Trent at Rs 7,000? Macquarie says Tata group co has Asia's best retailing metrics

Calling Trent Ltd Asia's best retailing metrics and a play on India's rising discretionary spend in fashion, Macquarie initiated coverage on the Tata group stock today with an outperform rating and a target of Rs 7,000 on the stock. Macquarie's price target suggests a 29 per cent upside over today's closing price of Rs 5,417 on BSE.

The foreign brokerage said Trent has balanced doubling its Zudio store count over FY23-25 with improving its return ratios to 25 per cent-plus levels. 

"Further, in its Star Bazaar grocery format (operated via JV with Tesco PLC), we expect a gradual reduction in losses despite quick-commerce linked growth uncertainties, aided by its focus on private brands, fresh produce, sharper pricing and store opex optimisation," it said.

Macquarie said it sees the ongoing cyclical weakness in consumer sentiment as an attractive entry opportunity. 

It believes Trent's supply chain and design capabilities, built with years of experience of Indian design sensibilities, are difficult to replicate. 

It sees scope to expand Zudio given its current store count of 700 against Reliance Trends' 2,000-plus stores. 

"Competitive concerns about Shein's entry are overblown, in our view, as it would be difficult for Shein to replicate its China production cost advantage with an India-based supply chain," it said.

Macquarie said Trent's proven ability to balance fashion risk with profitability through frequent style drops, and its expansion through owned/franchisee stores, have aided its performance. 

Over FY23-25, Trent may see a 45 per cent sales CAGR, steady margin expansion and a three times ROCE expansion to 30 per cent. 

Trent leads fashion retailers in Asia, with superior inventory days
and return profile, Macquarie said.

Trent is a fashion retailer with two key formats, Westside and Zudio. . In addition to these formats, Trent also has fledgling formats with Utsa stores operating in ethnic wear and Xcite/ Misbu stores operating primarily in the beauty space. 

In addition to the fashion segment, Trent has a grocery hypermarket chain Star Bazaar in a 50:50 JV with Tesco Plc (UK), and a 49:51 JV with Inditex for Zara stores.