Trent Limited, the Tata group's fashion retail giant and a constituent of the Nifty 50 index, has delivered a shocking performance in 2025, emerging as the worst-performing stock in the benchmark index. The company, which operates popular chains like Westside and Zudio, witnessed a dramatic meltdown, shedding 40% of its value over the last year.
A Stark Contrast to Market Performance
This sharp decline stands in stark contrast to the broader market, where the Nifty 50 index itself rose by 10.5% during the same period. This marks a significant reversal of fortune for Trent, recording its first annual fall after a gap of 11 years. However, it's crucial to note the long-term perspective: despite the recent crash, the stock remains a multibagger for patient investors, having delivered a staggering 552% return over the past five years. This dramatic swing naturally poses a critical question for shareholders: is it time to exit or stay invested for the next phase?
Decoding the Reasons Behind the Crash
Analysts point to a major valuation reset as the primary driver behind Trent's underperformance. The stock's premium valuation, with a price-to-earnings (P/E) ratio hovering near triple digits, became unsustainable as growth moderated. Vinit Bolinjkar, Head of Research at Ventura, explained that growth pains became evident after FY25. While revenue per square foot remained resilient at over ₹15,000, the overall topline growth cooled due to store densification and a broader economic slowdown.
"Margins were squeezed by intense competition from players like Reliance Retail and Aditya Birla Fashion, alongside rising input costs," Bolinjkar added. He also highlighted that aggressive capital expenditure for opening more than 100 stores annually is straining cash flows, even though operating cash flow improved to ₹1,120 crore.
Vaqarjaved Khan, CFA and Senior Fundamental Analyst at Angel One, provided a nuanced view. He stated that operationally, Trent's growth did not collapse, but its quality deteriorated. The revenue momentum was largely fueled by aggressive store additions, while like-for-like sales growth slipped into low single digits. This indicates underlying demand softness and early signs of new stores cannibalising sales from existing ones.
Analyst Outlook and the Path to Recovery
Despite the correction, analysts note that valuations remain elevated at a P/E of 95x, down from 101x. Foreign institutional investor (FII) outflows and technical weakness have added further pressure. However, there is a silver lining. Bolinjkar anticipates a potential rebound in the first half of 2026 as the company's expansion matures with new formats like Star Bazaar and Zudio Ramp. He expects a recovery in margins through operational leverage, potentially reaching 8-9%, and a resumption of sales growth at a 20-25% compound annual rate. This long-term potential supports a 'buy-on-dips' strategy at current levels, according to him.
Khan from Angel One believes the future rerating in 2026 will depend on key factors. "A meaningful recovery hinges on a rebound in same-store sales growth, margin stabilisation despite Zudio's scale-up, and evidence that growth becomes productivity-led rather than purely driven by adding new stores," he opined. He also noted that the new Star grocery format offers optional upside, and the reduction of stake in the Zara joint venture enhances capital flexibility.
According to data from Trendlyne, analyst sentiment on Trent is mixed but leans positive. Currently, nine analysts have a 'Strong Buy' rating, three recommend 'Buy', and six suggest 'Hold'. On the cautious side, four have issued a 'Sell' call and two a 'Strong Sell'.
Disclaimer: This analysis is for educational purposes only. The views expressed belong to individual analysts. Investors are strongly advised to consult certified experts before making any investment decisions, as market conditions are dynamic and individual circumstances vary.
