Retail stock darling Trent Ltd has been hit by back-to-back downgrades, with HSBC becoming the latest brokerage to cut its target price for the Tata Group firm. Despite a stellar FY24 performance and strong same-store sales growth, HSBC believes valuation premiums may no longer be justified.
📉 HSBC Downgrades Trent: What Happened?
HSBC downgraded Trent from “Buy” to “Hold”, slashing the target price from ₹5,200 to ₹4,300, citing the following three primary reasons:
🔍 1. Lofty Valuations vs Sector Peers
Despite consistent growth, Trent is trading at a 2.5x premium to its retail peers such as D-Mart and V-Mart. HSBC noted that Trent’s P/E multiple near 80x is “difficult to justify” in the current macro environment.
💸 2. Margin Pressures Amid Expansion
With aggressive expansion plans — including Zudio store launches across Tier-2 and Tier-3 cities — the company is facing pressure on EBITDA margins, which declined 140 bps in Q4 FY24.
🛍️ 3. Slower Footfall Growth
Despite revenue growth, HSBC flagged that footfall growth has started to plateau, especially in metro locations. This could dampen same-store sales growth (SSSG) over the next few quarters.
🧾 Vizzve Financial Insight
“Investors must differentiate between price momentum and valuation discipline,” says Meera Iyer, Equity Strategist at Vizzve Financial. “While Trent has strong fundamentals, multiple compression is inevitable if earnings growth fails to keep pace.”
Vizzve recommends rebalancing portfolios if exposure to Trent exceeds 12% of retail sector holdings. It also points to upcoming earnings from Reliance Retail and DMart as potential sector benchmarks.
❓ FAQ – Trent Downgrade by HSBC
Q1: Is Trent still a good stock to hold after the downgrade?
A: It depends on your time horizon. Long-term fundamentals remain strong, but short-term returns may be muted due to valuation compression.
Q2: Will other brokerages also cut their target prices?
A: Some already have. Jefferies and Nomura have issued cautionary notes but haven’t downgraded yet.
Q3: How does this affect retail investors?
A: Retail investors may consider booking partial profits or waiting for a dip before entering again.
Q4: Is Trent's growth story over?
A: Not at all. Trent is still expanding aggressively, but market sentiment has turned cautious due to pricing multiples.
Q5: What does Vizzve Financial recommend now?
A: Vizzve suggests a “Hold with Caution” stance. For new entries, wait for a valuation correction or guidance from Q1 FY25 results.
🏁 Conclusion
While Trent remains a formidable player in India’s organized retail boom, analyst concerns over valuations and growth metrics have made investors wary. With brokerage downgrades adding to the pressure, it's time for investors to reassess risk appetite and rely on data-backed strategies.
For deeper financial insights, portfolio reviews, and sector-wise stock comparisons, visit Vizzve Financial.
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Published on July 7, 2025 • By Benny
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