Trent growth outlook supported by Zudio scale and accelerating Star expansion

Investment View and Valuation

Motilal Oswal Financial Services reiterates its Buy rating on Trent with an unchanged target price of Rs 3,500, compared with a CMP of Rs 3,143. The broker believes Trent remains at an early stage of a long-term, multi-format retail growth opportunity. Its estimated market share in India's fashion and lifestyle retail market is only about 2 per cent.

Since setting its 10x revenue and commensurate profitability ambition in 2023, Trent has delivered more than 2.5x revenue growth and more than 3x profit growth. Management indicated that this performance is ahead of its roadmap.

The target price is based on a sum-of-the-parts valuation using 45x FY28E EV/pre-IND AS EBITDA for Westside and Zudio, 2.5x EV/sales for the Star joint venture and about 2x EV/EBITDA for the Zara joint venture. Further re-rating depends on sustained revenue-growth acceleration and corresponding earnings upgrades.

Westside Expansion and Online Growth

Westside had 300 stores across 97 cities at the end of FY26, following 52 net additions and entry into 11 new cities. Management is targeting about 50 additions annually and sees a long-term opportunity for approximately 700 stores. Motilal Oswal takes a more conservative view, forecasting 35-40 net additions annually in FY27E and FY28E.

Westside's 100 per cent own-brand model, rapid merchandise refresh and more than 80 per cent domestic sourcing support product differentiation and pricing power. Online sales grew 32 per cent year-on-year in FY26. E-commerce contributed about 6 per cent of format revenue, which the Chairman estimated at Rs 3,000 crore.

Zudio Remains the Key Growth Anchor

Zudio ended FY26 with 963 stores across 313 cities, including six stores in the UAE. This followed 198 net additions and entry into 78 new cities. Management sees medium- to long-term potential for approximately 5,000 Zudio stores and is targeting 200-250 additions annually. Uttar Pradesh, Chhattisgarh, Jharkhand, Odisha and West Bengal have been identified as key opportunities.

Motilal Oswal forecasts 200-210 Zudio additions in both FY27E and FY28E. FY26 like-for-like growth moderated because new stores started from a higher revenue base and certain micro-markets experienced densification. Nevertheless, Trent continues to aspire to early double-digit like-for-like growth.

Zudio's UAE business is profitable except in recent months affected by war. Management plans to refine the overseas assortment before undertaking wider international expansion.

Star: Large Food and Grocery Opportunity

Star remains a large untapped opportunity, with 84 stores in 11 cities despite food and grocery accounting for about 65 per cent of India's retail market. Trent is reconfiguring the network and expects this process to be completed by FY27. Reconfigured stores are generating roughly two to three times the throughput of legacy stores.

Star's competitive strengths include a 73 per cent private-label sales mix, supply-chain investment and direct sourcing. Management expects store additions to accelerate to 25-40 annually, compared with 6-12 net openings in FY25 and FY26. Motilal Oswal assumes 15-20 annual additions in FY27E and FY28E.

An impending Rs 2,500 crore fund raise is intended to support warehouses, IT, artificial intelligence deployment and selective real-estate acquisitions for Star.

Growth Recovery and Financial Outlook

Motilal Oswal says Trent saw a growth recovery in Q4 FY26 after several quarters of deceleration. Channel checks indicate that sales declines in cannibalised stores have eased and like-for-like recovery is under way.

The broker nevertheless flags pressure on store productivity in FY27, as tier-2-plus stores generally have lower initial productivity and take longer to mature than stores in metro and tier-1 locations. Margin expansion is expected to depend largely on a recovery in like-for-like growth, although cost control supported healthy profitability in FY26.

Motilal Oswal forecasts consolidated FY26-FY28E compound annual growth of 21 per cent in revenue, 19 per cent in pre-IND AS EBITDA and 17 per cent in adjusted PAT.

Emerging Formats and Execution Considerations

Emerging formats including Burnt Toast, Samoh and POME remain in incubation. Capital deployment will be linked to customer acceptance and unit economics rather than an aggressive rollout.

The key execution consideration is the pace at which newer tier-2-plus stores mature and like-for-like growth recovers. Sustained revenue-growth acceleration and resulting earnings upgrades are required for further valuation re-rating.