Tata Group’s Trent jumps 5% to new high on hopes of inclusion in Nifty, up 13% in 8 sessions

Shares of Tata Group's Trent surged over 5 percent on Wednesday, reaching a new high and extending rally. The stock has gained more than 13 percent in 8 sessions. The rally is driven by market speculation that Trent will be included in the Nifty 50 index during the upcoming September reshuffle.

The Nifty 50 index is reviewed twice a year based on six-month data ending January 31 and June 30. The next index reshuffle will take effect from September 30.

Trent's stock advanced as much as 5.3 percent, hitting a record high of ₹5,916.55 during Wednesday's trading. This marks a substantial 254 percent increase from its 52-week low of ₹1,672 recorded on August 3, 2023. The stock closed 3.8 percent higher at ₹5,835.45, continuing its impressive performance over the past year, with a 220 percent increase. In 2024 alone, the stock has jumped over 91 percent, with a 6.66 percent gain in July, marking the twelfth consecutive month of growth since August 2023.

Analysts from IDBI Capital suggest that Trent and Bharat Electronics (BEL) are likely to replace LTI Mindtree and Divi's Laboratories in the upcoming Nifty 50 reshuffle. Nuvama Alternative analysts estimate that this change could result in inflows of approximately $429 million for Trent and $361 million for BEL, while LTI Mindtree and Divi's Labs might experience outflows of $186 million and $213 million, respectively.

In the quarter ending June, Trent is expected to report a 51.5 percent year-on-year increase in net sales to ₹3,843 crore, driven by new store additions in its Zudio and Westside brands. Kotak Institutional Equities projects the company's profit to more than double, with a 155 percent YoY rise to ₹379 crore in Q1FY25. Strong revenue growth and fixed cost operating leverage are anticipated to boost earnings before interest, tax, depreciation, and amortization (EBITDA) by 68 percent YoY to ₹613 crore in Q1FY25, enhancing EBITDA margins by 153 basis points to 16 percent for the quarter.

Trent, a Tata Group company, operates various retail brands including Westside and Zudio, which offer fashionable apparel at great value, and Trent Hypermarket, which competes in the food, grocery, and daily needs segment under the Star banner. The company reported strong revenue growth in FY24, with a 55 percent increase in standalone and a 50 percent increase in consolidated revenues, supported by a 51 percent YoY increase in area and 10 percent like-for-like (LFL) growth. Despite a slight decline in gross margins due to a higher mix of Zudio, EBITDA margins (pre Ind-AS) improved to 11.7 percent, driven by reduced advertising spending and operational leverage.

Trent's exceptional performance contrasts with the muted demand in the discretionary category, as noted by Motilal Oswal Financial Services. The company achieved industry-leading LFL growth of 10 percent, gaining market share in the apparel segment, particularly in value formats. Despite aggressive store expansions, Trent maintains a strong balance sheet and operational efficiency, driven by robust same-store sales growth, productive footprint additions, and Zudio’s compelling value proposition.

Trent's stellar performance and robust financial health position it as a strong candidate for inclusion in the Nifty 50 index, further boosting investor confidence. As the company continues to expand its footprint and enhance its value proposition, it remains a standout performer in the retail sector, demonstrating resilience and growth in a challenging market environment.

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