The fashion retailer’s growth deceleration has triggered concerns about whether its premium valuation—currently at a 60x multiple—can be sustained as the company pivots from metros to smaller cities with fundamentally different economics and customer profiles.
The Zudio overcrowding problem
“They realized that the Zudio growth of stores especially in urban micro markets has been beyond what it should have been,” Gor explained in an interview with ET Now. “A more gradual approach would have been probably more sustainable.”
The company explicitly acknowledged this strategic misstep in its investor presentation, admitting that store cannibalization and market share saturation in certain urban areas have compressed both margins and growth rates in the short term.
This echoes a similar reset Trent executed with its Westside format several years ago, where the company had to recalibrate expansion strategy after overextending into markets.
Five headwinds converge on India’s fashion leader
Gor identified a “combination of many problems” that have derailed Trent’s formerly blistering growth trajectory:
- Store cannibalization: Over-concentration of outlets in the same micro-markets eating into per-store productivity
- Brand fatigue: A natural ceiling emerging as consumers tire of seeing the same fashionable clothes everywhere—”people do not want to wear the same clothes that they see many other people wearing”
- Operational challenges: Need for larger store formats and expansion into new cities required organizational restructuring
- Soft urban consumption: Broader economic headwinds dampening discretionary spending in metros
- Intensifying competition: Increased rivalry even in urban strongholds where Trent previously dominated
The tier II/III gamble: Different game, different rules
Trent’s solution—accelerating expansion into tier II and tier III cities—comes with its own set of risks. These markets feature vastly different customer profiles, lower purchasing power, and unproven store economics compared to the metro playbook that fueled Zudio’s meteoric rise.However, Gor expects competition to be “not as severe” in smaller cities compared to metros. He argues that value rivals like Vishal Mega Mart and V-Mart target “family-oriented value propositions” focused on basics, while “Zudio is far more younger population, far more fashionable clothes.”
This differentiated positioning could provide breathing room, though execution risks remain substantial.
Growth expectations: 20% new normal vs. 25-30% glory days
Bernstein projects Trent will deliver 20% revenue CAGR over the next three years—a significant step down from the 25-30% growth rates that justified sky-high valuations during the company’s peak expansion phase.
“I do not expect the growth number to be so low going forward,” Gor stated, though he was clear that returning to prior growth levels appears unlikely. “We believe growth will return not to 25% or 30% levels but to 20% levels.”
The street currently pencils in 21-22% growth, slightly above Bernstein’s forecast.
Can margins hold? Technology bets pay off
Despite growth pressures, Gor expressed confidence that current margin levels are sustainable, crediting technology investments that have reduced employee costs and generated scale-based efficiencies in logistics.
“This margin is sustainable. It cannot improve from here but it is sustainable,” he emphasized, suggesting operational improvements can partially offset the headwinds from slower growth and market share ceilings.
Valuation tightrope: PE already derated faster than growth
Interestingly, Trent’s stock price has corrected more aggressively than growth expectations have declined, suggesting the market may have already priced in significant pessimism. “The PE in a way has derated faster than the growth expectations have derated,” Gor noted.
Bernstein maintains the 60x multiple as appropriate given Trent’s position as “the best fashion franchise in India” making “all the right decisions” on store locations, inventory management, and competitive positioning.
However, Gor issued a stark warning: “I do not think the valuation factors in a scenario where the growth tanks further. If that happens, I can expect significant derating from here on.”
Quick commerce battle: Swiggy vs. Zomato’s Blinkit
Beyond retail, Gor provided perspective on the fierce quick commerce war, characterizing Zomato’s Blinkit as the clear market leader while positioning Swiggy’s Instamart as an undervalued “turnaround story.”
Swiggy’s contribution margin should reach breakeven by Q1 FY27 per management guidance, though the path to EBITDA profitability remains uncertain due to “competitive intensity” from Zepto, Flipkart, Amazon, and Reliance.
“The competition is real and it is here to stay,” Gor warned, predicting volatility in earnings for both platforms over coming quarters.
Tactically, Bernstein favors Swiggy at current prices due to limited valuation assigned to Instamart, while Zomato remains the long-term structural winner.
QSR sector: Still waiting for inflection
The quick-service restaurant sector continues languishing despite menu innovations and cost restructuring efforts by major chains. While recent commentary from Devyani and Westlife suggests January showed improvement, Gor remained cautious.
“Until that happens and people get conviction in demand coming back, the names will sort of struggle,” he stated, emphasizing that “margin expansion is not really why investors love these companies, it is only for growth.”
The sector needs broad-based consumption recovery before stocks can meaningfully inflect—a catalyst that remains elusive.
The verdict: Execute or derate
Trent faces a defining moment. Successfully executing the tier II/III expansion while maintaining margins could justify premium valuations and restore investor confidence. Failure to deliver 20%+ growth, however, would likely trigger “significant derating” from already-compressed multiples.
For India’s premier fashion retailer, the reset is real—and the pressure is on.
This analysis reflects expert market commentary and should not be considered investment advice. Retail stocks carry significant volatility and investors should conduct thorough research before making investment decisions.