Macquarie initiates 'outperform' rating on Trent; Sees 30% upside for stock

Macquarie has assigned a 12-month target price of ₹10,000 per share under its bull-case scenario

Macquarie initiated coverage on India's fashion retailer Trent with an 'outperform' rating, highlighting a strong supply chain and a recovery in discretionary demand. The rating offers relief to the stock, which has been hammered amid growth woes this year.

 

Shares of the Tata Group company have been among the top Nifty losers this year with a decline of nearly 24 per cent. Macquarie cites this correction to near-term growth concerns, recalibration of growth expectations for Zudio and competitive concerns linked to Shein and domestic players. 

 

The brokerage noted that the growth rates in the discretionary space have moderated in the recent quarters. However, tax rebates announced in the budget could aid a sharper recovery in small-ticket discretionary items, Macquarie said in a note on Thursday. "This should lead to growth momentum recovery across the small-ticket discretionary space."

 

The research firm goes on to say that Trent has "Asia's best retailing metrics and is a play on India's rising discretionary spend in fashion." Macquarie believes that Trent's supply chain strengths and design capabilities, built with years of experience of Indian design sensibilities/fabric sourcing, are difficult to replicate.  

 

Analysts at the firm see room for continued store additions in Zudio, given its 'value for money' positioning and other fashion brands' higher city presence. Trent's proven ability to balance fashion risk with profitability through frequent style drops and its expansion through owned/franchisee stores have aided its performance, they said in the note. 

 

Further, the research firm said that Trent's Star Bazaar grocery format -- operated via JV with Tesco PLC -- will see a gradual reduction in losses despite quick-commerce linked growth uncertainties. This will be aided by its focus on private brands, fresh produce, sharper pricing and store operational expenditure optimisation. 

 

Meanwhile, Macquarie thinks that the competitive concerns about Shein's entry are overblown. This is because it would be difficult for Shein to replicate its China production cost advantage with an India-based supply chain. "This re-entry comes with strict conditions on control, with all operations/data managed by Reliance Retail and Shein only a technological partner," it noted. 

 

Macquarie has assigned a 12-month target price of ₹7,000 per share, which implies about 30 per cent upside from the current price. The research firm assigned a target price of ₹10,000 under its bull-case scenario. 

 

The recent correction offers a good entry point into Trent with the ability to benefit from increasing consumer demand for discretionary apparel. The stock was among the top losers this year after it was the best-performing Nifty stock in 2024. The counter rallied 133 per cent last calendar year, after seeing a surge of 126 per cent in the year before. The sharp fall in the counter this year has cut down the price-to-earnings multiple from 156x in October last year to 119x currently. 

 

On Friday, shares of the retailer rose as much as 0.70 per cent to ₹5,460 per share. As of 9:42 AM, the stock was trading 0.05 per cent higher, compared to a 0.31 per cent decline in the benchmark Nifty50 index. 

 

Out of the 24 analysts tracking the Tata Group company, 17 have a 'buy' rating on the stock, three have a 'hold' call, while another 4 suggest 'sell', according to Bloomberg data.