Rakesh Jhunjhunwala-backed Metro Brands IPO opens today; Should you subscribe?

The initial public offering of ace investor Rakesh Jhunjhunwala-backed footwear retailer Metro Brands Ltd opened for subscription today.

At present, Metro Brands has 598 stores in 136 cities spread across India.

By Harshita Tyagi

The initial public offering of ace investor Rakesh Jhunjhunwala-backed footwear retailer Metro Brands Ltd opened for subscription today (10 December), and it will close on 14 December. The price band for the issue has been fixed at Rs 485-500 per share. The public offer comprises fresh equity shares worth Rs 295 crore and an offer for sale (OFS) of 2.14 crore equity shares by promoters and other shareholders. At the upper end of the price band, the public issue is expected to fetch Rs 1,367.5 crore. The company announced on Thursday that it has secured a little over Rs 410 crore from anchor investors ahead of its IPO.

The total size of the IPO is Rs 1,368 crore, of which Rs 1,073 crore is an offer for sale and Rs 295 crore is a fresh issue. The Metro Brands IPO market lot size is 30 shares. A retail-individual investor can apply for up to 13 lots (390 shares or Rs 195,000). Post-IPO, Metro Brands promoters will hold a 75.9 per cent stake and Rakesh Jhunjhunwala will hold a 13.9 per cent stake in the company.

Metro Brands IPO Grey Market Premium

Metro Brands shares are trading in grey market at a premium of Rs 40 over the offer price. The company’s shares are expected to be listed on exchanges on 22 December.

Brokerages assign Subscribe rating

Choice Equity Broking said in its IPO report, “In FY21, whole footwear retailing was impacted by the pandemic led restrictions. Thus we have benchmarked the IPO valuation to the performance during FY19-20. At higher price band of Rs. 500, MBL is demanding a P/E multiple of 89.2x (to its average earnings of Rs. 5.6 per share over FY19-20), which is at premium to peer average of 71.7x. MBL is one of the largest footwear retailers with around 3-4% market share in the organized market space. It has reported strong financial performance with robust cash flow generation. The company is consistently paying dividend since FY2000. Thus considering the above observations, we assign a “Subscribe for Long Term” rating for the issue.

Marwadi Financial Services has a ‘subscribe’ rating to the IPO as it is available at a reasonable valuation compared to its peers. “Considering the TTM (Sept-21) adjusted EPS of Rs.5.55 on a post-issue basis, the company is going to list at a P/E of 90.01 with a market cap of Rs.135,754 mn while its peers namely Bata India & Relaxo Footwear are trading at a P/E of 922 and 111 respectively. We assign a “Subscribe” rating to this IPO as the company is one of India’s largest pan India footwear retailers with a brand appeal among aspirational consumer segments Also, it is available at a reasonable valuation as compared to its peer,” it said.

Nirmal Bang Securities Private Limited also assigned Subscribe rating to the issue. ‘”Metro Brand has a legacy of 65+ years behind it and has created a brand for itself. The management has built a winning formula across different formats. The management is looking to open 260 stores in next 3 yrs. MBL has grown at CAGR of 16-17% in last 10 years. MBL has one of the best and consistent EBITDA margins among the listed peers and highest realization per unit. We believe this is owing to its asset light model and focus on the customer nerve by keeping close track of consumer preferences. Due to pandemic, the industry has opened up much more growth opportunities like transition from large unorganized segment to organized players, many acquisition prospects, e-commerce expansion etc. We expect MBL to continue the growth momentum, given above set-up in addition to tying up with third party brands like FitFlops. We recommend “Subscribe for long term,” it said.

“The company’s historical net profit growth is low compared to its peers Relaxo Footwears. However, MBL has Asset light business, strong brands and a wide range of products but we believe that these positives are captured in the valuations commanded by the company. Thus, we have a ‘neutral’ rating on the issue,” said Angel One.

At present, Metro Brands has 598 stores in 136 cities spread across India. Of these, 211 stores were opened in the last three years. Metro Brands had the 3rd highest number of exclusive retail outlets in India, in fiscal 2021. 

The company will use proceeds of the fresh issue towards expenditure for opening new stores under the Metro, Mochi, Walkway and Crocs brands and for general corporate purposes.

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