Prabhudas Lilladher has commenced its coverage of Metro Brands with an ‘accumulate’ rating, citing an extensive growth opportunity stemming from the company’s limited presence in select cities, a surge in online purchases, and strategic acquisitions.
The brokerage firm has set a target price of Rs 1,231 and foresees substantial sales growth at a compounded annual rate of 20.1 percent over the fiscal years 2023 to 2026. Additionally, it anticipates a compounded annual growth rate of 19.3 percent for EBITDA and 18.7 percent for net profit over the same period.
Prabhudas Lilladher envisions a vast runway for growth for Metro Brands, primarily due to its presence in only 174 cities, a stark contrast to Bata India and Tanishq, which have established footprints in 388 and 257 cities, respectively.
Metro Brands recently made strategic acquisitions, including Crocs, FILA, Fitflop, Birkenstock, and Cheemo. Building upon its successful experience with Crocs, the company intends to replicate its scaling strategy for FILA, introducing a new growth dimension. However, this move may have a temporary impact on the company’s financial performance in fiscal year 2024, as indicated by a loss of Rs 278 million reported in Q4FY23 and Q1FY24.
One of Metro Brands’ significant acquisitions was Cravatex Brands, completed for Rs 2.02 billion in October 2022. This acquisition granted exclusive FILA distribution rights (24 stores) and ownership of the Proline Brand. The company is currently in the process of clearing older FILA inventory, slated for completion by Q3FY24. Despite recent losses, Metro Brands holds a positive outlook for FILA, inspired by its remarkable success in China, where it achieved sales of approximately $4 billion and operated 2,400 stores. The company is planning a premium FILA re-launch with 51 stores by FY25/26. FY25 is expected to be a year of consolidation, with significant positive contributions anticipated from FY26.
Investors and market observers are closely monitoring Metro Brands’ strategic moves and its potential for expansion and profitability in the dynamic retail landscape.