Rakesh Jhunjhunwala portfolio stock up 27% so far in 2022, may rally another 19%; should you buy?

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.

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ICICI Securities has initiated coverage on Metro Brands stock with a 'buy' rating and DCF-based target price of Rs 700, implying an upside of 19 per cent.

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).”

Runway of store expansion good

Metro Brands has a portfolio of 624 stores as of March 2022. The company is planning to add 260 stores in the next three years. According to the analysts, the runway of store expansion is good given that the brands already have a national presence; able to achieve penetration in lower-tier cities, and have a balanced mix of men and women customers. “It is targeting growth in all three segments of the market – economy, mid, and premium. Metro retails footwear under own brands of Metro, Mochi Walkway, Da Vinchi and J. Fontini, as well as certain third-party brands such as Crocs, Skechers, Clarks, Florsheim, and Fitflop, which complement in-house brands, they said.

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.

(The stock recommendations in this story are by the respective research analysts and brokerage firms. Financial Express Online does not bear any responsibility for their investment advice. Capital markets investments are subject to rules and regulations. Please consult your investment advisor before investing.)

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