Buy Metro Brands, target price Rs 1,460: Motilal Oswal Financial Services

Motilal Oswal Financial Services has a buy call on Metro Brands with a target price of Rs 1,460. The current market price of Metro Brands Ltd. is Rs 1239. Metro Brands, incorporated in 1977, is a Large Cap company with a market cap of Rs 33146.01 crore, operating in Leather sector.

Metro Brands' key products/revenue segments include Footwear and Other Operating Revenue for the year ending 31-Mar-2024.

Financials

For the quarter ended 30-09-2024, the company has reported a Consolidated Total Income of Rs 608.81 crore, up 1.56% from last quarter Total Income of Rs 599.45 crore and up 6.46% from last year same quarter Total Income of Rs 571.85 crore. The company has reported net profit after tax of Rs 71.46 Crore in latest quarter.

The company's top management includes Mr.Rafique A Malik, Mr.Srikanth Velamakanni, Mr.Vikas Vijaykumar Khemani, Mr.Arvind Kumar Singhal, Ms.Aruna Bhagwan Advani, Mr.Manoj Kumar Maheshwari, Mr.Utpal Hemendra Sheth, Mr.Mohammed Iqbal Hasanally Dossani, Ms.Farah Malik Bhanji, Mr.Mithun Padam Sacheti, Mr.Rafique A Malik, Mr.Srikanth Velamakanni, Mr.Vikas Vijaykumar Khemani, Mr.Arvind Kumar Singhal, Ms.Aruna Bhagwan Advani, Mr.Manoj Kumar Maheshwari, Mr.Utpal Hemendra Sheth, Mr.Mohammed Iqbal Hasanally Dossani, Ms.Farah Malik Bhanji, Mr.Rafique A Malik, Mr.Mithun Padam Sacheti, Mr.Srikanth Velamakanni, Mr.Vikas Vijaykumar Khemani, Mr.Arvind Kumar Singhal, Ms.Aruna Bhagwan Advani, Mr.Manoj Kumar Maheshwari, Mr.Utpal Hemendra Sheth, Mr.Mohammed Iqbal Hasanally Dossani, Ms.Farah Malik Bhanji, Mr.Mithun Padam Sacheti, Mr.Rafique A Malik, Mr.Srikanth Velamakanni, Mr.Vikas Vijaykumar Khemani, Mr.Arvind Kumar Singhal, Ms.Aruna Bhagwan Advani, Mr.Manoj Kumar Maheshwari, Mr.Utpal Hemendra Sheth, Mr.Mohammed Iqbal Hasanally Dossani, Ms.Farah Malik Bhanji, Mr.Mithun Padam Sacheti. Company has S R B C & Co. LLP as its auditors. As on 30-09-2024, the company has a total of 27 Crore shares outstanding.


Investment Rationale
Metro Brands trades at a rich valuation, with a P/E of ~70x on FY26 EPS, driven by: a) superior store economics, with industry-leading store productivity and strong cost controls, and b) a long runway for growth, largely funded through internal accruals, given its strong balance sheet and healthy RoIC of ~30%+. Although the ramp-up of FILA and Foot Locker has been delayed due to challenges posed by BIS implementation, Motilal Oswal Financial Services continues to view FILA and Foot Locker as key growth drivers for MBL in the medium term.

The brokerage's earnings estimates remain largely unchanged. They have factored in 14% revenue CAGR over FY24-27, driven by ~12% footprint CAGR and ~17%/20% EBITDA/PAT CAGR over FY24-27, supported by continued strong cost controls. Motilal Oswal values Metro Brands at 70x Dec'26 PE to arrive at a valuation of Rs 1,460 per share. They have not factored any significant contribution from FILA and Foot Locker in our estimates till FY27, and a faster ramp-up could provide further upside potential. The target price implies ~12%/13% revenue/EBITDA CAGR over FY25-50E, driven by a) ~7% CAGR in store additions, b) ~4% annual increase in store sales throughput, c) discount rate of 10.5%, d) a terminal growth rate of 6.5% and e) FCF to pre IND-AS 116 EBITDA improving from ~41% in FY24 to ~70% by FY2035.

Promoter/FII Holdings
Promoters held 71.96 per cent stake in the company as of 30-Sep-2024, while FIIs owned 3.39 per cent, DIIs 7 per cent.