Trent shares have extended their post-update decline, falling over 8% as investors continue to price in slower growth expectations and rising competitive pressure in the value fashion segment. According to Karan Taurani, Executive Vice President at Elara Securities, the sharp correction reflects valuation de-rating rather than just earnings downgrades.

Trent Faces Growth Moderation and Competitive Pressure

Speaking to ET Now, Taurani highlighted that Trent's expected revenue growth has moderated significantly, creating concerns among investors about the company's near-term prospects.

While store additions, particularly for Zudio, remain on track, throughput in newer non-metro stores has been lower than expected, hurting overall performance. Taurani noted that intensifying competition in fast fashion is eroding Zudio's market share, with multiple new entrants and existing players expanding aggressively. The acceptance of the category in smaller towns has also been slower than anticipated, putting additional pressure on same-store sales.

Margin Risks Remain Key Concern

Trent's EBITDA margins have remained stable at around 16-16.5%, but Taurani warned of potential downside risks. If the company decides to invest in improving product quality to counter competitors, margins could decline by 100-150 basis points over the next few quarters. Any margin compression could trigger further earnings downgrades and make valuations appear stretched again.

DMart Shows Relative Stability Despite Digital Challenges

Regarding Avenue Supermarts (DMart), Taurani indicated that performance has been relatively better compared to other retail players, with no major negative surprises reported.

However, like-for-like growth has slowed to around 5% due to the rapid expansion of quick commerce and online grocery platforms. Store additions remain DMart's key growth driver, and competitive intensity is lower than in fashion retail. Taurani believes margin risks for DMart are largely behind the company, but structural challenges from digital channels could cap long-term growth below 20%.

Nykaa and Jubilant Emerge as Preferred Picks

In the beauty and personal care segment, FSN E-Commerce Ventures (Nykaa) continues to demonstrate strong performance metrics that make it an attractive investment option.

Nykaa's growth of over 25% is aided by limited competition in online beauty and personal care. Fashion losses are narrowing, and the segment is expected to reach breakeven over the next few quarters, though margin risks from quick commerce and faster e-commerce deliveries remain a consideration.

Within the QSR space, Taurani reiterated a positive view on Jubilant FoodWorks, citing stable like-for-like growth, strong delivery exposure, and improving margins. He noted that valuation re-rating would depend on EBITDA margins rising towards the 21-22% range.

Sector Outlook and Investment Strategy

Taurani concluded that investors may find better risk-reward opportunities in select value retail, QSR, and platform-led consumption plays, while large format fashion retailers face near-term headwinds from competition, margin pressure, and changing consumer behavior. The retail landscape continues to evolve rapidly, with digital transformation and competitive dynamics reshaping traditional business models across different segments.

Trent shares have declined sharply over two consecutive sessions, falling 10.00% after the company's disappointing third-quarter business update. The stock traded below ₹4,000.00 on Wednesday, approaching its 52-week low amid concerns over slowing growth momentum and premium valuations.

Stock Performance and Market Reaction

Shares fell for the second consecutive day, with the stock declining over 9.00% on Tuesday following the quarterly business update. The company reported revenue growth of 17.00% in Q3, significantly below management's earlier guidance of 25.00% shared in analyst meetings.

Analyst Ratings and Valuation Concerns

Morgan Stanley maintained its "overweight" rating with a price target of ₹5,456.00, stating that Q3 growth was largely in-line with their expectations, although lower than anticipated for Q3 and Q4 of FY25 and Q1 of FY26. However, Citi reiterated its "sell" rating with a price target of ₹4,350.00.

At current levels, Trent trades at a FY27 estimated price-to-earnings multiple of 72.00 times, lower than the five-year average of 95.00 times and nearly half the 140.00 times at its peak valuation.

Bernstein's Analysis: Growth Cycle Bottoming Out

Jignanshu Gor, Director at Bernstein India, believes the company's 17.00% year-on-year revenue growth in Q3 may have marked the bottom of Trent's growth cycle. Speaking to ET Now, Gor described the Q3 performance as a mixed bag, noting that while growth was lower than street expectations, it had not deteriorated further compared to Q2.

ICICI Direct: Time Correction Expected

Kaustubh Pawaskar, Lead Analyst at ICICI Direct, explained that expectations going into the December quarter were elevated due to seasonal factors. "So, basically in quarter three there was anticipation that there would be better growth, about 20.00%, largely driven by higher festive sales," he said.

According to Pawaskar, optimism was also fuelled by portfolio-level changes and the expected benefit of the GST rate cut. However, reported growth of 17.00% proved to be below both analyst and Street estimates of around 22.00%.

Competition and Store Expansion Challenges

Pawaskar pointed to intensifying competition in the value fashion segment alongside a high base from last year. "They have done changes in their portfolio, that is for sure. If you go to Westside or Zudio, a lot of portfolio change has been done," he said. "But competition is building up, especially in the value fashion space."

Analyst Consensus and Future Outlook

Despite the recent decline, 18 out of 28 analysts tracking Trent maintain a "buy" rating, while five each have "hold" and "sell" ratings. The stock is currently trading below Citi's lowest price target of ₹4,350.00.

Bernstein continues to maintain an outperform rating with a target price of ₹5,000.00 for March 2027, factoring in around 20.00% revenue growth over the next three years. Pawaskar expects it will take another two to three quarters for the base to normalize before assessing sustainable earnings growth.