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Goldman Sachs reiterated its “buy” rating on Trent with a price target of ₹8,300, which implies a potential upside of 40% from current levels.
Trent shares fell sharply on Tuesday amidst concerns of Reliance Retail relaunching Chinese fashion brand Shein in India and the potential impact it could have on the businesses of Trent’s Zudio and Aditya Birla Fashion as well.
Goldman Sachs said that Zudio still has potential to gain market share with a low competitive risk and the scale up of any new competitor is likely to be gradual and not disruptive.
The brokerage went back to its initiation note on Trent last year, when it said that online-only value fashion retail does not have healthy unit economics. It goes on to explain a typical order for an apparel retailer valued around ₹1,000 or below where gross margins are close to 30% to 40% and delivery costs are between ₹120 to ₹130 per order, irrespective of order value.”This leaves an online-only fashion retailer with only ₹180 to ₹280 per order to cover for all other operating costs, which even in the best-case scenario, would lead to poor unit economics.
Online-only is also unviable at Zudio’s price points, according to Goldman Sachs. It expects a revenue and Earnings Before Interest, Tax, Depreciation and Amortisation (EBITDA) Compounded Annual Growth Rate (CAGR) of 32% and 35% respectively over financial year 2024-2027 for Trent.
“We believe that the stock is underappreciating the strong growth potential and on a price to earnings growth basis, Trent is now trading at the lower end of our consumer discretionary coverage,” according to Goldman Sachs.
Out of the 22 analyst who have coverage on Trent, 12 of them have a “buy” rating, while five each have a “hold” and “sell” rating on the stock respectively.
Shares of Trent are trading at the highs of the day, up 2.4% at ₹5,890. The stock is down 35% from its peak of ₹8,345. The Tata Group enterprise will be reporting results on Thursday, February 6.
