After two stellar years that saw its shares double in both 2023 and 2024, Tata Group-owned Trent Ltd is facing a sharp reversal of fortune in 2025.
Once celebrated for its long-term compounding growth story, Trent has now become the worst-performing Nifty stock this year, with share prices plummeting by around 22% in January alone, wiping out more than ₹47,000 crore in market capitalisation.
On Friday too, its share price was down by 3.2%.
Brokerages and analysts have started voicing concerns over the retailer’s growth trajectory, signalling that the bull run might have gone too far, too soon.
Trent, once admired for its remarkable revenue growth, has shown signs of a slowdown.
The company reported a 40% year-on-year revenue growth in Q4 FY24, a dip from its 50% growth streak since Q4 FY21.
Factors such as muted consumer sentiment, seasonality, and the closure of 25 stores, including 16 Zudio outlets and 9 Westside stores, contributed to this decline.
Jefferies highlighted concerning trends in Westside’s performance, noting that the brand experienced a net reduction of two stores for the second consecutive quarter, with exits from five cities.
Invezz takes a look at the factors ailing the stock:
What’s going on with Trent’s share price?
At its peak, Trent traded at a lofty price-to-earnings (PE) ratio of 133.7x its estimated FY25 earnings.
Analysts argue that such high valuations are difficult to sustain, particularly when growth begins to moderate.
Brokerage firm Kotak Institutional Equities last week downgraded Trent to “sell” from its earlier “add” rating, slashing its price target to ₹5,850 from ₹6,800.
Trent chart by TradingView
On Friday, Trent was trading at Rs 5,530 a share. Trent’s share price is now down around 34% from the peak of ₹8,345 it hit in October last year.
While Kotak expects the company to maintain healthy revenue and EPS CAGR of 29% and 35%, respectively, from FY25 to FY27, it noted that these metrics are already factored into the stock’s valuation.
“A sharp increase in store additions of any new format is a key risk to our call,” Kotak’s note stated, adding that the overlap of Zudio stores in certain cities could cannibalize revenue.
Industry headwinds and competition
India’s retail sector is grappling with a slowdown in discretionary spending, impacting fast-fashion retailers like Trent.
The company faces intensifying competition from both established players and emerging direct-to-consumer (D2C) brands in the value retail space.
The success of Trent’s Zudio brand has attracted rivals like Yousta, StyleUp, and InTune, further eating into its market share.
Quick-commerce firms have also begun challenging Trent’s grocery segment, Star Bazaar, adding to the pressure.
Analysts still bullish on Trent
Despite short-term headwinds, several analysts maintain optimism about Trent’s long-term prospects, particularly due to Zudio’s dominance in the fast-fashion market.
Elara Securities initiated coverage on the stock with a bullish target price of ₹8,500, citing Zudio’s profitability and strong inventory management as key differentiators.
Goldman Sachs echoed similar optimism, forecasting a market share increase for Zudio from 1% to 5% by FY35, driven by a 27% CAGR in sales. The brokerage has a price target of Rs 8,000 on the stock.
The brokerage expects Zudio to gain traction from unorganized players in the value fashion space.
“The concerns are overdone. Trent has a solid proposition. Zudio continues to perform exceptionally well and has established a moat with profitability, styling, and consistent inventory upgrades,” said Karan Taurani of Elara according to a report by Economic Times.
Although Trent’s near-term growth appears moderate, strategic positioning in high-growth segments such as fast fashion and valuable retail, can help them gain momentum in the long run, analysts feel.
The company is scheduled to post its earnings for the quarter ended December on February 6.
The post Trent shares are down 22% in Jan after a strong 2024: what analysts want you to do appeared first on Invezz