 "Trent")
The stock of the country’s largest apparel retailer by market capitalisation, Trent, slid about 12 per cent to close at ₹5,448 per share on worries of a moderation in growth rates and expensive valuations.
The stock has underperformed the benchmarks over the past year on slowing growth rates and downgrades that have dented investor sentiment.
The near-term negative trigger is the lower-than-expected growth print for the June quarter.
In its pre-quarter update, the company reported Q1 standalone revenues at ₹5,061 crore which translates into a 20 per cent growth over the year-ago quarter.
Growth was also lower on a sequential basis. The company’s growth trend in the prior three quarters (Q2-Q4FY25) was 40 per cent, 37 per cent and 29 per cent, respectively.
Morgan Stanley Research termed the Q1 show as a big miss and believes that the retail environment continued to be challenging with headwinds from geopolitics, early rains and select sourcing issues. ALSO READ: Jane Street crackdown: MIIs, brokerage shares fall on volume concerns
Analysts led by Sheela Rathi, however, expect standalone operating profit margin to improve 100 basis points (bps) year-on-year (Y-o-Y) and 30 bps sequentially to 16.3 per cent.
While the brokerage has an overweight rating on the stock, the downside risks for the retailer include weaker revenue growth owing to high competitive intensity, higher-than-expected losses and investments in non-fashion business. The brokerage has a target of ₹6,359 a share.
The lower growth in Q1 prompted domestic brokerage firm Nuvama to downgrade the stock to 'hold'. It flagged concerns around a slowdown in its core fashion business and a mismatch between current growth trends and the stock's steep valuation.
Growth, according to analysts at the brokerage led by Rajiv Bharati, was underwhelming given the high expectations based on past track record of growth (35 per cent annual growth over FY20–25).
The current run rate even falls short on the management’s aspiration of 25 per cent growth for the next few years.
Underwhelming near-term growth prompts the downgrade to hold as the current valuation is too demanding, they point out.
Adjusting for the lower growth run rate, the brokerage has cut its FY26 and FY27 revenues by 5-6 per cent and operating profit by 9-12 per cent.
While the pick-up in Zudio Beauty and the Star business can become the next big growth levers, the businesses need to stabilise before scaling up, says the brokerage. It has cut its target price to ₹5,884 from ₹6,627. ALSO READ: Funding to fintech companies marginally dips to $889 million in H1CY25
The company has stuck to its growth and revenue targets set earlier. It seeks to scale its revenues by 10 times from the FY23 sales of just under ₹8,000 crore.
The company highlighted that it has already doubled revenues (FY25 sales at ₹17,134) and would hit its sales target in the near future. The company is maintaining its trend of aggressive store additions and would add 250 more outlets in FY26.
While HDFC Securities is positive on the company’s business model, it has concerns on the valuations front. Though Trent remains a stellar business, the ask from the business is too high from a valuation standpoint, it points out.
Jay Gandhi and Vedant Mulik of the brokerage believe that Westside seems to be showing signs of customer fatigue, while Zudio is peaking in terms of unit economics.
The brokerage has built in a lower-than-consensus revenue and profit before tax of 23 per cent over FY25-27. The analysts have maintained a sell rating with a sum of the parts target of ₹4,300 per share.
