Trent shares up over 61% this year; should you consider buying the stock?
Trent, the retail arm of Tata Group, has seen its stock perform exceptionally well on Dalal Street this year, rewarding its shareholders with a return of 61.7%, appreciating from ₹1,358 apiece to ₹2,196 apiece.
Impressively, the stock has consistently delivered positive returns every year since 2014. Among these, 2017 marked the highest return at 68.24%, closely followed by 2021 with a 55% gain.
Looking at the performance in the current year, Trent’s stock showed strength in 7 out of the last 10 months. The standout months were August, which saw a robust 16.60% gain, and May and June, with returns of 14.09% and 13.05%, respectively.
This year (CY23), the company’s market capitalisation has zoomed by ₹29,791 crore, reaching ₹78,067 crore. When considering the stock’s peak price of ₹2,210, its market capitalisation touched ₹78,565 crore.
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Trent 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 Trent Hypermarket, which operates in the competitive food, grocery, and daily needs segment under the Star banner.
For the June quarter, the company posted a healthy performance, with the net profit growing by 45% YoY and 271% QoQ to ₹167 crore. During the quarter, Trent’s fashion concepts (Westside, Zudio, and other lifestyle stores) registered encouraging LFL growth of over 12% YoY.
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Domestic brokerage firm HDFC Securities highlighted Trent’s ongoing commitment to enhancing its value proposition, which is reflected in its financial performance. The company continues to pass on the benefits of sourcing margins to consumers while effectively reducing retailing costs.
“That said, the stock’s price suggests investors seem to have suspended disbelief regarding the sustenance of KPIs/earnings power because Zudio’s sales density seems stretched at ₹18,000/sq. ft. (our proprietary store map suggests expansion beyond two years is likely to come at lower sales density, ergo, lower unit economics), and 58% of FY22 and FY23 PAT came from Inditex dividends and mark-ups on fixed assets sold to franchisees; these seem unlikely to sustain over the medium-to-long term (at least the quantum),” said the brokerage in its October report.
The brokerage firm has projected a revenue and PBT CAGR of 27% and 12%, respectively. Its target price, based on a sum-of-the-parts (SOTP) analysis, is set at ₹1,370 apiece, indicating a substantial downside of 37.61% for the stock. It continued with its ‘sell’ rating on the stock.
Disclaimer: The views and recommendations given in this article are those of individual analysts. These do not represent the views of Mint. We advise investors to check with certified experts before taking any investment decisions.
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Updated: 03 Nov 2023, 05:19 PM IST
