Prabhudas Lilladher Recommends Accumulate Rating for Metro Brands

In a recent research report released on September 28, 2023, Prabhudas Lilladher has recommended an “accumulate” rating for Metro Brands (MBL), with a target price of Rs 1231.

Metro Brands, a prominent player in the footwear retailing sector, boasts an impressive portfolio of 766 stores that cater to various segments, price ranges, and geographical locations. The company’s diverse brand offerings include Metro, Mochi, Walkaway, Crocs, and Fitflop. Prabhudas Lilladher believes that Metro Brands has substantial growth potential for several compelling reasons:

  1. Geographic Expansion: Metro Brands is currently present in only 174 cities, in contrast to competitors like Bata and Tanishq, which have a wider footprint (388 and 257 cities, respectively).
  2. Emphasis on Online Sales: The company has been steadily increasing its online presence, with online sales accounting for 8% of total sales and experiencing an impressive 32% compound annual growth rate (CAGR).
  3. Focus on Mid-Premium Segment: Metro Brands has strategically shifted its focus towards the mid-premium segment, resulting in a 15-percentage point higher sales share for products with a maximum retail price (MRP) exceeding Rs 3000 since 2020.
  4. Brand Licenses and Acquisitions: Metro Brands has acquired licenses for renowned brands like Crocs, FILA, Fitflop, Birkenstock, and Cheemo. The recent acquisition of the FILA license for India is poised to contribute significantly to the company’s growth. However, it is expected to have a temporary impact on performance in FY24, with an estimated loss of Rs 278 million in 4Q23 and 1Q24.

Anticipated Growth:

Prabhudas Lilladher projects the addition of 355 net stores, including FILA, between FY23-26E, and a noteworthy 6% sales CAGR per store post FY24 (compared to only 1.1% prior). The research firm estimates a Sales/EBIDTA/PAT CAGR of 20.1/19.3/18.7% for FY23-26E. Although FY24 is expected to see subdued performance with a 7.3% PAT growth rate, it is projected to bounce back strongly with a 24.8% CAGR over FY24-26.

Valuation and Rating:

Despite trading at a premium compared to other players in the footwear industry, with a price-to-earnings ratio of 60.1x/48.7x for FY25/26 EPS, Metro Brands’ growth prospects and track record justify this premium. Prabhudas Lilladher initiates coverage on Metro Brands with an “accumulate” rating and sets a target price (TP) of Rs 1231, based on a discounted cash flow (DCF) analysis, reflecting a 48.7x FY26E earnings multiple.

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