Trent falls 3% as Zudio hits Q4 margins

HDFC Securities attributed the fall in margins, from 9.3 percent to 10.1 percent, to front-loading of Zudio-related costs. Trent’s Q4 net profit came in at Rs 54.2 crore, up from Rs 20.87 crore in the year-ago period

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Trent was trading almost 4 percent lower at noon on April 28, a day after the Tata group company reported stellar numbers for the March quarter but slipped on margin.

Trent’s net profit came in at Rs 54.2 crore against Rs 20.87 crore in the year-ago period, the company said after market hours on April 27.

Revenue from operations grew 64 percent year on year (YoY) to Rs 2,182.8 crore from Rs 1,328.9 crore in Q4 FY22. While EBITDA (earnings before interest, taxes, depreciation and amortization) jumped 50.8 percent to Rs 203 crore, margins declined to 9.3 percent from 10.1 percent.

Trent took a knock on the margin disappointment, with the share trading at Rs 1,333 at 12 pm on the National Stock Exchange, down 3.5 percent from the previous close. The stock has been flat this year, so far.

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Brokerage view

But analysts are not too worried. According to ICICI Securities, the decline in margins can be attributed to the increased revenue share from Zudio, which accounts for approximately 35 percent of revenue based on its estimates.

Trent’s Zudio caters to value fashion, while Westside is positioned for the mid to high-segment customers.

“Nevertheless, the higher inventory turnover at Zudio is expected to counterbalance the effects of the reduced gross margin and have a positive impact on the net profit margin,” it said.

The brokerage has a “buy” rating on the stock with a target price of Rs 1,382.

HDFC Securities has also attributed the fall in margin to front-loading of Zudio-related costs.

“Zudio’s blitz scaling continues to be the big needle-mover for the company. We expect FY24/25 to mark higher absorption of fixed costs. Hence, we have a sell rating at Rs 1,110,” it said in a report.

For Axis Securities, reducing losses in Star Bazaar and improving traction in Inditex JV are positive signs for the company. It has a “buy” rating on the stock with a target of Rs 1,700.

IIFL Securities said current valuations at a trailing P/E of 122x are already pricing in high growth in the medium term, leaving little room for execution errors. It has an “add” rating with a target price of Rs 1,500.

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