Trent's epic run is class apart

Trent, the emerging jewel in Tata's consumer portfolio, is a standout performer in India's competitive retail landscape.

Despite challenges facing the sector, Trent has demonstrated remarkable growth and profitability, positioning itself as a leader in the apparel and lifestyle segment.

Sales are accelerating:

• Trent's sales skyrocketed from ₹2,593 crore in FY2021 to ₹12,375 crore in FY2024, showcasing an impressive 377% growth over three years.
• The company's 3-year sales CAGR stands at an exceptional 68%, far outpacing industry averages.
• Recent performance shows continued momentum, with a 53% year-over-year increase in sales.

Profitability is also keeping pace:

• Net profit surged from a loss of ₹181 crore in FY2021 to a profit of ₹1,477 crore in FY2024.
• The company boasts a 5-year profit CAGR of 57%, demonstrating consistent improvement.
• Operating profit margins strengthened from 4% in FY2021 to 16% in FY2024, indicating sustained operational efficiency.

Trent's capital deployment has been promising:

• Return on Capital Employed (ROCE) improved dramatically from 2% in FY2021 to 24% in FY2024, reflecting highly efficient use of capital.
• Working capital management has improved, with the cash conversion cycle increasing from 40 days in FY2021 to 45 days in FY2024.

State of play: Trent's stock price has seen a remarkable 1-year return of 233%, significantly outperforming the broader market and its peers.

• With a current market cap of ₹223,081 crore, Trent ranks among the top players in the retail sector.
• The company has maintained a healthy dividend payout of 27.4%, rewarding shareholders while reinvesting for growth.

Context: Despite strong performance, valuation may be a growing concern. The stock is trading at a high price-to-earnings ratio of 178 and 54.8 times its book value. A significant portion of earnings (₹1,012 crore) comes from other income.

• As part of the Tata Group, Trent benefits from strong brand recognition and potential synergies within the group.

Big picture: Trent's fortunes are tied to India's explosive retail sector, which is on a sustainable growth curve. The company's focus on apparel, footwear, and lifestyle products aligns well with India's growing middle class and increasing discretionary spending.

• Trent's ability to adapt to changing consumer preferences and its multi-format approach (including e-commerce) also provide a strong foundation for continued success.

Bottomline: While the high valuation multiples pose some risk, Trent's consistent execution and strategic positioning in India's growing retail market offer significant potential. For investors, Trent represents an opportunity to participate in India's consumption growth story through a proven market leader.