Trent Q1 Review: Jefferies Flags 'Curious Case' Of Cost, Morgan Stanley Bullish — Check New Target Prices

After Trent Ltd., posted its first quarter results, brokerages have diverse takes on the outlook. Jefferies calls for better disclosures as they cite the lower costs being a curious case. Morgan Stanley remains bullish citing Trent's highly expandable Total Addressable Market as a key comfort.

The brokerage has retained its 'hold' rating on the stock while slightly raising the target price to Rs 6,000 from Rs 5,900, which comes from the neutral outlook the brokerage has on the counter.

They note that the revenue growth decelerated to a multi-quarter low of 20%. Margins, however, "surprised positively" despite a decline in per sq. ft revenue. The analyst notes that the lower cost allowed unit Ebitda to stay near flat, which is difficult to understand given the lack of adequate disclosures.

"We are yet to understand the reason for a 7% YoY decline in staff costs despite a >30% increase in retail footprint. We continue to seek improved disclosures to better appreciate business drivers," said the note.

While Zudio led the growth, sequential growth moderation continued for both Zudio and Westside on account of base expansion, heightened competitive intensity, and weak demand, in their view. Addressing the margin beat, the analyst noted that that Ebitda growth reported was well ahead of their estimates. In fashion formats, store additions were muted in 1Q, with only one net store addition in Zudio and no net addition in Westside.

The earnings have kept the analyst's stance on the counter mostly unchanged, with a modest upside cited. Trent has an 'Overweight' rating from Morgan Stanley and a higher target price of Rs 6,359.

Per management, the share of revenue across fashion concepts was broadly in line with their strategy, with the gross margin profile of Westside and Zudio being consistent.

"While the recent growth trends do not easily justify the current valuations, we believe the growth slowdown is neither a result of market maturity nor market share loss but a well-devised growth strategy which could start showing the results in the coming quarters. Thus, taking a short-term negative view on a long-term business may not be advisable," said the analyst.

The brokerage believes that Trent's Total Addressable Market is highly expandable, as also reflected in its strong portfolio of emerging categories, signalling a multi-year runway for growth. The company's consistent margin improvement and improvement in return ratios are cited as a comfort.