The Indian retail sector has experienced significant growth in recent years, fueled by multiple factors. A major driver is the rise in disposable incomes, which has increased consumer spending capacity. As more people move up the income ladder, their purchasing power has expanded, leading to higher demand for both essential and luxury products. Additionally, the rapid expansion of the middle class has created a larger consumer base, contributing to the retail sector’s growth.
The Impact of Fast Fashion Trends
Another key factor fueling the sector’s rise is the growing popularity of fast fashion. Consumers, especially the younger demographic, are increasingly attracted to trendy, affordable clothing options, leading to the rapid growth of fast-fashion brands. The convenience of online shopping and easy access to international brands further support this trend, making fashion accessible to a broader audience across the country.
Share Price
The shares of Trent Limited are currently trading at Rs. 6,225 up by 0.21% from its previous close of Rs. 6,212 as of January 17, 2025. The stock also touched an intraday high of Rs. 6,310. The stock has given a return of 97.75% in the last 1 year as compared to Nifty’s return of 7.61%.
Recent Updates
Trent’s Stock Faces Downgrade Amid Growth Concerns
Kotak Institutional Equities, a domestic brokerage firm, downgraded the stock to a “sell” rating from its previous “add” rating. The brokerage also revised its target price for Trent’s shares down to Rs 5,850 from Rs 6,800, citing concerns over the stock’s current market value and limited upside potential.
Robust Growth Already Priced In
While Kotak acknowledged Trent’s impressive growth trajectory, it emphasized that this positive outlook is already factored into the stock’s current market price. According to the brokerage, the company’s growth story is now well-reflected in the stock’s valuation, suggesting that there is minimal potential for further price appreciation from current levels. As a result, Kotak advised investors to reconsider holding the stock, particularly after a period of significant upward movement.
Concerns Over Zudio’s Expansion
A major concern highlighted by Kotak relates to the rapid and aggressive expansion of Zudio, Trent’s value fashion brand. The brokerage firm believes that Zudio has expanded too quickly, resulting in a high concentration of stores in certain urban areas. This over-saturation could potentially lead to cannibalization, where new stores take away sales from existing ones, thereby limiting the brand’s future growth potential. Kotak views this as a risk to Trent’s overall business strategy.
Disappointment with Westside and Star Store Growth
In addition to concerns about Zudio, Kotak also expressed disappointment with the pace of store expansions for Trent’s premium apparel brand, Westside, and its large-format retail outlets, Star stores. Both brands were expected to play a significant role in Trent’s growth strategy, but their expansion has not met expectations. This slower-than-anticipated growth raises further questions about the company’s ability to sustain its growth momentum in the future.
Impact on Financial Projections
As a result of these concerns, Kotak has revised its financial projections for Trent. The brokerage firm has reduced its revenue estimates for fiscal years 2025-2027 (FY25-27) by 1-2%, and more significantly, its earnings per share (EPS) estimates have been cut by 9-14%. This downward revision reflects the anticipated impact of slower store expansion and potential market saturation on Trent’s financial performance.
Recommendation to Book Profits
Given the combination of slower-than-expected growth in key areas and a fully priced-in growth outlook, Kotak recommended that investors who have benefitted from Trent’s previous stock price appreciation may want to consider booking profits. The brokerage’s revised target price of Rs 5,850 and its “sell” rating suggests that the stock may face limited upside in the near term, making it less attractive for continued investment.
Written By: Dipangshu Kundu
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