Trent, the retail arm of Tata Group, has been on a steady rise despite the market’s ups and downs. After releasing its June quarter results on August 8, the stock surged, gaining 19% over the next six sessions and reaching new record highs.
In the last trading session, Trent’s stock crossed the ₹6,700 mark, hitting a fresh all-time high of ₹6,750 per share, bringing it closer to the ₹7,000 milestone. So far in August, the stock has climbed 14.57%.
After the company announced its June quarter results, both domestic and international brokerage firms remained positive about Trent’s future. Many raised their target prices to new levels. Axis Securities increased its target to ₹7,000 per share, up from ₹4,800. Motilal Oswal also raised its target to ₹7,040 from ₹6,080, while Nuvama Institutional Equities predicted the stock could reach ₹7,136.
Trent: A Star in the Retail Sector
Nuvama Institutional Equities highlighted that Trent continues to shine as a top performer in the retail sector, with only Phoenix Mills standing out as another exception. The firm noted that investors who were worried about Trent’s high valuations missed out on the post-results rally.
Trent is expected to join the Nifty50 index in the upcoming index reshuffle in September 2024, likely replacing either Divi’s Labs or LTI-Mindtree.
Analysts at Axis Securities are optimistic about Trent’s future, pointing to strong sales growth as a key factor for the coming quarters. They credit this growth to the company’s aggressive store expansion plans and the continuous update of its product offerings, which are likely to attract more customers.
Additionally, improvements in Trent’s earnings across all its business formats, reduced losses in its grocery segment Star Bazaar, and growing momentum in its joint venture with Spain’s Inditex are seen as positive signs for the company’s future success.
Trent’s Star Portfolio Shines Bright
Trent’s fashion segment once again outperformed the market, achieving double-digit same-store sales growth (SSSG) and expanding its retail space by 35%. This led to a 57% year-over-year increase in standalone revenue, with sales per square foot rising 19%. As the company grew, operating leverage helped expand gross margins by 170 basis points, a notable achievement given the increasing share of the lower-margin Zudio brand.
Emerging categories like beauty and personal care, innerwear, and footwear continued to gain popularity, now making up 20% of Trent’s standalone revenue. The long-standing challenge of the Star Portfolio is now transforming into a rising star.
The Star Portfolio showed significant growth, with a 22% SSSG. It is now operating under a strategy that focuses on private labels, improving meat offerings, integrating Zudio, and emphasizing fresh products—all of which are starting to deliver results.
Trent’s management has met their expansion goals and is now planning to open 20-25 new stores in FY25, with even more planned for FY26.
Bullish on Star Portfolio
Given the store size requirements of 18-20k square feet for Star Market and Trent’s proven ability to adapt quickly, as seen with Zudio, Nuvama believes that the Star Portfolio deserves a much higher valuation. The brokerage suggests evaluating Star through the lens of both DMart and Zudio, considering profitability and scale.
With an impressive inventory turnover on COGS at 5.6x and SSSG exceeding 8-10%, even at its current scale, analysts continue to explore ways to justify the company’s high valuations, according to the brokerage.
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