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Robust growth, albeit weaker than lofty expectations on store consolidation

* Trent Ltd (TRENT) continued to buck the weak consumer sentiment trends, delivering robust ~40% YoY revenue (though weaker than 50%+ YoY in the past few quarters) and 46% YoY PAT growth in 2Q. Star business continued its strong growth momentum with ~27% YoY growth on robust 14% LFL growth.

* However, revenue/EBITDA were 6-8% below our estimates on account of significant store consolidation (net 8 store additions).

* We lower FY25-26E revenue/EBITDA by 5-6%, while PAT is largely unchanged. We build in FY24-27 CAGR of 34%/37%/30% in standalone revenue/EBITDA/PAT, driven by strong store additions and healthy SSSG.

* We assign 60x Dec’26 EV/EBITDA to the standalone business (Westside and Zudio; a premium over our Retail Universe, given TRENT’s superlative growth), 3x Dec’26 EV/sales to Star JV, and 8x EV/EBITDA to Zara JV to arrive at our TP of INR8,200. Adjusting the value of Star and Zara, the stock is trading at 75x Dec’26 PE for the Standalone business (vs. 88x LT average 1-year forward PE). We reiterate our BUY rating

Robust growth, albeit weaker versus TRENT’s recent track record

* Standalone revenue at INR40b (6% miss) grew 40% YoY (vs. 57% YoY in 1Q), driven by 26% YoY net store additions and double-digit LFL growth.

* Gross profit grew 38% YoY to INR17.8b (9% miss) as margins contracted ~50bp YoY to 44.2%, possibly on higher discounts.

* Employee/other expenses grew 37%/38% YoY and were 14%/9% below our estimates.

* As a result, EBITDA grew 39% YoY to INR6.4b (8% miss) as lower gross margin was offset by operating leverage benefits.

* Reported EBITDA margins were broadly stable YoY at 15.9%,

* According to the company, the Standalone Pre-Ind AS EBIT margin came in at 10.8% (up 100bp/20bp YoY/QoQ).

* PAT grew 46% YoY to INR4.2b (7% beat) as weaker EBITDA was offset by higher other income (up 3X QoQ).

* For 1HFY25, TRENT’s revenue/EBITDA/adj. PAT grew 48%/51%/75%. Based on our estimates, the implied revenue/EBITDA/adj. PAT growth for 2H is 36%/39%/57% (lower ask rate than TRENT’s recent track record).

Store consolidation offset strong store additions in Zudio

* stores across formats.

* TRENT added 7 Westside stores and consolidated 9 stores, taking the total count to 226 stores (vs. 228 QoQ). Westside exited 5 cities in 2Q (10 in 1H).

* TRENT added net 18 Zudios (opened 34; closed 16), taking the total count to 577, including 1 in UAE. Zudio expanded its presence in 20 cities in 2Q.

* TRENT also consolidated 8 other format stores, taking its count to 28.

Star: Healthy performance sustains

* Star revenue grew ~27% YoY (vs. 29% YoY in 1Q), driven by 14% LFL (22% YoY in 1Q) and ~10% store additions. ? Star opened net 2 stores in 2Q, taking the count to 74 stores (8 net store additions in 1H). ? Calculated revenue per sq ft was up 10% YoY to INR31.2k (vs. flat YoY for DMart at INR36k) and revenue per store increased 13% YoY to INR492m (vs. +1% YoY for DMart at INR1.5b). ? The share of its own brands’ offerings now accounts for 73%+ of Star’s revenue. ? Among product categories, Fresh outperformed with ~43% YoY growth, while FMCG growth moderated further to 13% YoY (from 15% YoY in 1Q).

Highlights from the management commentary

* Fashion concepts (Westside, Zudio, and others) posted double-digit LFL growth despite subdued consumer sentiments.

* Emerging categories, including beauty and personal care, innerwear, and footwear, contributed over 20% to standalone revenues.

* Online revenues continue to grow profitably through Westside.com and other Tata group platforms, contributing over 5% to Westside revenues.

Valuation and view

* TRENT continues to buck the trends, with strong double-digit LFL growth and robust store area additions, despite a weak discretionary demand

* TRENT’s industry-leading growth, driven by healthy SSSG, store productivity, and robust footprint additions, along with the scale-up of Zudio and newer categories (Beauty, Lab-grown diamonds), offer a huge runway for growth over the next few years.

* Further, TRENT’s focus on ramping up Star (currently 74 stores in 10 cities) through Fresh and its own brands, provide an additional growth driver in the grocery segment.

* We lower our standalone FY25-26E revenue and EBITDA estimates by 5-6%, while our PAT estimates are broadly unchanged on lower finance cost and higher other income.

* We build in a CAGR of 34%/37%/30% in standalone revenue/EBITDA/PAT over FY24-27, driven by a robust 21% CAGR in-store addition and healthy SSSG.

* We assign 60x Dec’26 EV/EBITDA to the standalone business (Westside and Zudio; premium over our Retail Universe, given its superlative growth), 3x Dec’26 EV/sales to Star JV, and 8x EV/EBITDA to Zara JV to arrive at our TP of INR8,200. Adjusting the value of Star and Zara, the stock is trading at 75x Dec’26 PE for the Standalone business (vs. 88x LT average 1-year forward PE). We reiterate our BUY rating

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