HDFC Securities has raised the target price on Metro Brands to Rs 1,050, up 7% from the previous target of Rs 980. The new target price implies a downside of 15% from current levels. The brokerage stated that commentary from the company’s management suggests that it could be at an inflexion point in its expansion journey. The brokerage house suspects that the Walkaway segment could be the game-changer.
Despite raising the target price, HDFC Securities kept its rating unchanged at ‘Sell’ because the company is trading at a premium valuation at a one-year P/E of 55x. It is to be noted, the share price of Metro Brands has risen 16% in the last six months and 0.7% in the past year.
HDFC Securities on Metro Brands: GST 2.0 to boost sales
The brokerage said that channel checks suggest demand continues to stabilise in Q2 (GST-led fluctuations notwithstanding). Post the implementation of new GST rates, sales are likely to readjust. The company’s Rs 2,500 products account for 40% of sales, which could potentially see a rejuvenation in demand as GST savings aid consumer purchasing power. However, the first half of September did see lower sales as consumers waited for the new GST rates to kick in.
HDFC Securities on Metro Brands: Keeping eye on Walkaway segment
Walkway could be a joker in the pack with the reintroduction of Rs 500 price points and a step up in store additions. “Could it have its ‘Zudio’ moment? Too early to figure! Management, too, in its Q1FY26 earnings call, highlighted that the ambition for Walkway (at scale) is to hit 30% ROCE over the medium-to-long term; however, execution is key,” said HDFC Securities. However, Walkway could positively surprise us, as the potential to blitz-scale such a value-focused format once the value proposition and sustainable store unit economics are established is huge.
“MBL remains best-in-class in terms of growth and capital allocation choices (10-year revenue CAGR of 13% and EBITDA CAGR of 15% with free cash flow/net profit conversion of over 100%),” said HDFC Securities.