Rakesh Jhunjhunwala-owned Metro Brands, one of the largest footwear firms in India, has seen its stock rise by more than 27 per cent so far this year despite benchmark Nifty tumbling over 5 per cent. The stock has given significant returns to investors since its market debut in December last year. At present, the stock is trading at Rs 578, up 15 per cent from its IPO price of Rs 500 per share. Due to its potential going forward, analysts are optimistic about Metro Brands. Brokerage firm ICICI Securities estimates revenue, EBIDTA and PAT CAGR of 30, 28 and 31 per cent respectively over FY22-24. It expects the stock to further jump up to 19 per cent, going forward.
Balance sheet strong; Focus on financial discipline
ICICI Securities Research analysts said in their research note, “Metro Brands, one of the largest Indian footwear speciality retailers present in India, has a right mix of brands (three umbrella brands + two EBO tie-ups) providing growth runway (of store addition). Its focus on financial discipline along with balance sheet strength provides confidence on the execution. It has an optimized mix of in-house brands and third-party brands in MBOs (Metro, Mochi and Walkway) to drive customer footfalls, improve sales density and gross margins. Besides, a platform of choice for international brands aids confidence in new avenues (of growth).”
Asset light business, Strong portfolio of umbrella brands among key strengths
In terms of e-commerce and other opportunities, the analysts said, “given the underlying trend of e-commerce adoption in footwear space, Metro Brands has ramped up capabilities (8% contribution), with separate platforms for its three umbrella brands. Besides, it is also ramping up its digital presence (consumer connect).” Highlighting the key strengths of Metro Brands, the analysts highlighted that Asset light business with an efficient business model, Financial discipline led by focus on unit economics, (Potential) platform of choice for third party brands, Strong portfolio of umbrella brands with in-house (brand) contribution of 70% in these stores, and strong promoter background and management team are the key positives for the company.
The brokerage initiated coverage on the stock with a ‘buy’ rating and DCF-based target price of Rs 700, implying an upside of 19 per cent. Delay in store addition and likely increased competition from regional players trying to premiumise remain the key risk to the upside.
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