This Tata Group Zudio store operator stock has surged 250% in the last 1 year. Buy, sell or hold? Experts weigh in | Stock Market News

Shares of a Tata Group company have given mouth-watering returns over the last 10 years.

Trent shares have been the top performer in the BSE 100 index over the past year, the last three years, and the last ten years as well. While the stock has surged 250 per cent over the last year, it has risen by a solid 650 per cent in the last three years, 1,400 per cent in the last five years, and over 6,200 per cent in the last ten years. A ₹2 lakh investment in this stock 10 years ago would have made you a crorepati today.

Trent operates a portfolio of retail concepts, including Westside, Zudio, and Star. Its stellar performance in Q1FY25 led to the recent sharp rise in its stock price. The company’s revenue surged by 56.16 per cent year-over-year (YoY), while the profit saw an impressive hike of 126.3 per cent YoY. Many brokerage firms expressed bullish views on the stock after the Q1 numbers.

Trent has seen remarkable growth over the last few years, and given India’s growing middle class and retail industry size, it has a lot of room to grow.

According to Trendlyne, an equity research platform, Trent witnessed notable expansion between FY22 and FY25 to date. Its total revenue jumped from ₹379.6 crore in Q1FY22 to ₹4,038 crore in Q1FY25. Net profit rose to ₹342.2 crore in Q1FY25 from a loss of ₹84 crore in Q1FY22. The basic EPS (earning per share) rose from – ₹2.4 in Q1FY22 to ₹9.6 in Q1FY25.

The company has been investing in its omnichannel capabilities and online presence to adapt to changing customer demands.

However, the sharp gains in the stock price have stretched its valuation. The stock’s price-to-earnings (PE) ratio and price-to-book (PB) ratio are high in the industry.

Mint consulted various experts to get their insight about the stock. Here’s what they said:

Fundamental views

Rajesh Sinha, Senior Research Analyst at Bonanza Portfolio

Trent delivered robust results in Q1FY25 and continued its strong performance momentum despite weak demand conditions.

Its revenues grew by a stellar 56.2 per cent YoY to ₹4,104 crore in Q1FY25 (5-year CAGR of 40 per cent), led by the healthy retail expansion of Zudio and strong SSSG (same-store sales growth) across fashion concepts.

Trent’s EBITDA grew by 57 per cent YoY to ₹659 crore, taking its EBITDA margins to 16.01 per cent (marginally improved by 10bps YoY).

Trent continued its expansion, with the Westside store count reaching 228 (6 new stores opened and 10 stores transitioned), Zudio at 559 stores (14 new stores opened) and Star at 72 stores as of Q1FY25.

With its strong performance, Trent continues to give confidence, posting double-digit like-for-like (LFL) and adding a strong footprint across fashion concepts.

Despite facing industry headwinds and sluggish demand conditions, Trent remains an outlier in the retail sector.

Its improvement in the earnings profile across all formats, loss reduction in Star and enhanced traction at the Inditex JV will be positive for the company.

Sneha Poddar, VP, Research, Broking & Distribution, Motilal Oswal Financial Services

Trent’s strong performance with double-digit LFL growth and robust footprint additions remains an outlier within the retail space, which is witnessing a challenging demand environment.

Unlike peers that passed on sharp raw material (RM) price increases last fiscal year, Trent absorbed the impact, seeing strong customer reception, and is now reaping the benefits, as RM prices have become benign.

Further, despite adding stores aggressively, the company has observed limited balance sheet risk or weakness in operations.

Trent’s industry-leading revenue growth, driven by healthy SSSG and productivity, robust footprint additions, and healthy scale-up of Zudio, offers a massive runway for growth over the next three to five years.

The company’s grocery segment, Star, with merely 72 stores and FY24 revenue of ₹2,750 crore, is seeing strong LFL growth. This presents a massive opportunity for growth. Its brand strategy and curated range are witnessing strong customer reception.

“We estimate a CAGR of 41 per cent, 44 per cent and 52 per cent in standalone revenue, EBITDA and PAT, respectively, over FY24-26, led by strong 25 per cent YoY store addition and healthy SSSG,” said Poddar.

Master Capital Services

Despite the weak consumption patterns reported by other retailers, Trent has maintained great performance, which has caused the stock to rise significantly in 2024.

Because of improved cost control and operating leverage, profitability kept rising.

Further upward potential is offered by the momentum’s continuance and the improvement of the store metrics.

Net 14 Zudio stores were opened in Q1, whereas net four Westside stores were shuttered; this resulted in a subdued net addition of stores.

Nonetheless, the business anticipates adding 200/20 Zudio/Westside outlets in FY25.

The company’s focus on product assortment and store expansion will probably drive future growth across all retail formats.

Positive signs for the business include the better-than-expected profitability profile in all formats, reduced losses at Star Bazaar, and increased traction at the JV with Inditex.

Technical views

Mandar Bhojane, Equity Research Analyst, Choice Broking

Trent has recently surged to an all-time high of ₹7,324.85. This substantial upward movement and heavy trading volumes indicate strong bullish momentum in the stock.

“Investors and traders are encouraged to hold their positions while trailing their stop losses, as the stock demonstrates robust potential for further growth. Given the current trajectory, a long-term target of ₹10,000 is feasible,” said Bhojane.

“However, should the stock experience any corrections from these elevated levels, zones around ₹6,000 and ₹5,000 can be considered strategic opportunities for buying on dips. Such corrections could offer attractive entry points for those looking to build or add to their positions in Trent, capitalizing on the stock’s long-term growth prospects,” Bhojane said.

“The Relative Strength Index (RSI) stands at 97.21, firmly in overbought territory. Similarly, the Stochastic RSI has been trading at the maximum level of 100 since the start of the year, suggesting that while the stock is overextended, the bullish trend remains dominant,” said Bhojane.

Jigar S. Patel, Senior Manager of Equity Research at Anand Rathi Share and Stock Brokers

Trent stock is trading significantly above its major exponential moving averages (EMAs), specifically the 21-day, 50-day, 100-day, and 200-day EMAs.

When a stock trades well above these averages, it often indicates that it may be overextended or overbought, meaning the price has risen too quickly or far from its average.

This situation increases the likelihood of a “reversion to the mean,” where the stock price could correct or pull back closer to these average levels.

Additionally, the hourly chart of the stock shows a bearish divergence, which is another technical indicator of concern.

A bearish divergence occurs when the stock’s price rises, but an indicator like the RSI or Moving Average Convergence Divergence (MACD) begins to decline.

This divergence suggests that the upward momentum is weakening, and a reversal or pullback in price may be imminent.

“Given these signals, the analysis predicts a potential pullback in Trent’s price, expecting it to drop to ₹6,900-7,000 within the next few trading sessions,” Patel said.

“The recommendation is to book profits. Investors should consider selling some of their holdings to lock in gains while the stock is still at a higher level. Furthermore, it is advised to avoid taking new long positions,” said Patel.

Conclusion

Most experts believe Trent’s long-term prospects are healthy, and it remains an attractive buy.

However, in the near term, investors can consider booking some profit as the sharp gains in the stock price have shot up the valuation, indicating a correction could be possible.

According to experts, investors with a long-term horizon may initiate fresh longs in the stock in case of a correction.

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Disclaimer: The views and recommendations above are those of individual analysts, experts, and brokerage firms, not Mint. We advise investors to consult certified experts before making any investment decisions.