Trent Ltd.'s weaker-than-expected first-quarter business update could weigh on the stock in the near term, with brokerages flagging slowing sales growth and a moderation in store expansion.
The Tata Group retailer reported a 19% year-on-year rise in standalone revenue to Rs 5,666 crore in the June quarter. Growth remained below 20% for the fifth consecutive quarter.
Macquarie maintained its ‘Outperform' rating with a target price of Rs 3,600, but said same-store sales growth likely moderated from Q4 levels. Morgan Stanley also retained its ‘Overweight' rating and Rs 3,151 target. It said revenue growth was below its 21% estimate and expects some near-term stock weakness. Bernstein maintained ‘Outperform' with a Rs 3,500 target but expects a negative stock reaction. It said growth of around 20% may be the new normal unless urban consumption improves sustainably.
Citi remained the most cautious, maintaining a ‘Sell' rating with a Rs 2,733 target. It flagged weak revenue per square foot, rising competition, cannibalisation and expansion into tier-2 and tier-3 cities as key concerns.
Trent added 20 stores during the quarter — 19 Zudio outlets and just one Westside store. The slower Westside expansion also disappointed analysts. The company ended June with 1,312 stores, including 301 Westside and 982 Zudio outlets.
Brokerages on Trent
Macquarie
- Maintain Outperform; Target Price: Rs 3,600.
- Q1 sales growth was weaker than expected.
- Believes same-store sales growth momentum moderated from Q4 levels.
- Growth moderation is likely to weigh on near-term performance.
- Trent's value positioning and an improving consumer demand outlook could aid a growth recovery.
Morgan Stanley
- Maintain Overweight; Target Price: Rs 3,151.
- Q1 was slightly weak, with growth below the 21% estimate.
- Store expansion pace moderated during the quarter.
- Expects standalone EBITDA margin to improve 100 bps YoY to 18.5% in Q1.
- The stock could see some near-term weakness following the softer print.
Citi
- Maintain Sell; Target Price: Rs 2,733.
- Revenue growth moderated despite a soft base.
- Remains cautious due to the weak revenue-per-square-foot trend.
- Increasing competition, cannibalisation and expansion into Tier-II and Tier-III towns remain key concerns.
Bernstein
- Maintain Outperform; Target Price: Rs 3,500.
- Q1 revenue missed estimates, but believes the new normal is closer to 20% growth.
- Any acceleration beyond this would require a sustained improvement in urban consumption.
- UPI data for April and May also points to soft value growth in the fashion segment.
- Expects the stock to react negatively.
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