Trent stock rises 19% in 6 sessions post Q1 earnings; will ₹7,000 be the next stop?

Despite market volatility, shares of Trent, the retail arm of Tata Group, have been on a consistent upward trend. This momentum accelerated after the company released its June quarter results on August 8, driving the stock to reach new all-time highs over the following six sessions, culminating in a 19% gain.

In the previous trading session, the stock surpassed the ₹6,700 mark, hitting a fresh record high of ₹6,750 per share, edging closer to the ₹7,000 milestone. This rally has also resulted in a 14.57% gain for the stock in August so far.

Following the company's June quarter results, both domestic and global brokerage firms maintained their positive outlook on Trent, raising their target prices to new highs. Axis Securities increased its target price to ₹7,000 per share, up from a previous target of ₹4,800.

Similarly, Motilal Oswal raised its target price on Tata Group stock to ₹7,040 per share, up from ₹6,080. Nuvama Institutional Equities is even more optimistic, forecasting the stock to reach ₹7,136.

Shining star in the retail sector

Brokerage firm Nuvama Institutional Equities emphasized that Trent continues to stand out as the sole shining star in the retail sector, with Phoenix Mills being the only other notable exception. The firm highlighted that investors who have been concerned about the stock's high valuations have missed out on the significant post-results rally.

Trent is set to join the Nifty50 index in the upcoming index rebalance in September 2024, likely replacing Divi’s Labs or LTI-Mindtree.

Analysts at Axis Securities remain optimistic about Trent's future, citing strong sales growth as a key driver for the coming quarters. They attribute this potential growth to the company’s aggressive store expansion strategy and ongoing renewal of product assortments, which are expected to boost overall footfall.

Moreover, improvements in Trent’s earnings across all formats, the reduction of losses in its grocery segment, Star Bazaar, and increased momentum in its joint venture with Spain's Inditex are seen as positive indicators for the company's continued success.

Star Portfolio: Trent's new rising star

Trent’s fashion portfolio once again outperformed the industry, achieving double-digit same-store sales growth (SSSG) and expanding its retail area by 35%. This impressive performance boosted standalone revenue by 57% year-over-year, with estimated sales per square foot rising 19% YoY. As the company scaled, operating leverage came into play, leading to a 170 basis point expansion in gross margins—an impressive feat given the increasing contribution from the lower-margin Zudio portfolio.

Emerging categories such as beauty and personal care (BPC), innerwear, and footwear continued to gain traction, contributing 20% to Trent's standalone revenue. Notably, the long-standing challenge of the Star Portfolio is now turning into a rising star.

The Star Portfolio showed significant growth potential, delivering a 22% SSSG. It is now operating under a four-pronged strategy: focusing on private labels, enhancing meat offerings, integrating Zudio, and emphasizing fresh products—all of which are beginning to show promising results.

The management has successfully met their expansion guidance and is now setting even more ambitious goals, planning 20–25 new store openings in FY25 and even more in FY26.

Bullish bet on Star

Given the store size requirement of 18–20k square feet for Star Market and Trent’s proven ability to adapt quickly, as demonstrated with Zudio, Nuvama believes that Star warrants a much higher valuation multiple. The brokerage suggests that the Star portfolio should be evaluated through the lens of both DMart and Zudio, considering profitability and scale.

With an impressive inventory turnover on COGS at 5.6x and same-store sales growth (SSSG) surpassing the 8–10% range, even at its current size and scale of operations, analysts are continuously challenged to find innovative ways to justify the company's valuations, the brokerage added.

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.