Trent Limited (Trent), part of the Tata Group and headquartered in Mumbai, India, operates a portfolio of retail concepts including Westside, Zudio, and Star. Westside, the company’s flagship concept, offers apparel, footwear, accessories, furnishings and home decor items for customers. Westside caters to online consumers through Westside.com and Tata Neu platform. Positioned as a value brand, Zudio offers apparels and footwear for men, women and children. Through the Star brand, Trent is looking to capture market share in the competitive food, grocery and daily needs segment. Trent also operates - Utsa, a modern Indian woman’s lifestyle destination format; Misbu, which houses a curated range of beauty and fashion accessories for Gen Z and millennials; and Samoh, providing luxurious occasion and ethnic wear for men and women.

Positive macro cues to provide further impetus to growth

India’s growing private consumption is supported by a robust economy, which is expected to become the third largest in the world by 2027, with GDP surpassing USD5tn. This should benefit consumer-driven sectors like retail. The prospects of the organized retail sector are further bolstered by the increasing urbanization, with 43% of India’s population expected to live in urban areas by 2035 from 36% in 2024. This trend is expected to boost the consumption of fashion and lifestyle products, supported by much higher monthly per-capita consumption in urban regions, which stood at INR6,459 in 2023, compared to INR3,773 in rural areas.

India’s apparel market, a key component of the retail industry, is pegged at INR6.5tn in 2024. In recent years, the segment has been driven by private brands, considered an important play for retail and e-commerce players. Increasing consumer appetite for fashion and lifestyle products has also contributed to the segment’s rise. All these positive aspects have propelled the Indian apparel & textile industry to contribute approximately 2.3 % to the country’s GDP.            

Rapid store expansion driven by aggressive additions in Zudio

The management believes that a favorable economic outlook and India’s resilient macro scenario paint an attractive picture for sectors associated with building brands and catering directly to consumers. Accordingly, the company is focused on expanding its presence and increasing its store count. The total fashion store count stood at 831 as on 2QFY25, with Westside growing steadily to reach 226 (added 7 stores and closed 9 in 2QFY25), up from 166 in 2QFY21. Zudio, on the other hand, demonstrated robust compound annual growth rate (CAGR) of 60% to reach 577 stores (added 34 stores and consolidated 16 in 2QFY25) over 2QFY21-2QFY25. Store expansion is fueled by Trent’s strategy to deepen its presence and reach a higher consumer base. In this regard, the company has recently launched its first international Zudio store in the UAE and the Zudio Beauty concept store in India. The total count of food and grocery brand Star stood at 74 stores, with a presence in 10 cities.

Revenue performance supported by double-digit LFL growth          

The company has delivered consistent performance over the years, registering consolidated revenue CAGR of 36% over FY19-24 to reach INR12,400cr. The positive top-line performance translated to a gradual increase in sales per square feet over the same period, reflecting CAGR of 8% to reach INR15,776 in FY24. During the same period, EBIT margin increased over 300 basis points (bps) to 10.1% in FY24.

Recently in 2QFY25, Trent registered 39% year-on-year (YoY) growth in consolidated revenues to INR4,394cr. This makes the eight straight quarters in which the company has exceeded consensus expectation. The encouraging results were supported by new store openings during the quarter, including 7 Westside and 34 Zudio stores across 27 cities, including 1 in Dubai. Trent experienced a double-digit like-for-like (LFL) growth for both concepts. Additionally, the Star business also contributed to the overall growth with increased customer traction, registering an operating revenue growth of 27% YoY, including 14% LFL growth. The overall operating margin improved by 100 bps YoY to 10.8%. As a result, Trent’s profit before tax increased by 49% YoY to INR467cr.    

Recent price correction may provide comfort to stretched valuations       

The positive fundamentals, coupled with backing of brokerages and analysts had propelled the share price to record highs of INR8,345 in October 2024. However, the stock has since corrected by around 20% following its recent highs, providing some comfort to already stretched valuations. Trent is currently trading at a P/E ratio of 136x (based on FY25 consensus estimated EPS of INR50), as compared to its 8-year historical average of 151.4x but trading significantly higher than the global peer average of 64.7x. Most of the 21 analysts covering the stock have given a “Buy” rating, with an average target price of INR6,873, indicate limited upside potential from the current market price.

Overall, the company presents an attractive case for investment owing to its robust fundamentals, positive outlook for Zudio and strong foothold in the food and grocery industry. However, the valuation seems to be a little stretched at present, owing to recent bull run over the past one year. In addition, any slowdown in consumer appetite for discretionary products owing to inflationary pressures or economic stress might act as an overhang for the stock’s performance.