Trent's 1,000% rally takes a break. Can a Sensex rejig revive his fate?

Copyright © HT Digital Streams Limit all rights reserved. Ananya Roy 6 min read May 27, 2025, 09:00 AM Ist Trent opened 16 Westside and 220 Zudio stores in 2024-25. (Bloomberg) Summary Trent’s 39% turnover growth in FY25 is nothing less than extraordinary. But considering the valuations, the story becomes acidic. Trent Ltd, the Tata Group’s multibagger Fast-Fashion Company, has a difficult time. After merging more than 1,000% in the previous five years, the concerns about competition and valuation have humiliated the share this year. So far this year, Trent has lost almost 22%, while the criterion Nifty 50 index appreciated 5%. But the fate of Trent looked up last week when the Sensex Rejig was announced. After making it in the Nifty 50 index in September, Trent Nestle India Ltd will replace in the 30-share Sensex, effective June 23. The Trent shares rose by as much as 3% after the announcement. With Trent having about 1.5% weight in the Sensex, its inclusion is expected to bring about $ 300 million in passive funds linked to the index. But can the liquidity repel the fundamental issues that are harassing the stock? Cannibalization got away from the first quarter of the fourth quarter of the fourth quarter in the last quarter, and Trent recorded a successive 9.7% drop in turnover to £ 4.334 crore. Of course, the January-Maart-quarter is seasonally slow for Trent, and some decrease in the previous three festive months was expected. But even compared to the company’s performance in the fourth quarter of 2023-24, Trent’s latest quarterly turnover growth has moderated to 29% of about 75% a year earlier. It was a continuation of a slowdown that Trent saw during 2024-25. Why? Like-for-like growth or sales growth in existing stores, he decreased in the second quarter of high-single figures in the second quarter of the second quarter to mid-single figures. The annualized revenue per store was a year-on-year at £ 16.8 crore. Management attributed this to the expansion and ‘compaction’ in certain micro markets. In other words, Trent’s existing stores’ sales are canibelled by its own new stores. Despite the management of the management that the company is building up near consumers by increasing the density of the store, if the shop expands do not have a similar growth, it is only a matter of time before the margins are emphasized. The full year’s growth was decent, despite the competition competition that increased throughout the businesses for Trent. In his fashion segment, Reliance Retail Ltd’s Yousta, Aditya Birla Fashion and Retail Ltd’s style, and Shoppers Stop Ltd’s Intune weighed the prospects of Trent. In what fuel can add to the competitive fire, there are reports on the Reliance retail that China’s popular fast -paced Modermek Shein started in India. As for Star, Trent’s food and grocery segment, fast trade increased as a threat. Like-for-like growth in Star, in the fourth quarter, to 2% delayed from almost 25% a year earlier. If it continues, it will become increasingly difficult for trent to profitable scale. Trent’s volume volume and turnover growth was in the ballpark of 40%. Like-for-like growth during the financial year was in double digits. Emerging categories such as beauty and personal care and shoes have also received traction, accounting for 20% of the company’s full annual revenue. The margins remained resilient, as Trent’s similar growth delayed in the fourth quarter, operating leverage had a hit, even though the shop expanding continued. Gross margins also have more than expected, possibly due to aggressive discounting to take out stock, as well as stock offers. But on the bright side, other operating costs moderated. Franchisee sales have increased, while the closure of non-performing stores helped the occupation costs. As a result, rental costs have seen more slowly than the topline. Finance and employee costs have also reduced as part of the income, further supporting the margins. As a result, Trent’s margin on its profit before tax (excluding exceptional items) expanded with 130 basis points in 2024-25. This beat expectations as analysts expected a contraction of 30 bps. EBITDA grew by 37% in the third quarter to £ 656. But due to £ 543 crore of extraordinary profits reported in the base term, Trent’s independent profit after tax dropped 46% on an annual basis. Losses of co -workers led to a sharper drop of 55% in consolidated PAT. The full year Pat expanded 38% to £ 18.141 crore. Good, bad and ugly from the extension of the store had Trent a widespread retail footprint with 765 Zudio stores, 248 Westside stores and 30 stores in other lifestyle concepts from March, taking its total fashion stores to more than 1,000. Extension in FY25 has surpassed Trent’s planned 200-ADD stores for the year. Thus, FY25 used cash flow that is all consumed by expansion -related outflow. But while the company only added 16 Westside stores for and 220 Zudio stores in FY25, 140 of these stores were added alone in the fourth quarter. It can be expected that their full advantage will flow from the first quarter of FY26 (the ongoing April-June quarter). In anticipation of a bakkie in urban demand, Trent also added large stores, especially for Westside. But as the company has expanded to 64 new cities in FY25, differences in local fashion feelings can lead to a slower stock turnover and even write -offs. Cannibalization is also an important risk. Well positioned to catch Tailwinds Trent was founded in 1998 with Westside. But the turnover of the business came with the value -fashion -Zudio stores. India’s growing middle class, continued recovery in rural demand and eventual return of urban demand is the wind of the fast fashion industry. Request catalysts could include the tax cuts announced in the Union budget for 2025-26 and the 8th Payment Commission announced for government employees. Trent is well positioned to capture these windwinds and take care of the cost-conscious middle-class consumers of India. Not only did it crack the target consumer design feelings, but it is also to offer these trending designs at affordable prices, and fast. All the time she keeps margins strong. Read also | Institutional investors bet a lot on Patanjali. Should you? Over the years, with Westside and the partnership with Zara, Trent has built an enviable purchases and supply chain network. According to the reports, Zudio’s stock turns around for its competitors within 15 days, compared to 45-60 days. Not only does it help to keep track of fast -changing fashion trends, but it is also crucial to contain costs. Bulk manufacturing, focusing on private labels or internal brands, and cost-effective marketing led by influencers also helped keep a lid on the cost. Faster stock turnover, small stores and healthy mixture of stores in possession and franchisee led to faster getaway of new stores, despite lower gross margins in a quick way. This has enabled shop expansion faster. Trent also has a long runway for growth, given the low single-digit market share. Read also | This Murugappa group stock is 38% lower than its peak. But why do investors become bullish again? The problem with prices to perfection Trent’s income growth of 39% in FY25 is nothing less than extraordinary. But considering the valuations, the story becomes acidic. The stock trades 127 times its earnings. It has been priced to perfection, with the previously respected supernormal growth extrapolated in the future. So even small disappointments led to sharp corrections. In this context, Trent’s inclusion in the Sensex is unlikely to bring about a sustained rally. Estimated inflow of the passive fund in the share amount is barely 1.5% of Trent’s market cap. The progress of the expansion of the store, such as-for-like growth, improved margins and higher cash flow, will help to hold on to the developing position in the midst of intensifying competition. The entry into international markets, the junk beauty segment and the laboratory growth diamond market should also be monitored. Read also | IDFC’s growth hits a speed hump. Is the setback of the stock at risk? Ananya Roy is the founder of Credibull Capital and a Sebi-registered investment adviser. Disclosure: The author has shares of some of the businesses discussed. The opinions expressed are only for information purposes and should not be considered investment advice. Readers are encouraged to do their own research and consult a financial professional before making investment decisions. Catch all the business news, market news, news reports and latest news updates on Live Mint. Download the Mint News app to get daily market updates. More Topics #Trent #Sensex #Tata Group Read Next Story