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This Tata group stock could set a new high in 1 year, brokerage says to buy


Trent Ltd is a large-cap retail company with a market capitalization of 37,283 crore. Trent’s flagship concept, Westside, is part of the Tata Group and features premium fashion apparel, footwear, and accessories. The shares of Trent hit a 52-week high of 1,346.85 on 7 April 2022 and a 52-week low of 828.95 on 17 June 2021 on the NSE, but brokerage companies ICICI Securities and Motilal Oswal believe the stock will reach a new high in 1 year. ICICI Securities has set a target price of 1470 and Motilal Oswal has set a target price of INR1,430 which is an all-time and record-high target price for the stock.

Motilal Oswal has said in its note that “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, as the company targets 25% annual revenue growth. We expect 37% revenue growth over FY22-24, which warrants a premium valuation for the stock. We have ascribed a 31x FY24E EV/EBITDA to the standalone business (Westside and Zudio, 15% premium for the last five years until the pandemic and 10% premium to our Retail coverage universe), 1x EV/sales to Star Bazaar, and 15x EV/EBITDA to Zara to arrive at our new TP of INR1,430 (revised up from INR1,180 earlier). Weak demand in the tier 2-3 cites as validated by our channel checks remains the key near-term risk. Retain BUY.”

Key triggers of the stock for future performance as per ICICI Securities are 215 store additions between Westside and Zudio for FY23-24E, liquidity position remains robust with cash & investments worth 600+ crore that will enable it to tide over the current situation better than peers, Zudio continues to be the growth engine for Trent. We expect its revenues to grow at a CAGR of 48% in FY22-24E and in the long run, the company aims to grow its revenue at a CAGR of 25%+.

By highlighting the key annual report takeaways of Trent, ICICI Securities has said in its report that Zudio remains the fastest growing value fashion brand in India with revenues surpassing 1000 crore in FY22. With the brand achieving scale, the brand reported its highest EBIT margin of 6% in FY22 (FY21: ~1%), Westside format surpassed pre-Covid levels from H2FY22 onwards with positive SSSG (FY22 gross revenue: 2900 crore), Zara India reported strong topline growth of 61% YoY (115% of pre-Covid levels) despite muted store additions, Losses for Star Bazar widened YoY, mainly owing to higher discounts and sharper pricing, Two to three new fashion concepts are in progress out of which one would be a beauty format standalone store (brand: ‘Landmark Xcite’) and on a standalone basis, the company clocked 7.9% EBITDA margins (pre-Ind AS 116) in FY22 (FY20: 9.0%). At a consolidated level, EBITDA margins were lower at 4.2%, mainly owing to its subsidiary, Booker India.

“Trent has been an exceptional performer with the stock price appreciating at ~35% CAGR in the last five years. Robust performance during challenging times and industry leading performance will continue to warrant premium valuations for Trent. Hence, we maintain our BUY rating on the stock. We value Trent at 1470 based on SOTP valuation,” said ICICI Securities.

The views and recommendations made above are those of individual analysts or broking companies, and not of Mint.

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