In 2024, shares of the Tata Group company that operates fashion and lifestyle retail chains such as Westside and Zudio surged 132.9% while the benchmark Nifty gained only 9.1%. “It seems like the best for Trent, as far as stock price action is concerned, is behind us,” said Dharmesh Kant, head of research at Cholamandalam Securities. “A catch up in valuation and price action is expected along with normalisation of growth in the next three years.”
Trent shares tumbled 8.3% on Thursday after its third quarter results, but regained some of the losses on Friday, rising 3.1% to close at ₹5,440. So far this year, Trent has plunged over 23.3% while Nifty declined 0.34% in the same period.
Ahead of last week’s correction, Trent was trading at over 130 times price-to-earnings valuations, and it remains richly valued, Kant said.
Reliance Retail’s relaunch of Chinese fast-fashion retailer Shein in India is expected to increase competition for Trent.
Most brokerages, though, remain positive on Trent but have reduced their price targets. Jefferies retained a ‘hold’ rating on the stock but slashed price target to ₹5,800 from ₹5,900.”Despite some investor concerns, reported Ebitda margins were largely maintained, which came as a relief,” Jefferies’ analysts in a note. “The stock surprisingly corrected 8% post results-probably as the earning upgrade cycle seems to have paused and valuation is not cheap.”
AgenciesGoldman Sachs lowered its price target to ₹8,120, citing “slightly lower operating margins going forward.”
“This is because growth may be more space-led in the near term. We did not find anything materially adverse in Trent’s 3Q print or the earnings release to warrant the sharp stock price reaction,” its analysts said in a note.
Analysts at Bernstein said the results were a mixed bag and that the slide in the shares post results was an over-reaction. While revenue growth and margins are positive, same store sales growth (SSSG) was a key disappointment. The brokerage has an ‘outperform’ rating for Trent but reduced the target price to ₹6,900.
Some analysts said that in the last couple of months, Trent has witnessed profit booking due to slowdown in consumption and expensive valuations.
After the FY26 budget announcement, which is expected to trigger a consumption boost, Trent stock had jumped 7.5%. However, it tumbled 11% since Shein returned to India after five years with the launch of its shopping app on January 31. Some analysts said since Shein is expected to be an aggressive disruptor, it could eat into Trent’s market share.
“The competitive intensity from Reliance Retail’s Shein added to the correction in Trent, while another 10% downside cannot be ruled out,” Kant said. “A time wise correction seems imminent as earnings catch up with valuations.”
He expects Trent’s quarterly profit growth to contract further from Q3 run rate of 34%. Hemang Jani, director at investment advisory Finazenn, however, said the decline in Trent stock is primarily due to the valuations and not because of Shein’s relaunch. “Shein is not expected to pose a significant challenge to Trent as the models are online and offline, respectively, with Trent being able to play the game better, given its inventory management and store expansion,” he said
Jani said Trent’s Q2 and Q3 earnings were lower than estimates but remained strong on a standalone basis, and potential in the stock remains as sufficient levers exist to drive and sustain growth in the next couple of years.
“Investors can continue to hold the stock and add on declines as earnings remain intact despite high valuations,” he said. Independent analyst Ambareesh Baliga attributed the strong growth in Trent to aggressive addition of Zudio outlets in the past few quarters.
“Now the fresh store additions would slow down along with consolidation of some of the existing stores, leading to lower-than-expected growth in the next few quarters,” he said.
At current valuations, expectations from Trent are very high; hence, a slight misstep could lead to a major correction, Baliga said. “Given the current valuations, the growth potential is already priced in and there could be further downgrades in Q4 after the reduction in price targets this quarter,” he said. “The stock could see a downside of around 20% from current levels.”
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