fy 06 was Rs 405 crores. The figure was generally lower because the company could not merge Landmark’s full year revenue with itself. It had bought oat the Chennai retailer in August 2005. Normally I would assume that full year sales should have been around Rs 450 crores had Trent included the full year sales of landmark.

Simone Tata the chair person of Trent    has a very different working style compared to the new first generation entrepreneurs. She wants to keep the processes absolutely efficient and in the process lost the first mover advantage to Pantaloon retail. While Pantaloon has over 3.2 million square feet of retail space Trent has only 20% of that space.

Inspte of being labeled as a slow mover Trent has increased sales by between 40% to 50% for the past 4 years. Profits have also moved up but the best part has been the change in the nature of profits. About 4 years back Trent used to derive 100% of its profits from investing activities while now this figure has substantially gone down as operating profits have increased year on year/.

Recently Trent announced entered into a memorandum of understanding with DLF for anchoring the DLF's next 12 malls  through Westside, Landmark or Star India Bazaar (Trent’s hypermarket model). The total square footage from this alliance works out to over 1 million square feet! 

While these numbers might appear to be normal a back of the envelope calculation makes the numbers very appealing. Trent with a total square foot area of 600,000 square feet is adding another 1 million square feet. This means that the company expects to be about three times its size (aided with growth in same stores sales) over the next two or three years. When contacted the company declined to comment stating that they would discuss these things at its Annual General meeting.

Today Trent declared a Rights issue to raise Rs 130 crores through equity and Rs 200 crores through Non convertible debenture. If we add the Rs 70 crore of cash the company is already sitting on Trent should have a cash of about Rs 400 crores after they complete their various offering.

·         My sense is that a Tata group company with strong integrity and management skills would not raise cash unless it has concrete plans up its sleeve. The last time Trent raised Rs 117 crore from shareholders they acquired Landmark so some major expansion should be on the anvil.

·         Trent’s RoE stands at 13%. This is abysmally low compared to Pantaloon’s 25%. The primary reason for this low RoE has been the huge cash the company holds. The raising of further cash through the new offering installs belief that the company has found use for the old cash and also for the new one hence revenues, profits and efficiency ratios should go up.

·         High margin private label contribute to about 80% of Trent‘s revenues. More over Trent is in the high margin lifestyle business where margins and profits are substantially better compared to the hypermarket model of business.

Trent should declare an Eps of Rs 30 for Fy 07 and Rs 45 for Fy 08. Available at a trailing PE of 36 times and growing at 50% each year Trent is an excellent pick for a risk averse investor who wants to play the Great Indian consumer story. Also a company with a market cap of Rs 1000 crores raising money to create a war chest of Rs 400 crores menas that they have something up their sleeve?

To read more bout the great Indian consumer boom click on the following link

  http://www.theequitydesk.com/consumer_undergoing.asp -  I have substantial exposure to Trent.

The stock has moved up quite a lot since you wrote at Rs 715 it is now at Rs 865. I missed it at that time. Do you suggest that I get in now or wait....

I would suggest you to wait and buy only in panic/fall not otherwise..

Trent has reportedly finalised plans to take its Landmark brand of stores across the verious cities of the country. It is reported that with these expansion programs( 18 landmark stores) the total floor area will increase to 5.00 lac square feet from 1.8 lac square feet.

May be your haunch could be correct. That is because the alst time Trent came out with a rights issue it bought over 74% in LandMark. Post the current RIghts issue the company should have a cash of Rs 400 crores and that could be put to some good use. COnsumer durable retailing would fir into their synergies quite well. The company could make this chain a National Brand.I am extremely bullish on Trent form a 2-3 year perspective.

Trent-the Tatas are behaving unfairly just like  some of the MNCs and exit may be the wise option or is it ?

Trent Warrant is at Rs 200 & Stock at cmp 700.Which one will be better option.

Trent opens Star Bazaar in Mumbai
17 September 2007

Mumbai: Trent Ltd, Tata Group's retail arm has launched its hypermarket format, Star Bazaar, in Mumbai at Thakur Mall in suburban Dahisar.

The hypermarket is spread over 50,000-sq ft, and will offer non-vegetarian food, and will run a run a live bakery, while selling in-house labels of garments, among other things.

Brand names of the value apparels, which would be priced onwards from Rs99, are Edward, France Giovanni, Spike and Fashion Street in different categories of men's wear, while Navya is the brand name for Indian wear, and Tammy is for kids wear. The garments are sourced from across India, including hubs like Jaipur, Tirupur and Mumbai.

Selling in-house labels has been a profitable line for Trent, be it in garments, staples or home cleaners, according to Neeti Chopra, Marketing Head, Trent. The company's in-house labels, according to her, are doing well mainly on account of the high degree of customisation that the company is able to offer basis the needs of its audience.

Other Star Bazaar location is the 50,000-sq ft retail space in Ahmedabad, set up in 2004. The company plans to launch a third hypermarket in Bangalore within the next two months, followed by another in Mumbai by December-January.

Ludhiana
outlet openED: Madame, a fashion wear brand for women, opened its 36th store in Flamez mall on friday.Madame, the brand of Jain Amar Clothing. The company plans to open more exclusive stores and shop-in-shops in all major fashion markets across the country.

Store opened: Simon Tata of the Tata Group on friday inaugurated the company’s first lifestyle store, Westside, operated by Trent Limited, a Tata enterprise at the West End mall here.Tata is planning to open more stores in Jalandhar, Amritsar and Chandigarh soon.

Behind Noel Tata's contrarian bet Down Under

17 Nov, 2007, 0157 hrs IST,MV Ramsurya and Kala Vijayraghavan, TNN

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Global cross-border frenzy may have enveloped India Inc, but one sector has understandably stayed away from the limelight: the retailing industry. Yet unknown to the world, a group company from the $22-billion Tata group made a seemingly audacious bid for the Australian-New Zealand business of Borders group, the world’s second largest books and music chain in the world.

For more than seven months, the Tata firm competed with a range of private equity firms and local book chains right through to the final stage where they were among the final three bidders left in the fray. Right through this four-month-long bidding process, nowhere did the Tata group’s name figure in local and international media reports.

Perhaps it may have been because the deal had been managed entirely by Tata group’s crack in-house team led by their director and sharp shooter Arun Gandhi. On Thursday evening, news finally trickled in that Trent, managed by Ratan Tata’s half brother Noel, had been pipped to the post by a local private equity firm, Pacific Equity Partners, which also owned Australia’s largest book chain, Angus & Robertson.

Even today, inside Trent, the bid for Borders remains a tightly-held secret known only to handful of senior executives. An official Trent spokesperson told ET, “We are currently not bidding for any business in Australia.” Most local retailers in India expressed surprise when told that the Tata firm had even gone ahead with the bid — at a time when the rest of the world had their sights on India. So what prompted Noel Tata to sight an opportunity Down Under? And more importantly, how much sense did it really make?

But first, let’s get some useful background on the deal. In the world of books and music retailing, Borders remained an aberration. While its global peers like Barnes & Nobles, WH Smith and Japanese retailer Kinokuniya had concentrated on building a local business, Borders decided to expand its international business a decade ago, setting up stores across the developed world including UK, but also in the Middle East, Singapore, Malaysia, Australia and New Zealand.

And then its brick-and-mortar business began to face a sluggish home market in North America. There was also stiff competition from web discounters like Amazon and warehouse chains like Costco Wholesale who sell various goods in addition to books. “These discounters are able to offer books at far lower prices and offset the lower margins with higher margins on other products,” said a CEO of a rival retail chain in the country.

The Borders board, in its global HQ in the US, decided to gradually withdraw from the rest of the world and use the same resources to consolidate its operations in the home market. It would instead rely on a franchise model which did not guzzle too much capital — something it had tested in Malaysia and UAE. So Borders began selling its operations bit by bit, first in the UK, and then gave the mandate to dispose of its 20 stores in Australia and another four in New Zealand in March this year to KPMG.

According to people close to the Tatas, the decision to bid for Borders may not have come about all of a sudden. Trent had been nurturing aspirations to grow its wings across Asia — except that very few in the retail industry knew about it. Unlike his high-profile peers like Kishore Biyani, BS Nagesh and now, the Reliance group, Trent CEO Noel Tata preferred to stay out of the limelight.

A senior consultant working at KSA Technopak, though, recalls Noel Tata outlining his plans to expand in the region, especially China, Middle East and South East Asia during a relationship meeting last year. “We never quite figured that one out. Why would they want to expand overseas even before they dug in their tentacles in their home base?” he says. Yet Trent saw an opportunity in Borders that no one else in the retail industry in the country did.

Their logic was simple: Trent was present in three categories: Apparel through Westside department store chain, groceries through the Star India Bazaar hypermarket format and books and music through the Landmark chain (in which they had acquired 76% stake in 2005). “Our sense was that it would not be possible for us to emerge as strong local or even Asian players in the first two categories. But we sensed that the Borders deal offered us a platform to grow into a relevant and big player at least across Asia,” said a senior executive from the group’s HQ in Bombay House.

The rationale

There were four important factors that Trent also considered. One, the Australia-NZ operations were profitable and growing at nearly 26% every year. Besides, Borders was willing to license their brand name to whoever clinched the deal. Two, since Borders was withdrawing from the Asian sub-continent, there was every likelihood that they would also put their Singapore store on the block. The 32,000-sq ft store on Orchard Road was a jewel in the crown. It registered $40 million in sales annually and besides, Tatas heard that there were plans to open one store in the city state.

Three, if the ANZ deal fructified, there was every chance that Borders would eschew a public bidding process (given the high fees it would have to fork out) and look at a private placement to a strategic partner, ergo, the Tatas. Four, the $1.2-billion Australian books and music market seemed in fine fettle.

Their own experience with their SUV Safari had proved it as well, with sales outpacing that in the UK. With that intent, the Tata group began to figure out how to structure the transaction, purely as an offshore buyout, without taking recourse to Trent’s balance sheet. Very few Indian companies had done complete offshore buyouts in the past. Even mega deals like Corus and Novelis had relied on partial recourse to the acquiring company’s balance sheet. The core team contacted some private equity groups and funds with specific domain expertise in raising funds overseas.

Initially, when the process was kicked off, it attracted enough media attention. After all, Borders had a 10% share of books and music retailing market in Australia. According to reports in the local media, local retail chains like Woolworths (which had partnered Tata Infiniti for its foray into the Croma consumer electronic store chain) and Dymocks showed interest, as did private equity firm Pacific Equity Partners (PEP).

Now, PEP was always considered the front-runner, because it wanted to combine its A&R business with that of Borders and thereby end up controlling one-third of the market. It then had plans to float the combined entity on the share market in the next 12 months.

Before the final bids were placed, KPMG put out an information memorandum in end July, offering more information on how the 24 stores were performing. Reports at that time in the local media put the valuation at over $100 million. In the end, only three suitors remained in the fray: PEP, Dymocks and the Tatas.

It wasn’t until Thursday evening that the final results were known. So far, Borders hasn’t put up any official confirmation, but Tata sources say PEP’s winning bid is likely to be around $125-130 million.

What now?

The Tatas may have lost their bid for Borders, but their contrarian gameplan is bound to set the cat among the pigeons in India’s fledgling retail industry. A top retailer grudgingly admits that Trent’s gameplan was unique — and worth mulling over.

Despite all the frenzy around India’s retail opportunity, the incumbents are today faced with rapidly escalating real estate prices that are forcing margins to head southwards. In such a scenario, a global approach may make suitable sense, says another leading retailer. Besides, company watchers say Trent tasted blood with the success of Landmark.

“Trent searched hard for local acquisitions before deciding to search outside India. There are not too many brands available for acquisitions in this space in India. Through such global acquisitions, Trent could get access to talent, a ready brand and back-end support. Not to forget a ready market globally,” said a top official in an investment firm, which advises retailers on such acquisitions.

Within the group, sources said several meetings had been held on evolving an out-of-the box approach. The feeling was that there are too many competitors vying for space and customers within the country. “With their experience in steel and auto, Tata officials saw no reason to ignore global retail opportunities especially when competitors were looking inward,” said a top official.

Of course, not everyone thinks the Trent plan had merit. “There is obviously some strong logic and reasoning there. Maybe, we do not think that way. The challenges and opportunities within India are too immense to be exposed to global ones,” said the CEO of a top Indian retail company. “So far, retail learnings suggest that the most successful retailers have always been local,” said an expat CEO of a retail firm. But at least, the Tatas are thinking big and differently, he adds.

A very old article but it inidcates where the tide was in 2002 when it came to picking out the retailing biggies!

SA held 7% stake in Trent. I hardly see any fund manager such significant holdings today. Is he betting on retail now ??

New Landmark shop is opened in Jayanagar (Bangalore) today. Landmark sales is good on sat and sun it will be full of people and to buy any item you have stand in the queue for 15 to 20 min on weekends.  Nice see the landmark bookshop.

Will Landmark and joint venture with TESCO add any benefit or growth to the company?

he he.. not a typo, you were looking at BSE, while i normally look at NSE, just as i did in above instance.