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Motilal Oswal Report
The discretionary category continues to see muted demand, but Trent Ltd. has far outpaced the industry. The company delivered industry-leading like-for-like growth of +10% and hence gained market share over other retailers in the apparel segment (especially in value format).
Further, despite aggressive store addition, Trent has limited balance sheet risk or weakness in operations. Trent's industry-leading revenue growth is mainly driven by:
strong same-store sales growth and productivity,
healthy footprint additions, and
Zudio's strong value proposition.
Trent's successful store performance, healthy store economics, and aggressive growth strategy offer a huge runway for growth over the next three to five years.
We estimate a compound annual growth rate of 36%/34% in standalone revenue/Ebitda over FY24-26, led by 20% store addition and healthy SSSG, which explain the premium valuation for the stock.
We have ascribed 57 times to standalone business, two times enterprise value/sales to Star Bazaar, and 15 times EV/Ebitda to Zara to arrive at our target price of Rs 5,800.
Adjusting Star and Zara value, the stock is trading at 88 times FY26E EPS for the standalone business. Weak demand in tier two-three cites and a slow turnaround of Star could be the key risks going forward. Retain Buy.
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