Sharekhan has issued a BUY recommendation on Trent Ltd. with a revised price target of Rs 8,162, representing an upside potential from its current market price of Rs 6,498. Despite subdued consumer demand, Trent's Q2 FY25 results demonstrated strong growth, with revenues up by nearly 40% YoY, stable EBITDA margins at 15.9%, and a significant 46% YoY increase in profit after tax (PAT). Trent’s performance is backed by solid expansion across its fashion and grocery stores, international ventures, and innovation in its Zudio brand. Sharekhan remains optimistic on Trent’s long-term growth prospects, especially given its strong brand portfolio and expansion strategy in both physical and digital channels.

Impressive Financial Performance in Challenging Conditions

Revenue Growth: Trent's standalone revenue rose by 39.6% YoY to Rs 4,036 crore in Q2 FY25, reflecting strong growth despite the industry’s broader muted demand environment. This expansion was driven by double-digit like-for-like (LFL) sales growth in its core fashion segments, Westside and Zudio.
EBITDA Margin Stability: The company's EBITDA grew by 39% YoY, reaching Rs 641 crore, with margins remaining stable at 15.9%. This margin stability demonstrates Trent's resilience and operational efficiency amid varying demand levels.

Profitability Surge: PAT for the quarter was Rs 423 crore, up 46% YoY, aided by reduced interest costs and consistent demand in high-margin segments. This growth was largely aligned with market expectations, reinforcing confidence in Trent's financial strategy.

Strategic Expansion of Trent’s Retail Footprint

Domestic and International Expansion: Trent launched its first international Zudio store in the UAE, along with the new Zudio Beauty concept in India. In Q2 FY25, it expanded its store network significantly, adding seven new Westside stores and 34 Zudio stores, including one in Dubai. By the end of September, Trent had a portfolio of 831 fashion stores and 74 Star Bazaar outlets across India.
Boosting Omnichannel Presence: Trent has expanded its online presence through Westside.com and Tata Neu, contributing to over 5% of Westside’s revenue. This digital channel growth aligns with Trent’s goal of a strong omnichannel model that complements its physical store network.

Valuation and Investor Sentiment

Attractive Valuation Amid Correction: Following a 22% correction from recent highs, Trent now trades at 68x FY25E, 51x FY26E, and 42x FY27E EV/EBITDA ratios. Sharekhan views the current levels as a potential entry point for investors, given Trent’s brand equity and expansion momentum.
Shareholding Composition: Trent’s shareholding pattern as of the latest quarter includes a 37% stake held by promoters, with foreign institutional investors (FIIs) holding 28.9% and domestic institutional investors (DIIs) at 13.4%. This composition underscores institutional confidence in Trent's growth trajectory.

Future Outlook and Key Growth Drivers

Long-Term Growth Strategy: Sharekhan projects that Trent will continue to expand both its physical and digital retail formats, with a focus on omnichannel integration and category diversification. Emerging categories such as beauty, personal care, and value-driven fashion will be pivotal to Trent’s future growth, supported by the company’s aggressive store expansion plan.
Growth in Star Bazaar Segment: Trent’s grocery division, Star Bazaar, recorded a 27% YoY revenue increase in Q2, supported by strong private-label sales. The grocery segment is anticipated to further bolster overall revenue, contributing over 73% to Star’s total revenues.

Updated Financial Projections and Risks

Revised Price Target and Earnings Estimates: Sharekhan has slightly reduced earnings estimates for FY25 and FY26 by around 5% each to account for a conservative revenue outlook, setting a revised price target of Rs 8,162. This target reflects the potential growth across Trent’s diversified business segments and international expansion initiatives.
Key Risks: Trent faces near-term risks from potential slowdowns in discretionary spending, which could impact revenue growth and same-store sales. Additionally, increased competition from other branded and private-label players poses a challenge, as does the potential volatility in raw material costs impacting margins.

Conclusion and Investment Recommendation

Despite current market headwinds, Trent Ltd. has shown resilience with stable margins, robust store expansion, and diversified revenue streams across fashion, groceries, and online channels. Sharekhan’s revised target price of Rs 8,162 reflects confidence in Trent’s growth strategy, especially as it leverages its omnichannel approach and brand presence in the premium and value segments. Trent remains a compelling buy for investors with a long-term view.