Trent : Time to Pivot! Upgrade to ADD with Target Price of Rs 4,700

In our June-25 deep-dive on Trent, we highlighted (1) signs of fatigue in Westside and (2) Zudio’s peak efficiency, which kept us at bay from being constructive on an otherwise top-class franchise. Post a near 50% price correction (from peak to trough), it may perhaps be time to pivot as risk-reward turns favourable. However, we first test the inputs to operational KPIs (SSSG and store expansion) – (1) ~54% of the Zudio network has been added in the past 18 months, a lion’s share of these will be included in SSSG computation FY27 onwards, (2) 60% of incremental store adds  (73 stores added) from FY25 to Oct-25 have come in under-retailed catchments of North and East (N and E) – another SSSG-friendly move, (3) Westside’s >50% jump in memberships in FY25 may also provide a healthy SSSG lever, going forward, and (4) store expansion may still have legs (170-180 stores annually), given that 139 out of Zudio’s 225 district presence are catchments where number of stores are ≤ 5 and its store share (within value fashion peers) in these catchments is >15%, indicating the lack of an alternative. We upgrade Trent to an ADD rating with an SOTP-based TP of INR 4,700/sh (includes 60x FY28 P/adj. EPS for the standalone business). Note: Our FY27/28 EPS stands revised upward by 1/2% respectively.

Is the complexion change in Zudio’s expansion a harbinger of SSSG revival?  Zudio’s latest store map suggests that expansion has moved from dense but over-retailed catchments in South and West India to relatively less explored North and East catchments (32% of store additions were in North + East districts in FY24, vs 43% in FY25 and 60% in YTD FY26). While this did impact the sales density over the past 18 months (latest reported SSSG: low single digit), we suspect this SSSG softness may be transient as (1) most of the N and E catchments remain significantly under-retailed and, hence, SSSG-friendly. Note: Of Zudio’s 100+ district presence (280+ stores) in North and East, ~50 districts are such wherein Zudio has ≤ 5 stores and a store share of > 15%, indicating healthy headroom to expand (170-180 store additions over FY26-28 built-in) and (2) lion’s share of the ~291 store additions (54% of FY24 store base of 541) would be included in SSSG computation FY27 onwards.

Jump in FY25 membership recruits bodes well for Westside; Star still a WIP: Westside added 5.5mn Weststyle club members in FY25. We suspect that a maturing member base over the next few years could aid Westside’s SSSG too. We build in ~15% revenue CAGR for Westside over FY25-28 (annual SSSG of ~7%) and steady margins of ~15%. On Star, staples, fresh and GM/apparel continue to outpace portfolio growth (per channel checks and FY25 financials); FMCG (an important footfall anchor) continues to lag portfolio growth. Star needs to fix this before pursuing any elaborate expansion strategy, in our view.

Outlook: Trent remains a top-class franchise. A combination of healthy inputs for future operational KPIs (SSSG and store expansion) and a c.50% valuation cut (117x FY28 P/E to 60x FY28 P/E) underpins our decision to upgrade Trent to an ADD rating with an SOTP-based TP of 4,700/sh (includes 60x FY28 P/adj. EPS for the standalone business). Note: Our FY27/28 EPS stands revised upward by 1/2% respectively.

Disclaimer: This content is only for informational purpose. Do not make any investment based solely on this recommendation as this recommendation is not based on your unique risk profile and investment objectives. Investments in stocks are subject to market risks and other risks. There is no guarantee of the return that will be actually given.

Source: HDFC Securities Institutional Equities

To see the full report and full disclaimer, click on https://www.hdfcsec.com/hsl.docs/Trent%20-%20Update%20-%20Jan26%20-%20HSIE-202601051325447349520.pdf?t=51202613428697