Post by : Bianca
Haleem
Trent Limited, the retail sector of the Tata Group, experienced a 6% decline in its shares on Monday, reaching a new 52-week low of ₹4310 on the BSE. This drop occurred despite reporting a robust Q2 profit with double-digit growth.
Investor apprehension is apparent, as revenue growth, while increasing nearly 16% year-on-year (YoY), indicated signs of slowdown. Analysts pointed out that even with a ~43% increase in store area YoY, revenue per square foot significantly dipped by ~17%, suggesting potential cannibalization across stores.
Q2 Performance Overview
Trent recorded a consolidated net profit of ₹373.42 crore, reflecting an 11.44% uptick from the previous year. This growth is attributed to effective cost-control strategies. However, the company's push into tier-2 cities and new locations, which necessitate longer establishment times, appears to have hampered revenue growth.
Analysts at Nuvama Research have observed a decline in store productivity, which has put pressure on profitability despite enhanced cost management. Similarly, Motilal Oswal Financial Services (MOSL) noted that increased depreciation has impacted earnings, even as EBITDA projections gained a 4-5% lift due to cost savings.
Analyst Predictions
Reactions from brokerages show contrasting views regarding Trent's future. Nuvama has lowered its target price for the company to ₹5,189 from ₹5,850 while maintaining a 'HOLD' rating. Meanwhile, MOSL has upheld a 'BUY' rating with an adjusted target of ₹6,000, emphasizing the company's extensive market presence, potential for double-digit growth, and expansion into new categories like Beauty, Innerwear, Footwear, and LGDs.
As investors remain vigilant, they are particularly focused on how Trent intends to boost revenue growth alongside cost management in the upcoming quarters.
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