Trent's Zudio is a 'multi-year share gain story', says Goldman Sachs, projects 27% upside

Brokerage firm Goldman Sachs has initiated coverage on Tata Group's Trent Ltd. with a "buy" rating with a price target of ₹8,000. Goldman Sachs' price target implies a potential upside of 27% on Trent from Friday's closing levels.

Trent shares have recently entered the Nifty 50 index and have corrected 25% from its peak of ₹8,345. The fall in Trent's shares accelerated after a marginal miss to its already elevated expectations from its September quarter results.

Goldman Sachs termed Trent's Zudio as a "multi-year share gain story" with low competitive risk.

Zudio's business model is not easy to replicate, according to Goldman Sachs, who expects Zudio's market share to rise to nearly 5% from close to 1% between financial year 2024 to 2035, implying its sales to grow at a Compounded Annual Growth Rate (CAGR) of 27%.

"We believe this is achievable as the average market share of leading apparel brands in key countries is close to 6%," Goldman said in its note.

The brokerage expects competition from online players to be unlikely due to the low transaction size in value retail and Zudio's highly efficient cost structure, low discounts.

A moderation in Zudio's store additions impacted Trent's September quarter results, according to Goldman Sachs, who expects store additions to improve to 175 - 200 in financial year 2026 and 2027 as demand conditions improve.

Goldman Sachs expects Trent's revenue, EBITDA and Net Profit to grow at a Compounded Annual Growth Rate (CAGR) of 28%, 34% and 29% between financial year 2024 - 2030.

Out of the 22 analysts that have coverage on Trent, 13 of them have a "buy" rating on the stock, five of them say "hold", while four of them have a "sell" rating on the stock.

Shares of Trent are currently trading little changed at ₹6,308. The stock, despite the correction from the peak, is still up 110% so far in 2024.