Trent Ltd climbed 4 per cent on Wednesday, snapping its eight-day losing run on stock exchanges. Elara Securities has initiated coverage on this Tata group stock today with a 'Buy' rating and a target price that hints at 38 per cent potential upside. The brokerage believes Zudio may continue to be the largest player in fast fashion and grow ahead of the industry.
It believes Trent will eventually evolve as a key consumer brand, leveraging key prior learnings, Zudio’s brand equity, emerging brands such as Misbu, Samoh and Utsa and recent entry into beauty (Zudio Beauty) and lab-grown diamonds (Pome).
Trent shares climbed 3.71 per cent to close at Rs 6,391.50. Despite this, the stock is down 10 per cent in 205 so far. Elara Securities finds the stock worth Rs 8,500.
"As Trent gears up for expansion, we expect it to maintain industry-leading metrics due to differentiated product offerings, strong grip over processes and full reliance on private labels. Trent's fashion portfolio has consistently outperformed peers on key parameters – Store size, revenue per sqft/per store and Ebitda (awaiting turnaround) – Trent is focused on organic growth via building own brands, Elara Securities said adding that with prudent capital allocation, it is set to expand its brand portfolio.
Over FY24-28, Elara Securities expects Trent on a consolidated basis to post revenue, Ebitda and adjusted PAT CAGRs of 27 per cent, 29 per cent and 38 per cent, in FY24-28. This would surpass 16 per cent growth rate for the apparel space.
"This is likely to be led by Zudio’s 37 per cent sales CAGR. Organic focus with premium growth offers robust performance amongst peers. Quick Commerce plays should not pose a threat given the constraint of store size. We initiate with Buy and SoTP-TP of Rs 8,500," Elara Securities said.
The brokerage values the standalone business at 57 times September 2007 EV/Ebitda, Star Baazar at 4 times EV/sales and Zara+ Massimo Dutti at 30 times EV/Ebitda.
A slower-than-expected store addition, price war among value players and failure to gauge fashion dynamics are risks to its call.