Trent shares hit over six-month low; slip 16% in 1 week post Q3 results

Trent is trading at its lowest level since July 23, 2024, having erased its entire 16 per cent gain recorded in four trading days between January 28 and February 1

Trent share price: Shares of Trent hit an over six-month low of Rs 5,173.20, falling 5 per cent on the BSE in Monday’s intra-day trade, and extending its fall in the past week, after the company reported in-line earnings for the quarter ended December 2024 (Q3FY25). In one week, the stock has tanked 16 per cent. In comparison, the BSE Sensex was trading 0.9 per cent lower at 77,189 at 01:16 PM.   

 

Trent is trading at its lowest level since July 23, 2024, when it had hit a low of Rs 4,955.05 on the BSE. It has erased its entire 16 per cent gain recorded in four trading days from January 28 to Budget day, i.e. February 1.

 

 

Trent is a part of the Tata Group and operates a portfolio of retail concepts. The primary customer propositions of Trent include Westside, one of India's leading chains of fashion retail stores; Zudio, a one stop destination for great fashion at great value; and Star, which operates in the competitive food, grocery and daily needs segment.

 

During Q3FY25, Trent clocked a 45.6 per cent rise in consolidated net profit at Rs 496.54 crore, compared to Rs 341.0 crore reported during the same period last year. Its consolidated revenue from operations surged 34.3 per cent year-on-year (Y-o-Y) to Rs 4,656.6 crore from Rs 3,466.6 crore. The company's earnings before interest, tax, depreciation, and amortisation (Ebitda) improved 34.4 per cent YoY to Rs 838 crore; while, margins remained flat at 18.1 per cent.

 

Although growth has decelerated, Trent’s revenue performance remains impressive, given the challenging environment. Furthermore, the sharp decline in its stock price (~38 per cent from its recent high) following market concerns over increasing competitive intensity provides a better entry point for long-term investors. 

 

Trent’s standalone gross margin improved 51 bps quarter-on-quarter (Q-o-Q), down 124 bps Y-o-Y, owing to a high base. Standalone Ebitda margin was at 18.5 per cent (+260bps Q-o-Q), led by optimised occupancy cost (8.6 per cent in Q3; and around 10 per cent in Q2), and employee cost. Optimisation in occupancy cost is likely led by rationalisation and consolidation of store network, which shall aid margin, according to analysts at Elara Capital.

 

Q3 was in-line and healthy, given median sales growth of 29.8 per cent Y-o-Y for peers (VMart, V2Retail, Style Baazar, Vishal Megamart). The brokerage firm expects Zudio’s salience (low gross margin) to improve and expects standalone Ebitda margin in a narrow band of 16.0-16.5 per cent in FY24-28E. Higher inventory turns and improved gross margin are key levers for Ebitda margin.

 

Key risks are to be any moderation in store additions (primarily in Zudio and Westside), led by overall economic slowdown or changes in strategy. Further, increased competition from emerging fast fashion players from leading business houses, and a failure to identify emerging fashion trends may divert Trent from the growth track, and poor traction in newly-launched businesses – Zudio Beauty/Pome – may consume significant cash flow, the brokerage firm said.

 

The long-term structural tailwinds in the retail sector and Trent’s low single-digit market share present a compelling opportunity for investors looking to capitalise on the retail growth story. Analysts at Axis Securities remain positive on Trent as the brokerage firm expects robust sales growth to continue ahead of its peers, underpinned by its strategic focus on rapid store expansion and continual assortment refreshment, which should drive higher footfall. Furthermore, earnings improvement across all formats reinforces confidence.

 

Trent continues to deliver robust performance, with a high-single-digit like-for-like (LFL) growth and robust store area additions, despite weak discretionary demand. The company’s industry-leading growth, driven by healthy Same-Store Sales Growth (SSSG), store productivity, and robust footprint additions, along with the scale-up of Zudio and newer categories (Beauty and Lab-grown diamonds), offers a huge runway for growth over the next few years, according to Motilal Oswal Financial Services.

 

Further, Trent’s focus on ramping up Star (currently 74 stores in 10 cities) through Fresh and its own brands provides an additional growth driver in the grocery segment, the brokerage firm noted.