TRENT: Growth Intact, Valuation Still High

$TRENT Trent’s correction has changed the investment debate, but not necessarily its long-term story. The stock has fallen 45% from its late-2024 peak of Rs 5,500 and was down 18% over the past year. The fall reduced its PE from nearly 150 to about 87.50. With expected FY27 profit growth of 25%-30%, the forward PE is below 70. That is more reasonable, although it remains expensive. The latest quarter showed strong execution. Consolidated revenue rose 17.84% year-on-year to Rs 5,755 crore. Operating EBITDA increased 33% to Rs 848 crore, while operating EBIT climbed 29% to Rs 732 crore. Profit after tax grew 22% to Rs 532 crore, and the PAT margin improved to 9.24% from 8.8% a year earlier. Compared with Q1 FY23, PAT has multiplied nearly five times and the margin has expanded from 6.2%, a 304-basis-point improvement over four years. EBITDA growing faster than revenue indicates operating leverage and pricing power. Zudio remains Trent’s key growth engine. Its store count reached 982, up 216 year-on-year, compared with 243 in Q1 FY23. The brand is expanding across Tier-2 and Tier-3 cities, where organised fashion retail is underpenetrated. Including 301 Westside stores, Trent has more than 1,200 outlets. At the current pace, Zudio could approach 2,000 outlets by 2030, creating a network rivals may find difficult to replicate. Trent operates 20 Zara stores in India, while Zara has nearly 1,500 globally; Zudio’s 8,000-10,000 sq ft format supports faster rollout. For shareholders, the footprint, brand strength and possible margin improvement are positives. Better store density and supply-chain gains could help Trent move closer to Zara’s nearly 20% operating margin; its current EBIT margin is 12.72%. Yet risks remain. Growth is moderating on a larger base and competition may intensify.