Post by : Badri Ariffin

Trent Limited, part of the Tata Group's retail division, experienced a notable drop of over 6% in its share price on Monday, reaching a new 52-week low of ₹4310 on the BSE. This decline comes despite a strong double-digit profit growth in Q2.

The decrease in stock value signifies investor apprehension concerning revenue growth, which, while showing a year-on-year (YoY) increase of nearly 16%, indicates signs of slowing. Analysts pointed out that although the company expanded its store area by approximately 43% YoY, revenue per square foot witnessed a steep decline of around 17%, suggesting potential cannibalisation issues.

Key Q2 Performance Metrics

Trent's consolidated net profit climbed to ₹373.42 crore, reflecting an 11.44% increase from the previous year. This growth was largely driven by stringent cost-control initiatives. However, the company's ventures into tier-2 markets and new stores have resulted in longer growth timelines, which have consequently dampened revenue momentum.

Analysts at Nuvama Research emphasized that diminishing store productivity has affected profitability despite the cost optimisations. Similarly, Motilal Oswal Financial Services (MOSL) indicated that increased depreciation has impacted earnings, despite a 4-5% uplift in EBITDA from cost savings.

Analysts' Perspectives

The differences in opinion among analysts are reflected in their respective ratings. Nuvama reduced its target price for Trent to ₹5,189 from ₹5,850, affirming a ‘HOLD’ stance. In contrast, MOSL maintained a ‘BUY’ recommendation with a revised target of ₹6,000, citing the company's robust presence and potential for double-digit growth alongside the expansion into sectors such as Beauty, Innerwear, Footwear, and LGDs.

With a vigilant eye on Trent’s ability to boost revenue in harmony with cost management, investors remain cautious moving forward.

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