Shares of Metro Brands Ltd, backed by Rekha Jhunjhunwala, achieved a historic peak during Tuesday’s trading session, accompanied by substantial trading volumes, marking a one-month surge of 20 percent. Despite the absence of a specific trigger for this upswing, last week, Prabhudas Lilladher initiated coverage on the stock, setting a target price of Rs 1,231. Surpassing this target, the stock reached a high of Rs 1,270.05 on Tuesday.
Prabhudas Lilladher pointed out that Metro Brands employs a pure retail model within the footwear sector, boasting a network of 766 stores catering to diverse market segments and price brackets. The brokerage firm highlighted various brands under Metro Brands, including Mochi, Metro, Walkaway, Fitflop, and Mochi, underscoring the substantial growth potential for the company.
Metro Brands currently operates in 174 cities, in contrast to Bata’s 388 and Tanishq’s 257 outlets. The company has also been expanding its online presence, accounting for 8 percent of total sales with an impressive 32 percent Compound Annual Growth Rate (CAGR). Furthermore, Metro Brands has been concentrating on the mid-premium segment, achieving a 15 percentage point increase in sales share for products priced over Rs 3,000 since 2020. The company has also acquired licenses and made acquisitions for new brands, such as Birkenstock, Cheemo, FILA, Crocs, and Fitflop.
Regarding the FILA license acquisition, Prabhudas Lilladher mentioned that Metro Brands intends to replicate its past success with Crocs. While the re-launch of FILA may potentially impact performance in FY24, the brokerage maintains an ‘accumulate’ rating on the stock.
During the June quarter, Rekha Jhunjhunwala reduced her stake in Metro Brands to 9.60 percent, down from 14.40 percent in the March quarter. Nevertheless, she retains Metro Brands shares valued at Rs 3,250 crore. Prabhudas Lilladher anticipates a net addition of 355 stores over FY23-26 (including FILA) and a 6 percent Sales Compound Annual Growth Rate (CAGR) per store after FY24. Their estimates project a sales growth of 20.1 percent, EBITDA growth of 19.3 percent, and PAT growth of 18.7 percent for FY23-26, compounded annually. While the brokerage foresees FY24 as a relatively subdued year with PAT growth of 7.3 percent, it expects a robust 24.8 percent profit CAGR from FY24 to FY26. Metro Brands is currently trading at 60.1 times FY25 EPS, representing a premium compared to other players in the footwear industry, primarily due to its growth potential and robust track record, as highlighted by Prabhudas Lilladher.