Trent hits new high, up 4% on strong outlook; stock on 8-day winning run

Shares of Tata Group retail company Trent hit a new high at Rs 5,820, gaining 4 per cent on the BSE in Wednesday’s intra-day trade on the back of strong growth outlook. The stock surpassed its previous high of Rs 5,751.40 touched on July 15, 2024.

Trent was trading higher for the eight straight day, surging 13 per cent during the period, after the company on July 22, announced the launch of Westside’s 230th store in Lucknow. Westside is one of India's leading chains of fashion retail stores.

Westside stores have a footprint of between 18,000 and 34,000 sq. ft. across 90 cities. Westside stocks a broad range of products ranging from apparel, footwear, accessories to cosmetics and perfumes to home accessories and gifts amongst others. Westside (60 per cent of revenues) has proven to be one of the most profitable business models as it primarily focuses on selling private label brands.

 

Meanwhile, Trent is part of the Tata Group and operates a portfolio of retail concepts. The primary customer propositions of Trent include Westside, Zudio, a one stop destination for great fashion at great value and Trent Hypermarket, which operates in the competitive food, grocery and daily needs segment under the Star banner.

The Indian retail industry is continuing its turnaround momentum with every segment of retail recording strong growth rates. It is projected to expand to $4.5 trillion by the end of the decade, driven by sociodemographic and economic factors such as urbanisation, income growth, rise in nuclear families and a shift from the unorganised to the organised segment.

According to analysts, Trent’s successful store performance, healthy store economics, and aggressive growth strategy offer a huge runway for growth over the next three to five years. 

In the past one year, the stock price of Trent has zoomed 231 per cent, as compared to 23 per cent rise in the BSE Sensex.

Trent continued to report strong standalone/consolidated revenue growth of 55 per cent/50 per cent year-on-year (YoY) in FY24, aided by 51 per cent YoY area addition and +10 per cent LFL (like-for-like) growth. Despite a slight contraction in standalone gross margin by 20bp (due to higher Zudio mix), EBITDA margin (pre Ind-AS) improved to 11.7 per cent (up 300bp YoY), aided by lower ad spending and operating leverage 

The discretionary category continues to see muted demand, but Trent has far outpaced the industry. The company delivered industry-leading LFL growth of +10 per cent and hence gained market share over other retailers in the apparel segment (especially in value format), said Motilal Oswal Financial Services in a note.

Further, despite aggressive store addition, Trent has limited balance sheet risk or weakness in operations. Trent’s industry-leading revenue growth is mainly driven by strong SSSG (Same Store Sales Growth) and productivity, healthy footprint additions, and Zudio’s strong value proposition.

Brokerage firm Sharekhan highlights that Trent has been posting consistent strong performance in the retail universe by delivering double-digit same-store-sales growth in a weak discretionary environment. Innovation in product portfolio, 100 per cent contribution from own brands, aggressive store expansions, scaling up of the Star business and leveraging on digital presence will be key growth drivers in the medium term.

With long-term growth prospects intact and a strong balance sheet among retailers, Sharekhan maintains a 'Buy' recommendation on the stock with a price target of Rs 5,838.