Trent: Should you buy the stock after Q2 results? Here’s what brokerages say

During market hours on Tuesday, the company released its Q2FY24 scorecard, reporting a robust performance across all its key formats. It reported a standalone revenue growth of 59.37% YoY at ₹2,891 crore, driven by aggressive store additions in Zudio and 10% LFL growth in fashion concepts (Westside, Zudio, and other lifestyle stores).

The company opened 6 Westside and 27 Zudio stores and closed four stores each in 2QFY24, taking the total store count to 222 and 411.

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Trent Hypermarket, which operates in the competitive food, grocery, and daily needs segment under the Star banner, registered operating revenue growth of 30% in Q2FY24 as compared to the corresponding previous period.

Emerging categories such as beauty and personal care, innerwear, and footwear contributed to over 19% of standalone revenue in Q2FY24. Trent’s bottomline reflected strong performance, with a standalone net profit of ₹290 crore in Q2FY24, signifying a remarkable 56% YoY increase.

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Following the Q2 results, domestic brokerage firms maintained their ‘buy’ recommendations for the stock, with many of them revising their target prices upwards.

Centrum Broking: ‘Buy’

Centrum Broking maintained its bullish stance on Trent, retaining its ‘buy’ recommendation, and revised its target price higher to ₹2,657 apiece.

The brokerage stated that Westside and Zudio will continue to be the key drivers for Trent’s growth trajectory over the medium term. Fashion concepts’ LFL growth stood at 10% in 2Q and 11% for 1HFY24. Across the concepts, emerging categories including beauty and personal care, innerwear, and footwear witnessed traction from customers, it said.

Systematix Institutional Equities: ‘Buy’

The brokerage reiterated its ‘buy’ rating on the stock, with a SoTP-based target price of ₹2,750, up from the previous target price of ₹2,005 earlier, valuing the standalone business at 40x (35x earlier) FY25E EV/EBITDA and other businesses on EV/sales basis.

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“The multiple increase reflects our belief that the sharp outperformance on growth and now margins as well will see an increase in valuation premium to peers. Disruptions from intensifying competition or slowdowns in store additions are key risks,” said the brokerage. 

Motilal Oswal: ‘Buy’

“Trents’s strong performance with 10% LFL growth and robust footprint additions remains an outlier within our retail coverage universe that is witnessing a challenging demand environment. Unlike peers, which passed on the sharp RM price hikes to customers last fiscal, TRENT absorbed the impact, seeing strong customer reception, and is now reaping the benefits as RM price turns benign,” said Motilal Oswal.

Further, despite adding stores aggressively, the company has observed limited balance sheet risk or weakness in operations.

The brokerage highlighted the company’s impressive revenue growth to several factors, including strong same-store sales Growth (SSSG) and productivity, robust footprint additions, and a healthy scale-up opportunity within Zudio, which offers a huge runway for growth over the next 3–5 years.

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Motilal assigned 32x EV/EBITDA to the standalone business (Westside and Zudio (premium over its retail universe, given their superlative growth), 2x EV/sales to Star Bazaar, and 15x EV/EBITDA to Zara, and arrived at a target price of ₹2,750 apiece, maintaining a ‘buy’ rating.

Antique Stock Broking: ‘Hold’

Trent delivered a resilient performance during the quarter despite the challenging macro environment. The steep increase in staff costs and other expenses witnessed in the past few quarters (due to rapid Zudio expansion) have started to iron out with the increased sales velocity, leading to an expansion in EBITDA margin, said the brokerage. 

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The brokerage remains optimistic about Trent’s future growth potential. Factoring in the company’s solid performance, the brokerage lifted its FY24/25 EBITDA estimate by 16% and 17%, respectively.

“We introduce and roll forward our estimates to 1HFY26, with a revised target price of ₹2,529 apiece (SoTP-based valuation). We maintain a hold recommendation on the stock,” said the brokerage.

Kotak Institutional Equities: ‘Add’

The brokerage maintained its ‘Add’ rating on the stock and lifted its target price to ₹2,700 apiece from an earlier price target of ₹1,900. It raised the FY2024–26E revenue by 7–11% owing to Trent’s strong performance in 2Q and lifted the FY2024–26E EBITDA by 31-41%, largely due to operating leverage.

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: 08 Nov 2023, 04:57 PM IST