Metro Brand’s industry leading throughput, consistent impetus on brandex and processes around inventory management created asset-light yet scalable business model, said brokerage house Ambit which has initiated coverage on the newly listed stock with ‘Buy’ recommendation.
“Metro Brands is one of the few retailers in India to deliver on growth, profitability – consistently outpaced Bata and Relaxo on EBITDA margin over FY10-20; and cash flows – generated FCF in 10 of last 12 years. As pace of store expansion accelerates, we don’t see any material risk to margins and cash flows given store-level RoIC of 70-80% and payback period of <2 years,” the note stated.
This bundled with superior store economics led to Metro Brands becoming the fastest growing footwear retailer in India in the past decade, the brokerage added. Its Buy rating on Metro Brands shares comes with a 2-year target price of ₹718.
Increase in pace of store expansion for Walkway (under own/franchisee), ability to meaningfully scale FitFlop EBOs and new tie-ups (similar to Crocs and FitFlop) can drive further upside, as per Ambit. Though, it sees online-led increase in discounting and lower throughput per store as key risks.
“As store expansion accelerates, we expect revenue/EBITDA/PAT CAGR of 14%/17%/21% over FY20-25E. New format/brand expansion (akin to Crocs, FitFlop) can fuel growth in the long term and drive potential upside. Near-term profitability may be volatile due to RM inflation and risk of slowdown in discretionary spend, but we are positive it will build a scalable franchise in the long term,” the brokerage note added.
Rakesh Jhunjhunwala-backed Metro Brands got listed in December 2021 on leading stock exchanges BSE and NSE. The footwear retailer stock is up about 6% since its market debut.
The views and recommendations made above are those of individual analysts or broking companies, and not of Mint.
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