Trent stock check: Tata-owned retail major rallies 5% on brokerage upgrade, 38% upside eyed at TP; Should you buy?

Trent stock check: Shares of Trent rallied five per cent on Wednesday, January 15, after domestic brokerage Elara Securities Ltd initiated a 'buy' rating on the Tata-owned retail major. The brokerage eyes a potential upside of 38 per cent at a target price of ₹8,500. Trent emerged as Nifty 50's best-performing stock of 2024 with a remarkable multi-bagger return of 133.17 per cent on investments generated over the last 12 months. 

The growth was driven by stable corporate earnings growth until the end of the September quarter of FY25. A subsidiary of the Tata Group, Trent is a leading player in India's retail industry and manages well-known brands, Zudio and Westside. Trent's expansion plans and differentiated play will likely boost growth and make it an attractive buy among participants.

Also Read: Top gainers of 2024 | Trent, M&M among top 10 Nifty 50 performers, deliver hefty 25-135% returns in last 12 months

Trent stock check

On Wednesday, shares of Trent opened at ₹6,209.95 and rallied five per cent to hit an intraday high of ₹6,517.45 against a 52-week high of ₹8,345.85 on the BSE. Shares settled 3.71 per cent higher at ₹6,391.50 apiece on the BSE. 

Zudio is set to grow ahead of peers (though at a modest pace) despite intensifying competition led by many moats: a) a successful private label strategy, b) robust traction led by differentiated fashion, and c) prudent focus on product quality at reasonable price points and organic growth.  

“Zudio shall continue to be the market leader in the fast fashion segment by a wide margin due to its edge. Also, expect Westside to continue to deliver a steady show,” said Elara Securities in its report today.

Also Read: Trent Q2 Results: Profit grows 47% YoY to ₹355 crore, revenue rises 39%

Trent peer comparison 

The fashion portfolio has consistently outperformed peers on key parameters – Store size, revenue per sqft/store and EBITDA margin – by a wide margin (30-40 per cent versus the industry). ‘’As Trent gears up for expansion, we expect it to maintain industry-leading metrics due to differentiated product offerings, strong grip over processes and full reliance on private labels," said the brokerage.

According to the brokerage, the growth is expected to be sustained, led by a firm focus on fundamentals such as product-market fit, promising quality at reasonable price points and a faster design-to-shelf cycle. Trent will likely evolve as a key consumer brand by leveraging prior learnings and Zudio’s brand equity. 

Its emerging brands are Misbu, Samoh and Utsa, with recent entry into beauty (Zudio Beauty) and lab-grown diamonds (Pome). “While leading brands are resolving internal issues – Aditya Birla Fashion & Retail (ABFRL – serial acquisitions) and VMart (awaiting turnaround) – Trent is focused on organic growth via building its own brands. With prudent capital allocation, Trent is set to expand its brand portfolio,” said the brokerage.

Also Read: Tata Group stocks: Tata Investment, Trent to Rallis India jump after report of Noel Tata appointed Tata Trusts chairman

Valuation 

Elara Securities expects Trent (consolidated) to post revenue/EBITDA/adjusted PAT CAGRs of 27%/29%/38% in FY24-28E (surpassing 16% growth for the apparel space). This is likely to be led by Zudio’s 37 per cent sales CAGR. Organic focus with premium growth offers robust performance amongst peers.

Quick Commerce plays should not pose a threat given the constraint of store size. “We initiate with Buy and SoTP-TP of ₹8,500 – We value the standalone business at 57x EV/EBITDA (Sep ’27E), Star Baazar at 4x EV/sales and Zara+ Massimo Dutti at 30x EV/EBITDA,” said Elara Securities.

"Slower-than-expected store addition, price war among value players, and failure to gauge fashion dynamics are risks to our call," added the brokerage.
 

Disclaimer: The views and recommendations provided in this analysis are those of individual analysts or broking companies, not Mint. We strongly advise investors to consult with certified experts, consider individual risk tolerance, and conduct thorough research before making investment decisions, as market conditions can change rapidly, and individual circumstances may vary.