Metro Brands received a ‘buy’ call from Axis Securities, as the brokerage firm initiated coverage and said that strong earnings growth, robust cash generation will support premium valuation. Domestic firm has given a target price of Rs 625 apiece, a 52 times March 2024 EPS, a 10 per cent premium to its target multiple for Bata India. The target price is at a 20% premium to the last close. The company is backed by Rekha Jhunjhunwala, wife of ace investor Rakesh Jhujhunwala, who owned 14.43 per cent stake in the company as of 31 December 2021. The stock has jumped nearly 20 per cent from its listing price. The stock made its D-Street debut in December 2021 at Rs 436 apiece, over an issue price of Rs 500.
Axis Securities sees a long growth runway for Metro Brands given potential for individual brands and its under-indexation in key cities (vs. Bata/ other relative retail peers). “We bake in 32%/ 34% revenue/ EBITDA CAGR over FY22-24 led by normalization of operating environment/ pent-up demand, accelerated store expansion and pivot to Omni,” the brokerage firm noted. While the key risks include slower retail expansion, disruption in vendor base, and online competition.
Historically, Metro has outperformed Bata India and registered higher revenue/ PAT and store opening CAGR exhibited by Metro Brands over FY10-20, Axis Securities noted. Metro Brands has a total store network of 629 across formats at the end of December 2021 quarter. It plans to open 260 stores over the next three years across its formats (excl. Fitflop). “There is immense scope for store expansion based on potential for individual brands/ formats (largest brand Metro present only in 123 cities, 226 stores), comparison with Bata; big gap of 498 cities between the two companies and Metro Brands is under-indexed in several large cities as well; and comparison with retail peers in other formats (apparel, Jewelry, QSR etc.) with similar mid-to-premium positioning indicates potential to double city count for Metro Brands,” Axis Securities said.
It retails footwear under four different brands/ formats of Metro, Mochi, Walkway and Crocs. It has recently added a fifth brand/ format post the announcement of exclusive tie-up with Fitflop across formats in January 2022. The company has nearly 1 crore loyalty members, across three brands), high repeat rates (50-56%), wide reach and track record of successfully scaling up brands have positioned it as a platform of choice for both domestic and international brands.
“After a good correction post listing, Metro Brands has been consolidating currently but still faces stiff resistance at 530,” Pavitraa Shetty, Co-founder & Trainer, Tips2Trades, told FinancialExpress.com. Shetty added that short term traders can buy only if the daily close is above 530 for near term targets of 565-590 in the near term.
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