Trent rallies 7% to hit a new high in a tepid market on strong Q1 results

Brokerages estimate that Trent's robust performance during challenging times and industry leading performance will continue to warrant premium valuations

Shares of Trent rallied 7 per cent to hit a new high of Rs 1,912.1 per share in Thursday’s intra-day trade, after the company reported 45 per cent year-on-year (YoY) rise in consolidated net profit to Rs 166.67 crore for the June quarter (Q1FY24).

The Tata-group retail firm reported a staggering 53 per cent YoY revenue growth at Rs 2,628 crore. Earnings before interest, taxes, depreciation, and amortization (Ebitda) margins, however, contracted 398 bps YoY to 14.4 per cent. However, on an absolute basis, Ebitda grew 20 per cent YoY to Rs 365.6 crore.

The company’s healthy revenue growth on a very strong base and in a relatively subdued market conditions is a testimony to Trent’s robust business model and ability to gain market share, said analysts at ICICI Securities.

"The company continued to aggressively add Zudio stores with addition of 40 new outlets (388 stores) in Q1FY24. Owing to increase in share of Zudio format, the Ebitda margin profile has deteriorated for the company," the brokerage firm added.

The robust performance during challenging times and industry leading performance will continue to warrant premium valuations to Trent. Over the last six years (FY17-23), Trent delivered industry leading sales growth of ~30 per cent versus industry average of 12 per cent.

Since zudio contributes 40 per cent to standalone revenues (from merely 16 per cent in FY20), analysts expect Trent to continue its accelerated store additions with opening of over 200 stores in FY24, taking total count over 550 stores (added 117 stores in FY23).

While the discretionary category is seeing a challenging demand environment, with peers seeing a decline in same store sales, analysts at Motilal Oswal Financial Services said that Trent has been a standout with record 12 per cent like-for-like sales (LFL) growth.

"Further, despite adding stores aggressively, the company has observed limited balance sheet risk or weakness in operations. Trent’s industry-leading revenue growth is mainly driven by strong same-store-sales growth (SSSG) and productivity, strong footprint additions, and Zudio’s strong value proposition. It continues to outperform its peers and offers a huge runway for growth over the next three to five years," the brokerage firm added.