Trent's Stock Takes a Hit Despite Q2 Profit Surge

Post by : Bianca Suleiman

Trent Limited, the retail segment of the Tata Group, experienced a significant drop in share value, plunging over 6% on Monday to a 52-week low of ₹4310 on the BSE. This decline occurred in spite of reporting notable double-digit growth in Q2 profits.

The share price decline signals investor unease regarding revenue performance, which, although exhibiting nearly 16% growth year-on-year (YoY), has started to show signs of slowing. Analysts highlighted that while the company expanded its store area by approximately 43% YoY, revenue per square foot decreased sharply by around 17%, suggesting potential store-level cannibalization.

Highlights of Q2 Performance

Trent’s consolidated net profit reached ₹373.42 crore, an increase of 11.44% year-over-year. This growth was mainly attributed to effective cost management strategies. However, the company's ventures into tier-2 cities and new store launches, which typically require longer timeframes to mature, have hindered revenue growth.

Analysts from Nuvama Research indicated that the decreasing store productivity has had a negative impact on profitability, despite the cost-saving measures in place. Similarly, Motilal Oswal Financial Services (MOSL) noted that increased depreciation has affected earnings, even as EBITDA projections received a 4-5% uplift from cost efficiencies.

Analyst Perspectives

Brokerage opinions widely vary regarding their outlook on the stock. Nuvama has revised its target price for Trent down to ₹5,189 from ₹5,850 while maintaining a ‘HOLD’ rating. Conversely, MOSL has kept a ‘BUY’ rating with a new target of ₹6,000, recognizing the company's solid market position, potential for strong growth, and the development of new categories such as Beauty, Innerwear, Footwear, and LGDs.

Investors remain watchful, keen to see how Trent can enhance revenue growth alongside cost efficiencies in upcoming quarters.