Trent stock price: HDFC Securities maintains 'sell' on Tata Group's retail arm, here's why

Trent, a prominent player in India's fashion and lifestyle sector, reported a remarkable 40% year-on-year revenue growth in FY25, accompanied by a 110 bps margin expansion to 12.8%. Despite this strong performance, there are signs of operational challenges ahead. Westside, a key brand under Trent, is potentially experiencing customer fatigue, as indicated by a significant drop in revenue per member by 18% year-on-year, says HDFC Securities.

"We maintain SELL on Trent with an SOTP-based TP of Rs 4,300/sh (incl. 60x adj P/E for the standalone operations,"  said the brokerage. 

This suggests a decline in purchase frequency or the number of articles per order, which could be a sign of market saturation or shifting consumer preferences. Moreover, the expansion strategy might need reassessment to address these challenges effectively.

Meanwhile, Zudio, another Trent brand, is seeing a moderation in its sales density, particularly as it expands into lower population density areas. This shift could lead to a further easing of sales density, impacting unit economics and profitability, adds the brokerage. 

The company's strategic pivot towards value fashion is apparent, with Zudio now contributing substantially to the revenue mix. However, as Zudio continues its aggressive expansion, its sales density is showing signs of easing, which may impact future profitability. Additionally, Trent's grocery format, Star, is exhibiting a slower growth rate with store additions falling short of expectations, although it has still maintained a 12% same-store sales growth in FY25. This indicates that while the format is stable, scaling remains a challenge, and further strategic adjustments may be necessary to sustain growth.

Furthermore, Trent's decision to reduce its stake in its joint ventures with Zara and Massimo Dutti reflects a strategic shift in focus. This move aligns with the company's broader strategy to streamline operations and reduce costs amidst rising competition, says HDFC Securities. Despite these challenges, Trent's efficient working capital management and increased cash flow from operations in FY25 suggest a resilient financial position. The company's stock, while reflecting these operational efficiencies, shows investor caution as future growth prospects are recalibrated. Overall, while Trent remains a strong player in the market, it must navigate these operational hurdles to maintain its growth trajectory.