Multibagger Tata Group Stock Up 7% As Morgan Stanley Maintains Overweight Call; Do You Own?

Shares of Trent Ltd rose 7 per cent in early deals on Tuesday after international brokerage Morgan Stanley maintained its ‘overweight’ call on the Tata Group’s subsidiary. Trent shares gained 6.78 per cent to a record high of Rs 7,955 in early deals today. It has seen low volatility in the last one year with its beta at 0.8. A total 0.24 lakh shares of the firm changed hands amounting to a turnover of Rs 18.40 crore on BSE. The market cap of the firm stood at Rs 2.80 lakh crore on BSE. The Tata Group’s multibagger stock hit a 52-week low of Rs 1946.5 on October 26, 2023.

The rally in the stock also comes amid reports that it launched a new standalone store format, Zudio Beauty, marking its entry into the mass-priced beauty segment. This launch places Zudio Beauty in direct competition with established players such as Hindustan Unilever’s Elle18, Sugar Cosmetics, Health & Glow and Colorbar. The new launch has strengthened the brokerage’s conviction.

In other news, Trent also launched new lab-grown brand ‘Pome’ in Westside stores.

Currently, the brand has been launched in select Westside stores in Mumbai, Bengaluru, Hyderabad and Gurgaon. This seems like a pilot launch by Trent aimed to test the waters with SKUs in a Kiosk format.

Trent is expected to carve out an LGD jewelry brand, roll out EBOs and accelerate scale-up.

Calling Pome as the Zudio of jewellery segment, domestic brokerage firm Kotak Equities states how the brand has positioned itself in terms of pricing focusing on ‘diamonds for all’.

Pome has priced LGD jewelry in line with Trent’s characteristic sharp pricing. A 1-carat solitaire engagement ring is priced at Rs 24,000-29,000. A back-of-the-envelope calculation suggests that the implied pricing of a lab-grown diamond solitaire in Pome LGD jewelry is about Rs 13,000-17,000/carat.

“As per this pricing framework, on an average, Pome’s pricing could be at (1) 30% discount to Rs15-20k SKUs of natural diamond studded jewelry and (2) 80-85% discount to high value Rs500k+ natural diamond studded jewelry,” said the domestic brokerage firm.

Calculations also suggest that at current end product pricing and RM costs, Pome makes about 45-50% gross margins. At a broad-level, Pome’s retail economics (for EBOs) could be somewhat comparable to that of Caratlane, assuming higher footfalls/volumes make up for lower pricing.

Meanwhile, Morgan Stanley has a price target of Rs 8,032 per share on Trent.

The BPC sales contribution was already quite material in Westside and Zudio stores. Zudio’s BPC business had built scale over time, as customers have become more indulgent and impulsive, said the brokerage.

In September end, global brokerage Citi initiated coverage on the Tata Group stock with a ‘buy’ call. It assigned a price target of Rs 9,250 on the retail stock. It has included the stock in its Pan-Asia high-conviction focus list.

The Tata Group stock has risen 444% in two years and gained 281% in a year. The stock has delivered 615% returns in three years.

Brokerage Citi said Trent is leveraging its supply chain and insights from Westside and Zudio, turning around its Star Bazaar business. Trent is well-positioned to scale up its other pilot projects, such as MISBU, Samoh, and its joint venture with MAS, said the brokerage.

The brokerage said the firm has transformed from a single-format to a multi-format player, which led to a 36 percent revenue CAGR from FY19 to FY24. As a multi-category player in fashion, lifestyle, grocery, and personal care, Trent reported industry-leading revenue, EBITDA, and PAT CAGRs of 41 percent, 44 percent, and 56 percent, respectively, for FY24–27.

Trent Limited is part of the Tata Group and operates a portfolio of retail concepts. The primary customer propositions of Trent include Westside, one of India’s leading chains of fashion retail stores, Zudio, a one stop destination for great fashion at great value and Star, which operates in the competitive food, grocery and daily needs segment.

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