High valuations, moderating growth warrant caution for Trent investors

Trent’s consolidated revenue was up 28 per cent while Ebitda grew 39 per cent and adjusted profit after tax (PAT) was up 129 per cent year-on-year (Y-o-Y) in the fourth quarter of the financial year 2024-25 (FY25).

 

Standalone sales of the Tata Group firm grew 29 per cent Y-o-Y on the back of mid-single digit LFL (Like for Like) growth. The company is increasing its presence across key markets with a store rollout. The count hit 1,091 stores in 240-plus cities, with store count for Zudio and Westside up 40 per cent and 7 per cent respectively Y-o-Y.

 

The gross margin was at 41.7 per cent (down 240bps) while Ebitda at ₹650 crore was driven by Ebitda margin at 15.5 per cent (up 122bps). For the fashion portfolio, LFL growth was in mid-single digits in the quarter while it was in double digits in FY25.

 

Revenue for Star Bazar (78 stores) was up 17 per cent Y-o-Y, driven by LFL growth of 2 per cent. In FY25, Trent’s revenue rose 40 per cent while Ebitda grew 43 per cent and adjusted PAT grew 54 per cent Y-o-Y, driven by 29 per cent Y-o-Y store additions and double digit same store sales growth (SSSG) for the full year.

 

But in Q4, SSSG was in mid-single digits, trending down after many quarters of higher growth. Ebitda margins rose due to operating leverage despite gross margin reduction. The store rollout should push revenue despite the lower SSSG performance.

 

Operations got more efficiency with Working Capital days down to 37 in FY25 from above 40 in FY24. Inventory days came down to 44 (from 48 in FY24). Operating cash flow (after interest and leases) increased 29 per cent Y-o-Y to ₹1,000 crore. But Trent had FCF (fresh cash flow) outflow of ₹220 crore in FY25 (₹60 crore FCF generation in FY24), due to higher capex of ₹1,220 crore (₹720 crore in FY24). Trent’s net cash stood at ₹340 crore in FY25 (₹ 410 crore in FY24).

 

The growth rate continues to moderate, though it is still robust, due to weak discretionary demand. The strong store additions in Zudio should aid growth in FY26. But investors would like to see a recovery in SSSG growth rates too, this is a key monitorable. There’s a long runway for growth in Star (presence in just 10 cities) and scale-up of new categories (beauty, and lab-grown diamonds).

 

Fashion concepts (Westside, Zudio and others) registered mid-single-digit LFL growth in Q4 (versus high-single digit in Q3 and double digits in FY25). Volume growth in FY25 stood at 40 per cent+ Y-o-Y. Emerging categories, including beauty and personal care, innerwear and footwear, contributed over 20 per cent of standalone revenue. Online revenue through Westside.com and other Tata group platforms grew 43 per cent Y-o-Y and contributed over 6 per cent of Westside revenues up from about 5 per cent. Calculated annualised revenue per sqft declined 7 per cent Y-o-Y to ₹2,740 crore and annualised revenue per store was up only 2 per cent YoY to ₹45.1 crore.

 

Valuations are very high however. The stock is trading at an estimated PE 73x for projected FY27 standalone earnings and at 90x PE for one-year EPS. This is a big premium over other stocks in the retail space. Analysts are generally positive on the stock but the high valuations indicate the need for some caution now that growth rates are moderating.