Tata-group firm Trent reported its slowest growth in at least sixteen quarters in Q2, triggering a meltdown on the bourses on Monday. The stock slumped over 7% on the BSE to Rs 4,282.35 apiece, after the company saw Q2 topline growth come in at 11.3% on Friday, below its revenue growth target of 25% set in July during its annual general meeting.
The weak performance triggered a wave of downgrades and target cuts from brokerages as they turned cautious on the company citing competitive pressures. “Consumption trends remain weak, with increasing competition, cannibalisation, and aggressive expansion in tier-2 and tier-3 markets,” brokerage Citi said on Monday, while downgrading the stock to ‘sell.’
Trent has flagged weak consumer sentiment in Q2 for its underwhelming performance including the spate of unseasonal rains during the quarter that has hurt out-of-home shopping and retail in general.
While Trent’s focus on its value-retail format Zudio is higher than Westside, a more premium offering — as it added 229 stores in Zudio in a year in Q2 versus 35 added in Westside — retail experts say regional-focused players are giving national players such as Zudio a tougher time.
“Value retail is a competitive segment where you have organised and unorganised players dotting the landscape. The organised regional players, in particular, such as V-Mart, V2 and Vishal Mega Mart in the north or Bazaar Style Retail in the east have a deeper understanding of their respective markets and have positioned themselves sharply in terms of pricing and apparel trends in these regions,” Jaydeep Shetty, a Mumbai-based retail expert, said.
Value retailers, including Zudio, are typically below the Rs 1,000-mark in terms of pricing of clothing and accessories to attract maximum footfalls from families and young consumers. Price points can vary from Rs 49 for a lipstick at Zudio going up to Rs 999 for men’s and women’s apparel. But regional players are churning portfolios more often, experts said, introducing newer styles and trends quickly to ensure footfalls are consistent throughout the year. Unorganised players, on the other hand, “play on price”, offering apparels at under Rs 500, experts said. While e-commerce platforms also add pressure, offering heavy discounts and frequent sale events, drawing the attention of younger consumers, they added.
Brokerage Motilal Oswal while keeping a ‘buy’ call on the stock, reduced its target price to Rs 6,000 apiece on Monday. This implies an upside of nearly 30% versus the Monday’s close.
The brokerage also said that Trent had seen a sharp 17% year-on-year decline in revenue per square foot in Q2 amid muted sentiment and competitive intensity. This is even as it has reported a 43% year-on-year increase in retail area added during the quarter, implying the retailer may have to slow down store additions, notably, in Zudio, to address the slowdown in revenue growth.