Initiate at Buy: On the Fast (Fashion) Growth Trend; New Top Pick
CITI’S TAKE
We initiate on Trent, Tata Group’s fashion & lifestyle business, with a Buy and an SOTP-based TP of Rs9,250. Its transformation from a single-format (Westside) to a multi-format (Westside, Zudio, Star, Samoh, Utsa, Misbu, etc.) and multi-category (fashion & lifestyle, grocery, beauty personal care & fashion accessories) player led to a higher revenue CAGR (36% in FY19- 24) vs. India’s leading consumer discretionary and retail peers. We model for Trent industry-leading rev/EBITDA/PAT CAGRs of 41/44/56% in FY24- 27E. Leveraging on its supply chain, as well as learnings from Westside and Zudio, Trent is turning around Star and can meaningfully scale up other pilot projects (Misbu, Samoh, MAS JV). In addition to ranking it a top pick in our India consumer discretionary and retail coverage, we include Trent in our Pan-Asia high-conviction Focus List. Risks: a slowdown in Zudio store expansion, keener competition, limited success in new formats.
Outpacing peers, driving Street upgrades — Trent has a higher revenue CAGR than India’s leading listed consumer discretionary and retail companies, led by store expansion under Zudio along with rising rev per sq ft at Westside and Zudio. FY25 and FY26 consensus rev/EBITDA/EPS have in just 12 months jumped 26/51/87% and 39/63/127%, respectively, defying weak consumer sentiment, a slowdown in discretionary spending, and downgrades for most other consumer stocks.
Adding organic growth engines — Trent launched Zudio in FY18 and is piloting more formats to add 2-3 more growth engines. Star (grocery) is already showing turnaround signs and can be meaningfully scaled up if profitability is sustained. Such other formats as Misbu (beauty, personal care & fashion accessories), Samoh (fashion & lifestyle) and MAS JV (intimate wear & other apparel) also have the potential to ramp up in the medium term and drive further upside.
Valuation and pecking order — Our TP of Rs9,250 is based on SOTP: (a) standalone business: 65x Jun’26E EV/EBITDA, a 20% premium to the average EV/EBITDA for high-growth consumer peers – justified in our view given its stronger rev/EBITDA CAGRs of 41/44% in FY24-27E; 6-17% above consensus); (b) Star: 6x Jun’26E EV/Sales on turnaround signs; (c) Zara: 35x Jun’26E EV/EBITDA, lower than peers for slower growth. Our India consumer discretionary and retail pecking order is Trent, Jubilant FoodWorks, Kalyan Jewellers, and Devyani International.
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