CARE: Trent Ltd.''s proposed PCD issue assigned CARE AA rating

CARE has assigned a rating of 'CARE AA' to the proposed Partly Convertible Debenture issue of Rs.118.1 crore, including secured Non-Convertible Debentures issue aggregating Rs65.6 crore, of Trent Ltd. The NCDs will have a face value of Rs500 and carry a coupon rate of 2 per cent with a redemption premium of Rs.98 payable on maturity so as to provide a yield of 5.5 per cent per annum over a five-year period. The rating, however, is applicable only to the secured NCD portion of the issue.

According to the agency, the rating takes into account Trent's strong brand name, management and healthy improvement in income from retail operations. The rating also derives strength from the industry prospects and Trent's strategic foray into the hypermarket format of retailing. The rating agency also says that the company's zero debt balance sheet and large cash surplus puts it in a favourable situation as compared to other players. However, the rating is constrained by the low returns on capital employed.

Trent was formed in 1952 as Lakme Limited, a 100 per cent subsidiary of Tata Oil Mills Co. Ltd. The company was listed in 1982. Subsequently the company acquired 100 per cent equity shares of Littlewoods International (I) Pvt. Ltd, UK. With effect from January 1, 1998, the company was named as Trent Ltd.

Trent brands its products with the same name and focuses on building in-store brands, that is, its own labels. The stores bear the "Westside" name. Retail operations, which commenced with one store at Bangalore in April 1998, have now expanded to sixteen stores in major cities. Trent is engaged in the retailing of apparels, household items and has recently made a foray into the Hypermarket retailing format. The thrust area in the future would be on the Westside stores as well as hypermarkets, which the company has branded "Star India Bazaar". The first store in this format was opened in late October 2004 in Ahmedabad. The pricing is MRP based with deep discounts (2-9 per cent below MRP), coupled with regular promotions. The company has also launched private labels to have an edge on the margins.

According to the agency, thus far the company has registered a good growth in sales, fuelled by the emergence of organized retailing in India, and the launching of new stores in major cities. PBDILT has witnessed a complete turnaround over the time period. There are virtually no borrowings and the interest costs are almost negligible.

The company's PAT has also been greatly aided by other income, which includes income from current investments (interest on short term loans and advances, dividend on current investments), rent received, interest on long-term loans and advances and dividend on long term investments. The agency says that this income has been erratic over the years, and will continue to be affected by market forces. The liquidity position of the company however is favourable as indicated by the current ratio. The cash reserves have also been steadily building up over the years.