In a conversation with ET Now, Jignanshu Gor from Bernstein India offered a detailed breakdown of the company’s Q4 performance, shedding light on profitability trends, margin dynamics, and the road ahead for its key brands, Westside and Zudio.
Seasonal Volatility Masks Underlying StabilityAddressing the sequential drop in profit—from Rs 513 crore to Rs 413 crore—Gor emphasised that quarter-on-quarter comparisons may not present the full picture.“So, Trent, the way we read Q4 numbers is largely on a YoY basis because there is seasonality across the quarters, especially the festive quarter does very well for apparel players in general,” he said.
He noted that margins have improved due to two primary factors: operational efficiency and brand mix.“Margin—I was overhearing the conversation, and I broadly agree—a large part of the margin uptick that we are seeing is for two reasons. One is the employee cost reduction or optimisation that the company has been doing, with a focus on RFID in all its stores. Now it is 100% everywhere—you see a tag has an RFID sticker on it—which reduces the number of people that you need overall.”“The second big reason is that Westside has done better than Zudio, and hence your gross margins have been better this year versus last year.”However, he flagged a key concern: declining productivity.
“When you look at a more fundamental metric—revenue per square foot—it is lower YoY, and that tells you what Sajeet was mentioning: that we do not expect the margins to improve from here. Even if they are able to sustain it here, it will be very positive for the stock.”
Zudio’s Expansion: Still Room to GrowZudio, Trent’s fast-fashion value brand, now operates 963 stores, including its first international outlets in the UAE. While rapid expansion often raises concerns about diminishing returns, Gor believes the runway remains long.
“The way we think about expansion in the Indian context is that ROCE remains constant, but value per store does not go up—it is not better in a smaller town,” he explained.
“So, when a company goes from a large city to a small city, they have lower revenue per square foot, but they also have lower costs per square foot. Typically, margin profiles are similar in a smaller town, and initially, when you are a new introduction to a town, they are actually better because there is a lack of organised options as good as Zudio.”
He added that while incremental store value may decline, capital expenditure requirements also reduce proportionally.
“When does expansion stop? We think there is still a lot of headroom for growth. Today, they are in around 300 cities. Some of the larger players have gone to 600 cities already.”
Westside’s Outperformance Not Just About PricingWestside’s stronger performance relative to Zudio has raised questions about consumer stress in lower price segments. However, Gor believes the explanation is more nuanced.
“So, I think that is one angle. Maybe there are two other factors for Westside’s share of Zudio revenue increasing,” he said.
“One is just faster store additions. This year, Westside added 50-plus stores, which is higher than what they have added in any of the previous years.”
“The second is that the competitive intensity for Westside has been softer than for Zudio. On Westside, we feel Shoppers Stop, Pantaloons, and Lifestyle are all struggling with their own value proposition, whereas Westside has sort of figured out a place in the consumer’s psyche.”
Fundraise Signals Strategic ShiftTrent’s Rs 2,500 crore fundraise has sparked debate around its free cash flow position. Gor dismissed concerns about core business sustainability.
“Yes, so we do not think it is for the core business because you are right—in our view, the core business, despite increasing capex over the years, has been generating positive free cash flow,” he said.
“This year, approximately Rs 300 crore of free cash flow was generated despite capex—not just in stores but also increased office space capex in their Mumbai offices.”
Instead, he suggested the funds may be earmarked for expansion beyond existing operations.
“So, we think this is for either inorganic growth or faster adoption of Star, for which they do not have capex. That is what is mentioned in the rights issue as well.”
Valuation Reset After Sharp CorrectionAfter a significant correction from its highs, Trent’s valuation is now being reassessed by the market.
“We think that a 20% growth stock will get anywhere around a 60 to 65 multiple, and that is the benchmark that we go with,” Gor explained.
“That is why we think a fair price for this over the next 12-month period is around Rs 5,000, from the current value of Rs 4,400–4,500.”
Near-Term Outlook: Cautious OptimismLooking ahead, Gor struck a balanced tone—highlighting both risks and recovery potential.
“Just consumer demand, but also the supply for apparel players—because Trent runs on a thinner working capital cycle or inventory cycle—they have sort of 90 days of inventory versus most of the others running at 150 to 180 days. So, supply chain disruptions will hurt Trent first,” he noted.
He also expressed caution about near-term demand.
“So, we do think that, given where the macro situation is—with inflation coming in, which the company also mentions—we are a little cautious on near-term demand for Q1, Q2 of FY27.”
Still, there are signs of recovery on the horizon.
“We expect Zudio to recover now on their SSSG/LFL as the base effect becomes better for Zudio stores going forward in FY27 as well.”
Summing up, he added: “We remain cautiously optimistic, but we are not saying that we expect a 25–30% growth number to come back. It will be a far more cautious story going forward.”
When asked directly about near-term growth, Gor concluded: “We are building in 19% to 20% right now.”
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