Trent hits new high, up 4% on strong outlook; stocks on 8-day winning streak
Customers at a Trent Westside store in Mumbai. | Bloomberg
Shares of Tata Group retail firm Trent hit a fresh high of Rs 5,820, up 4 per cent on the BSE in intra-day trade on Wednesday on the back of strong growth prospects. The stock surpassed its previous high of Rs 5,751.40 hit on July 15, 2024.
Trent was trading higher for the eighth day in a row, up 13 percent during the period, after the company announced the launch of Westside’s 230th store in Lucknow on July 22. Westside is one of India’s leading fashion retail chains.
Westside stores range from 18,000 to 34,000 square feet in 90 cities. Westside stocks a wide range of products ranging from apparel, footwear, accessories to cosmetics and fragrances to home decor and gifts, and more. Westside (60 percent of sales) has proven to be one of the most profitable business models, as it focuses primarily on selling private label brands.
Meanwhile, Trent is part of the Tata Group and operates a portfolio of retail concepts. Trent’s key customer propositions 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 sector continues its turnaround momentum with every segment of the retail sector recording strong growth rates. It is expected to grow to $4.5 trillion by the end of the decade, driven by socio-demographic and economic factors such as urbanization, income growth, rise in nuclear families and a shift from the unorganized to the organized segment.
Analysts say Trent’s successful store performance, healthy store economics and aggressive growth strategy provide ample opportunity for growth over the next three to five years.
Over the past year, Trent’s share price has risen 231 percent, compared to a 23 percent rise for the BSE Sensex.
Trent continued to report strong standalone/consolidated revenue growth of 55 percent/50 percent year-on-year (YoY) in FY24, aided by 51 percent YoY area growth and +10 percent LFL (like-for-like) growth. Despite a slight contraction in standalone gross margin of 20bps (due to higher Zudio mix), EBITDA margin (pre-Ind-AS) improved to 11.7 percent (up 300bps YoY), aided by lower ad spend and operating leverage
The discretionary category continues to see muted demand, but Trent has far outpaced the industry, delivering industry-leading LFL growth of +10 percent, gaining market share against other retailers in the apparel segment (particularly in value formats), Motilal Oswal Financial Services said in a note.
Further, despite aggressive store additions, Trent has limited balance sheet risk or operational weakness. Trent’s industry-leading revenue growth is primarily driven by strong Same Store Sales Growth (SSSG) and productivity, healthy footprint additions, and Zudio’s strong value proposition.
Brokerage firm Sharekhan highlights that Trent has delivered 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 percent contribution from own brands, aggressive store expansion, scaling up of Star business and leveraging digital presence will be key growth drivers in the medium term.
Considering the long-term growth prospects and strong balance sheet among retail traders, Sharekhan maintains a ‘Buy’ rating on the stock with a target price of Rs 5,838.
First print: Jul 31, 2024 | 12:08 PM IST