Trent's Shares Drop 6% Despite Strong Q2 Earnings

On Monday, shares of Trent Limited, a part of the Tata Group, plummeted over 6%, reaching a new 52-week low of ₹4310 on the BSE. This decline occurred despite the company reporting robust double-digit growth in Q2 profits.

The drop in share value indicates investors' reservations regarding revenue growth, which, despite an impressive 16% year-on-year (YoY) increase, displayed signs of slowing down. Analysts observed that although the company expanded its store area by approximately 43% YoY, revenue per square foot saw a significant decline of around 17%, suggesting possible internal competition among stores.

Highlights from Q2 Performance

Trent’s consolidated net profit surged to ₹373.42 crore, reflecting an increase of 11.44% from the previous year, bolstered by strict cost-control measures. However, the push into tier-2 cities and new stores, which have longer timeframes for profitability, has contributed to a slowdown in revenue growth.

Analysts from Nuvama Research pointed out that reduced store productivity has impacted profitability, despite efforts to optimize costs. Similarly, Motilal Oswal Financial Services (MOSL) highlighted that increased depreciation hindered earnings, even as EBITDA forecasts improved by 4-5% due to cost savings.

Outlook from Analysts

Analysts have varying views reflected in their recommendations. Nuvama has lowered its target price for Trent from ₹5,850 to ₹5,189 while maintaining a ‘HOLD’ rating. Conversely, MOSL has upheld a ‘BUY’ rating with a new target of ₹6,000, praising the company’s substantial presence, growth potential, and expansion into new segments like Beauty, Innerwear, Footwear, and LGDs.

Investors maintain a vigilant stance, evaluating how Trent will enhance revenue growth alongside ongoing cost management in the forthcoming quarters.