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Aggressive expansion continues to drive growth

We pored over Trent’s FY25 annual report to get insights about its performance and other key developments. Here are the key takeaways:

Stellar growth continued, albeit with some moderation in LFL

* Trent reported revenue growth of 40% YoY, aided by footprint expansion (29%/40% YoY store/area additions) and double-digit LFL (SPSF up 4% YoY).

* Trent added 16/220 net Westside/Zudio stores and consolidated four other format stores to cross 1,000+ stores across its fashion formats.

* However, Trent’s growth rate moderated in the past few quarters due to high base and contraction in LFL growth to a mid-single digit by 4QFY25.

* Despite ~70bp contraction in GM, reported/pre-IND AS 116 EBITDA margin expanded ~35bp/105bp YoY, aided by operating leverage, especially on employee and rental costs (2% YoY decline to ~INR179/sqft per month).

* Trent’s OCF rose to ~INR10b (vs. INR7.8b YoY), driven by strong profitability, while FCF moderated to INR1.9b (vs. INR4b in FY24) due to higher capex.

* The company also saw an improvement in its return profile in FY25, backed by higher profitability and asset turns.

Westside: Growth impacted by store consolidation

? Westside store count grew by a modest ~7% YoY to 248 stores in FY25. New stores were added primarily in the top 7 states while consolidating the footprint in several states.

? Westside retail area increased by 20% YoY to 5.4m sqft, with sharp ~12% YoY increase in average store size to ~22k sqft (vs. 19.3k sqft in FY24) as the company consolidated smaller Westside stores and opened bigger stores.

? We expect ~17-18 annual store additions in Westside (~11% retail area CAGR over FY25-28E) as Trent continues to focus on larger stores with more space dedicated to emerging categories such as footwear, beauty, innerwear and lab-grown diamonds (LGDs).

Zudio: Scaled up to USD1b+ brand by sales

* Zudio continued to deliver robust growth, crossing USD1b in sales, led by footprint expansions (added net 220 stores in FY25, +40% YoY) with area addition of 58% YoY.

* Zudio entered 67 cities and strengthened its presence in large, highpotential markets, though its footprint concentration in the top 7 states is gradually decreasing (64% of stores in FY25 vs. ~68% in FY24).

* Despite strong footprint additions (~57% CAGR over FY20-25), we believe there is still significant headroom for growth in underpenetrated regions such as Bihar, Jharkhand and Uttar Pradesh, where other organized retailers have a stronger presence.

* We expect Trent to further add ~235 Zudio stores annually over FY26-28 to reach ~1,500 stores by FY28, while expanding the average store size of store to deliver ~26% retail area CAGR over FY25-28.

Star: Long runway for growth

* Star delivered ~24% YoY growth in sales to reach INR35b, driven by 12 net store additions (total 78 stores).

* Trent Hypermarket (THPL), which operates the majority of Star stores, reported ~20% gross margin (vs. ~14% for DMart), driven by its focus on improving the contribution from its private labels (reached 73% revenue share vs. 67% YoY).

* However, THPL again slipped into the red with an operating loss of INR120m, likely driven by a change in lease accounting (other expenses up 36% YoY, while depreciation and interest costs declined sharply).

* During FY25, Star strengthened its focus on fresh business by improving sourcing, store network, and supply chain infrastructure to provide a differentiated customer proposition.

* India’s grocery market, estimated at INR60t, presents a massive growth runway for Star. With presence in just 10 cities and continued focus on improving store productivity and enhancing private label penetration, we believe the business is well-positioned to capitalize on this opportunity.

Scaling up emerging categories key to sustained growth

* The share of emerging categories in Trent’s revenue has now inched up to ~20%, driven by robust volume growth.

* Trent has scaled up the emerging categories such as Beauty (65% YoY to 81m units, higher than several BPC players), Innerwear (47% YoY to 50m units vs. ~220m sold by industry leader) and Footwear (42% YoY to 27m units, even higher than footwear retailers such as Metro and Campus).

* The company is looking to ramp up its presence in the Beauty segment through Zudio Beauty and has also recently launched its range of LGDs under the brand “Pome”.

* We believe the scale-up on these initiatives are key to sustained growth.

Valuation and view

* TRENT's growth rate has moderated in the last few quarters, though still robust, amid a weak discretionary demand environment.

* Back-ended strong store additions in Zudio should drive growth in FY26. However, a recovery in SSSG across fashion and Star formats would be a key near-term monitorable.

* We continue to like Trent for its robust footprint additions, strong double-digit growth, long runway for growth in Star (presence in just 10 cities) and potential scale-up of new categories (Beauty, Innerwear, and LGDs).

* Our FY26-27 estimates are broadly unchanged. We build in FY25-28E CAGR of ~21%/20%/18% in standalone revenue/EBITDA/PAT, driven by the continuation of robust area additions in Zudio.

* We assign 54x Jun'27E EV/EBITDA to the standalone business (Westside and Zudio; a premium over our Retail Universe, given TRENT's superior growth), ~3x Jun’27E EV/sales to Star JV, and 6.5x EV/EBITDA to Zara JV to arrive at our revised TP of INR6,650 (vs. INR6,600 earlier).

* Adjusting the value of Star and Zara, the stock is trading at 77x Jun’27E PE for the standalone business (vs. ~90x LT average 1-year forward PE). We reiterate our BUY rating.

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