HSBC starts coverage on Trent with buy, sees 19% upside on Zudio growth

Economic Times

4 hours ago

HSBC Global Research initiated coverage on Trent Ltd with a 'buy' rating and ₹6,700 target, citing Zudio's strong growth, robust execution, and a premium retail portfolio. The brokerage forecasts a 25% revenue CAGR over FY25–28 and values Trent on a SOTP basis.
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HSBC Global Research has initiated coverage on Trent Ltd with a 'buy' rating and a target price of Rs 6,700, implying a nearly 19% upside from Friday's close of Rs 5,951.85. The brokerage cited strong growth prospects led by Zudio's rapid scale-up, a robust execution track record, and compelling optionalities across the company's retail portfolio. Shares of Trent closed 4% on Friday.HSBC said Trent, part of the Tata Group, has emerged as one of the most dynamic plays in Indian retail, led by the 'strong growth on the back of Zudio scale-up.' While Westside continues to cater to mid-to-premium segments with a strong focus on women's wear, the brokerage noted that 'Zudio offers fast fashion at affordable prices' and is now 'the largest contributor to Trent's revenues.'Valuing Trent on a sum-of-the-parts basis, HSBC has assigned the standalone business, including Zudio, Westside, and other smaller formats like Utsa, Samoh and Misbu, an industry-leading price-to-earnings multiple of 75x on June FY27 estimated earnings. 'While this looks expensive, on a PEG basis, it comes to c.2.4x (vs 3x for Vishal Mega Mart and 4.7x for Page Industries) in spite of Trent's higher growth, profitability and RoCE profile,' the brokerage said, adding that this is the highest multiple among discretionary stocks under its coverage, excluding Nykaa.The valuation also incorporates Trent's 50:50 joint venture with Tesco for its hypermarket chain Star, which has been valued at 4x EV/sales, a 20% discount to DMart's historical five-year average. Zara India, run through a joint venture with Inditex, is valued based on the August 2024 share buyback by the Spanish parent. Other businesses have been valued at 2x EV/sales. HSBC said the blended valuation reflects both the company's near-term growth potential — it expects about 25% revenue CAGR over FY25–28, and the longer-term opportunity to gain scale in underpenetrated segments.HSBC flagged emerging optionalities such as the Zudio Beauty vertical as further levers for growth, stating, 'we like the optionalities at play in Trent,' and noted that Trent's improving profitability since FY23 makes historical PE ratios less relevant for current valuations.However, the brokerage also highlighted risks, including rising competition in the value fast fashion space that could disrupt network rollout and pressure margins. Weak consumer spending could weigh on growth at Westside and Zudio, while newer formats may fail to scale. 'Inability to drive or identify latest fashion trends' was also flagged as a downside risk.Trent shares have gained 13.8% in the past month but are still down 16% over six months. Over the last year, the stock is up 11%. Technically, it remains below most key moving averages, including the 5-day, 10-day, 20-day, 50-day, and 200-day lines, with an RSI at 56 suggesting neutral momentum.Also read | HDB Financial IPO shocker: Price band 42% below unlisted market value (Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of the Economic Times)