Why Trent Share Price is Falling

Welcome to today's edition of Stocks made Easy.

Regular readers of this column turn to us for ideas and investment insights.

In case you missed it:

• 5 Travel Stocks Down up to 50% from 52-Week Highs
• Pros and Cons of Investing in RITES
• Top 5 Consistent Compounding Stocks in India

In today's issue, we're going to break-down how a high-flying growth stock like Trent got a reality check.

Less than a month ago, we published a report titled '5 Stocks Where Earnings Growth May Slow Down' and the first stock on our list was Trent.

Our rationale was simple - given the backdrop of high interest rates, slowing economic growth and high inflation, the Tata group company might not be able to sustain the growth momentum as discretionary spending by households takes a hit.

The company's latest quarterly earnings highlighted exactly that...

Trent posted its earnings on 6 February 2025 and the stock price took a sharp hit, falling as much as 9%.

In fact, Trent share price is down 23% in the past 1 month.

Let's deep dive into the Tata group company's earnings and understand why the stock price is falling...

Earnings Fail to Meet Estimates

During the third quarter of FY25, Trent's margins remained flat, while revenue and profit growth were a bit lower than what Dalal Street experts were anticipating.

During the said quarter, Trent clocked a 33.9% rise in its consolidated net profit at Rs 5 bn, compared to Rs 3.7 bn a year ago.

The Tata group company's revenue surged 34% year-on-year (YoY) to Rs 46.6 bn.

Both, topline and bottomline missed street estimates.

Now, a company's stock being hammered despite a 34% growth in profits is certainly surprising.

A growth of this magnitude can send the stock price of most companies soaring. But not Trent though. The stock trades at a very high PE ratio.

Thus, investors have very high growth expectations from the stock. Looks like even a growth of 34% is not enough to whet their appetite and which is why the stock price has come under fire.

Coming back to its earnings...

Trent's total expenses rose 32% during the quarter as it continued to open newer stores at a faster pace. During the quarter, it opened 14 Westside and 62 Zudio stores (including 1 in Dubai) across 46 cities.

At the end of December 2024, Westside's total store count stood at 238 and Zudio's stood at 635.

While declaring its results, Trent also announced plans to pursue store portfolio optimisation, which would involve upgrading or consolidating smaller footprint stores with newer stores in more attractive micro markets.

What Next?

Trent is expanding rapidly, particularly in its value fashion segment through Zudio, and has launched new initiatives like the lab-grown diamond brand, Pome.

Currently, the company's future growth hinges on its expansion plans, with new stores being added in both fashion and grocery sectors.

In a changing macroeconomic landscape, interest rate cuts could provide a boost to consumer spending, benefiting retail businesses like Trent. Lower interest rates tend to increase disposable income and improve consumer sentiment, encouraging higher footfall in stores.

Coming to its financial performance, the company has delivered a sales CAGR of 36% over the last 5 years period and a net profit CAGR of 57% for the same period.

The 3-year average return on equity (ROE) is 15%.

Financial Snapshot

Rs m, consolidated	FY20	FY21	FY22	FY23	FY24
Net Sales	34,860	25,930	44,980	82,420	1,23,751
Growth (%)	-	-26%	73%	83%	50%
Operating Profit	7,060	3,856	7,692	13,743	22,600
OPM (%)	20%	15%	17%	17%	18%
Net Profit	1,229	-1,462	1,058	4,446	14,868
Net Margin (%)	4%	-6%	2%	5%	12%
ROE (%)	5.3	-7.7	1.5	15.9	44.4
ROCE (%)	17.7	2.1	15.9	32.3	59.8
Dividend (Rs)	1	0.6	1.7	2.2	3.2
Debt to Equity (x)	0.1	0.1	0.2	0.2	0.1

Source: Equitymaster

Looking ahead, Trent's outlook is positive, with Zudio expected to maintain its market leadership in the fast-fashion space through its private label strategy, differentiated fashion, and reasonable pricing, with substantial growth in store numbers and sales.

Westside is expected to contribute steadily to revenue with consistent store additions.

Trent is expanding its portfolio with emerging brands like Misbu, Samoh and Utsa.

It is focused on organic growth, while also strategically expanding its presence through Star Bazaar and partnerships with Zara and Massimo Dutti.

Nevertheless, the company's growth is not without potential risks. It faces increasing competition in the fast-fashion and value segments and must maintain its edge through its product offerings and pricing.

Investors should conduct their own due diligence, considering factors such as valuation, industry trends, corporate governance, and market risks before making investment decisions.

How Trent Share Price has Performed Recently

In the past 5 days, Trent share price is down 8%.

In a month, the stock has fallen 23%.

Trent has a 52-week high of Rs 8,346 touched on 14 October 2024 and a 52-week low of Rs 2,957 touched on 7 February 2024.

In the past 1 year, Trent shares are up 46%.

Trent currently trades at a PE multiple of 97x, compared to its 5-year average of 182x and 10-year PE average of 165x.

Here's a table comparing Trent with its peers -

Comparative Analysis

Company	Trent	Aditya Birla Fashion	Avenue Supermarts	Electronics Mart	Vishal Mega Mart
ROE (%)	44.4	-21.8	14.6	14.4	8.7
ROCE (%)	59.8	1.6	20.2	17.7	14.5
Latest EPS (Rs)	54.4	-5.7	41.8	4.8	1.1
TTM PE (x)	97.1	0	89.7	32.9	114.7
TTM Price to book (x)	36.4	5.3	11.7	4.1	4.1
Dividend yield (%)	0.1	0	0	0	0
Industry PE	1212.3
Industry PB	11.4

Source: Equitymaster

About Trent

Trent is engaged in retailing of apparels, footwear, accessories, toys, games, food, grocery & non-food products through various of its retail formats/ concepts.

The company is a part of the Tata group, with the Tata group holding about 37%.

It operates brands such as Westside, Zudio, Zara, Massimo Dutti, Star Bazaar, Utsa, Misbu, etc.

For more details, check out Trent's financial factsheet.

Happy Investing!

Disclaimer: This article is for education purposes only. It is not a recommendation and should not be treated as such. Learn more about our recommendation services here...