Where Will Trent Stock be in 3 Years?

Indian retail industry ranks 4^th globally and accounts for more than 10% of India's gross domestic product (GDP).

Rising disposable incomes, rapid urbanisation, technological advancements, increased brand awareness, and improved shopping experience have been significant growth drivers.

The rapid growth has placed the sector on the cusp of a major transformation, with a projected 50% increase in retail space by the end of 2028.

According to a report by JLL, India's retail sector could witness the overall retailing space grow to 134 m sq. ft. by the end of 2028 from 89 m sq. ft. in 2024.

Close to 88 new retail developments with a cumulative area of around 45 m sq. ft. are expected to come on stream in the seven cities - Mumbai, Delhi-NCR, Bengaluru, Hyderabad, Pune, Kolkata, and Chennai - over the next 5 years.

With the sharp shift in the consumer lifestyle, tier 2 & 3 cities are now in focus for retailing spaces. This trend is fuelled by the rising demand for big brands thanks to their reach on social media.

This retail boom clearly highlights India's emergence as a key player in the global retail market. In this massive boom, one company stands out: Trent ltd.

In this editorial, we will look at how the company is shaping up for future growth.

An Overview of the Company

Originally incorporated as Lakme Limited in 1952, Trent evolved into a leading force in India's retail industry. Initially focused on cosmetics, toiletries, and perfumery products, Lakme divested from the cosmetics business in 1998 to focus on apparel retailing.

This strategic shift marked the beginning of Trent's journey in fashion and lifestyle retail.

Part of the Tata group, Trent is now engaged in the businesses of retailing food, grocery, non-food, apparel, footwear, accessories, toys, and games through format and concept stores.

The company focuses on trendy and affordable fashion through its stores and online channels. The company operates over 875 stores across 170 cities for various brands such as Westside, Zudio, Utsa, MISBU, Samoh, and Star bazaar.

• Westside offers branded fashion, footwear and accessories for men, women, and children, alongside home furnishings and decor.
• Zudio is a value-driven fashion concept providing stylish and affordable fashion for all ages.
• MISBU, focuses on beauty, fashion and accessories for women.
• Utsa is a women's lifestyle brand offering a wide array of apparel and accessories.
• Samoh provides premium occasion wear, blending traditional Indian and modern designs.
• Star Bazaar is a retailer for fresh food, groceries, and daily essentials.
• Trent also runs Landmark book-stores as well as stores of the Spanish brand Zara.

Its total retail business area is around 11 million square feet. Apart from a strong retail presence, the company also has a growing online presence to cater to online customers.

A Look at the Financials

The company's financial performance has been excellent over the years. The last financial year is a case in point.

In FY24, the company's revenue increased 51.1% on a year-on-year (YoY) basis. The net profit for the year grew 275.3% YoY. This the kind of growth the market has come to expect from Trent.

The cash flows were strong and debt levels are low with a debt to equity of 0.1 at the end of FY24.

The return on equity (ROE) improved to 36.3% in FY24, from 15.2% in FY23. The return on capital employed (ROCE) improved to 50.1% in FY24, from 31.1% in FY23.

The growth momentum continued in the first quarter of FY25. The company's revenue rose to Rs 41 bn, up 56% YoY.

Trent's earnings before interest, tax, depreciation, and amortization (EBITDA) stood at Rs 6.1 bn, with the EBITDA margin improving to 14.9% from 13.9% in the previous year.

Trent reported a consolidated net profit of Rs 4 bn for Q1FY25, a 126% YoY increase. The net profit margin stood at 9.5% versus 6.3%, in Q1FY24.

Earlier this week, Trent reported its Q2 FY25 results. Although the company showed growth across metrics, the results fell slightly short of elevated market expectations.

Revenue increased 39% YoY to Rs 41.6 bn, compared to Rs 29.8 bn in the same period last year. Trent's net profit reached Rs 3.4 bn, a 47% YoY growth.

Trent's management noted that the retail business faced challenges due to subdued consumer sentiment and seasonality effects, which limited sales growth.

Conclusion

Trent is a fundamentally strong company. Almost all its growth has come without putting any pressure on the balance sheet.

The company has had negligible debt for many years. The company has grown almost entirely through internal accruals i.e. through internal cash generation.

It also has a solid competitive advantage as the bulk of its revenue comes from its own private labels. These private label brands not only ensure high profit margins, but they also provide better control over the supply chain. This leads to massive savings on working capital.

The company's own branded products, which include staples and fresh merchandise, now contribute over 70% of total revenues, reflecting Trent's strategic emphasis on growing its in-house product lines.

Looking ahead, Trent is not resting on the fact that it's the top company in India that's riding the retain megatrend at the moment. The management has clearly laid out growth plans.

The company's strategy includes a strong push for an integrated approach, blending its physical store expansion with a growing online presence. Apart from its strategy of continuing its steady investments in tier 2 and 3 cities, the company is also focused on e-commerce.

Trent's future strategy is focused on sustained growth and expanding its market reach. The company plans to consistently add 30 to 40 new stores annually, each carefully chosen based on market potential and location.

Despite facing weak consumer sentiment and struggling market conditions, Trent has shown impressive year-on-year improvements in revenue and margins. It's strong performance in tier 2 and tier 3 cities shows that its appeal is growing beyond just major urban areas.

The future looks promising, with expansion plans and a balanced retail strategy, but it will be crucial for the company to continue executing its vision to support its growth trajectory.

However, the company's elevated valuation means that market expectations are high, which can lead to short-term volatility in the stock price. In fact, Trent is one of the top 5 overvalued companies in India at present.

Trent will need to ensure that it delivers consistent results to meet market expectations while managing its high valuation.

For more details, see the Trent company fact sheet and quarterly results.

For a sector overview, read our retailing sector report.

You can also compare Trent with its peers.

Trent vs Aditya Birla Fashion & Retail

Trent vs Avenue Supermarts

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