Trent, the retail arm of Tata Group has yielded remarkable returns to its shareholders. The company's shares, which were valued at ₹98 each ten years ago, have experienced an extraordinary surge of 1,824% to trade at the current level of ₹1885.75.
What's even more impressive is that the stock has shown remarkable consistency, concluding eight out of the last nine years in positive territory, delivering steady returns to its investors. In the current year, the stock has continued its upward trajectory, appreciating by almost 40% thus far.
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.
As of June 30, 2023, Trent's portfolio included 221 Westside, 388 Zudio, and 23 stores across other lifestyle concepts. Westside stores have a footprint of predominantly between 18,000-34,000 sq. ft. across 90 cities, while Zudio has a footprint of around 7,000-10,000 sq. ft.
On August 9, the company reported a consolidated net profit of ₹167 crore as against a net profit of ₹115 crore posted in the same quarter of FY23, reflecting a YoY growth of 45%. On a sequential basis, the net profit improved by 271%.
The consolidated revenue from operations during the quarter was ₹2,808, a growth of 46% YoY, led by increased footfalls, strong growth across categories and channels, and continued store expansion.
In Q1FY24, Trent's fashion concepts (Westside, Zudio, and other lifestyle stores) registered encouraging LFL growth of over 12% YoY. During the quarter, Trent added 7 Westside and 40 Zudio stores across 35 cities.
Across emerging categories, including beauty and personal care, innerwear and footwear are continuing to gain traction with customers. Emerging categories now contribute to over 19% of the company's standalone revenues.
Star recorded strong quarterly sales growth of 33% in the quarter, led by LFL and volume growth. Over the past years, Star has been the laggard in the Trent’s pack. It continued to incur losses.
However, with tight footprint stores, sharp pricing, and a focus on fresh and own brand offerings, Star is witnessing improved customer traction and growing sales, said Centrum Broking.
Going forward, brokerage firm Axis Securities expects Trent's strong sales growth to continue in the coming quarters driven by its focus on rapid store expansion and continued assortment renewal, resulting in higher overall footfall.
In addition, the improvement in the earnings profile across all formats, the reduction in losses at Star Bazaar, and the improvement in traction at Inditex JV (Zara, Massimo Dutti) are also positive signs for the company, it added.
In recent years, the company has followed the small-format store model in Star Food. This, combined with sharp pricing and a focus on fresh produce and private label, has led to positive results. This model, according to brokerage, is resilient and demonstrates strong commercial viability.
The brokerage remains positive on the Trent and estimate a revenue and EBITDA CAGR of 45%/43% on standalone business over FY22–25E. It maintained a 'buy' rating on the stock with a target price of ₹2,000 apiece.
Similarly, Centrum Broking also continued with its bullish outlook on the stock with a 'buy' rating and a target price of ₹2,123 apiece. The brokerage valued Zara at 33x EV/EBITDA and Star at 1.5x sales while upwardly revising its target multiple for standalone operations (Westside and Zudio) to 35x EV/EBITDA from earlier 33x of FY25E EPS.
Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of MintGenie.