Shares of Tata Group’s Trent Ltd. have been under significant pressure, continuing their downward spiral on Friday, with the stock falling by as much as 3.5% to a day’s low of Rs 6,270. At 11:24 am, Trent’s stock price had dropped 2.69%, reaching Rs 6,323.55 on the Bombay Stock Exchange (BSE), following an 8% drop in the previous trading session. This marked a sharp 10% decline in just two consecutive trading days, reflecting growing concerns among investors about the company’s future growth prospects and recent performance.
The drop in shares began on Thursday after Trent reported its quarterly results, which, although showing a strong revenue increase, failed to meet market expectations for profitability and growth. The company’s quarterly results revealed a 39% surge in revenue, reaching Rs 4,157 crore compared to Rs 2,982 crore in the same period last year. While the growth in revenue was strong, it was overshadowed by a range of factors that affected the company’s bottom line, leading to disappointment among market analysts and investors.
The net profit for Trent stood at Rs 335 crore for the quarter, but several key factors contributed to concerns over its financial health. Depreciation expenses increased significantly to Rs 197 crore, up from Rs 152 crore in the same period last year, reflecting higher operational costs. Additionally, the company’s profit from joint ventures saw a sharp decline, falling to Rs 5.7 crore from Rs 25 crore a year earlier, which raised red flags about the overall profitability of its business units. On top of these issues, Trent’s tax expenses saw a sharp rise, increasing to Rs 132 crore from Rs 86 crore in the previous year. This combined impact of higher operating costs and increased tax obligations weighed heavily on the company’s profitability, leading to a more cautious outlook from analysts.
Following the release of these results, brokerage firm Jefferies downgraded its outlook on Trent, maintaining a “hold” rating on the stock with a target price of Rs 5,900. This price target implied a potential downside of 9.3% from the stock’s Thursday closing price. Jefferies noted that although Trent exhibited solid growth overall, it had failed to meet the elevated growth estimates set by analysts, particularly in its key business segments. A key concern for Jefferies was the closure of stores in Trent’s fashion segment, which could result in reduced revenue from these stores and possibly signal long-term challenges in this area. Despite these concerns, the brokerage acknowledged the management’s optimism about future growth prospects, citing strategic initiatives and the company’s plans for expansion and improvement.
On the other hand, HDFC Securities highlighted a weaker market setup for Trent and warned that the stock had breached several long-term moving averages, signaling a potentially prolonged period of downward movement. The brokerage suggested that investors avoid trying to catch a bottom in the stock, recommending a cautious approach until the stock stabilizes. HDFC Securities advised waiting for a period of consolidation before making any further investment decisions, as the broader market sentiment remained negative in the short term.
Despite these negative developments, the consensus among analysts on Trent remains mixed. Among the 21 analysts covering the stock, 13 have a “buy” rating, indicating a belief that the company has strong long-term growth potential despite the current setbacks. However, four analysts have a “hold” rating, suggesting that they see limited upside in the short term, while four others have a “sell” rating, reflecting concerns about the company’s ability to sustain growth in the face of rising costs and other operational challenges.
Investors are closely watching Trent’s next steps, particularly as the company navigates these recent hurdles. The stock’s performance has been volatile throughout the year, with significant gains of over 103% seen in the past 12 months. In early October, the stock reached a 52-week high of Rs 54.25, but recent volatility has wiped out much of those gains, with shares falling more than 12% in October alone and continuing their downward trend into November.
Trent’s growth story has been largely driven by its strong presence in the retail and fashion industries, with brands like Westside, Zudio, and others contributing to its success. The company has also made significant inroads into the e-commerce space, and its continued expansion into the value retail market has helped boost its revenue. However, the recent closure of stores in its key fashion segments raises questions about the sustainability of its growth strategy in the face of shifting consumer preferences and increased competition.
Looking ahead, the management remains hopeful that strategic investments in its fashion and lifestyle businesses will help Trent regain momentum. The company has emphasized its commitment to innovating and capturing new market share, particularly in its e-commerce and value retail segments. However, investors will need to see tangible results from these efforts before confidence in the stock is restored.
For now, Trent is facing significant challenges in its pursuit of long-term growth, and the market’s reaction to the recent quarterly results is a clear reflection of the cautious sentiment surrounding the company’s future. The ongoing volatility in the stock price and mixed analyst outlook suggest that investors should approach the stock with caution until there are clearer signals of a recovery in its financial performance and operational execution.
