Kotak Equities downgrades Trent to ‘sell’, stock down by nearly 4%

The shares of Trent, the fashion and retail arm of the Tata Group, witnessed a decline of 3.7% on Thursday and hit their day’s low of Rs 6,152.50 on the BSE after domestic brokerage firm Kotak Institutional Equities downgraded the stock to ‘sell’ from an earlier ‘add’ rating.

The domestic brokerage has also lowered the target price for Trent shares to Rs 5,850 from Rs 6,800.

While acknowledging Trent’s robust growth narrative, Kotak maintained that this positive outlook is now fully factored into the stock’s current market value, suggesting that there is limited upside potential in the stock from its current levels.

A key concern highlighted by Kotak is the rapid expansion of Zudio, Trent’s value fashion brand. The brokerage believes that Zudio has expanded too aggressively, resulting in an overabundance of stores in select urban pockets. This saturation could potentially lead to cannibalization of sales within existing stores and limit further growth potential.

Furthermore, the brokerage firm also expressed disappointment with the pace of store additions for Westside, Trent’s premium apparel brand. Similarly, the expansion of Star stores, Trent’s large-format retail outlets, has also fallen short of expectations, raising concerns about the company’s overall growth strategy.

In light of these concerns regarding store expansion and potential market saturation, Kotak has revised its financial projections for Trent. The brokerage firm has cut its revenue estimates for fiscal years 2025-2027 (FY25-27) by 1-2% and its earnings per share (EPS) estimates by a more substantial 9-14%.Also read: RIL posted three consecutive quarters of profit decline. Will Q3 deliver big?“After a period of significant stock price appreciation, investors who have profited from Trent’s upward trajectory may consider booking profits,” recommended Kotak in its note.

The above view and recommendation from the brokerage firm potentially imply that the stock’s current valuation now seems to be stretched and that there may be a risk of a potential correction.

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times)