Metro BrandBrokerage house Ambit said industry-leading throughput, consistent incentives on Brandex and processes around inventory management have created an asset-light yet scalable business model, which has initiated coverage on newly listed stocks with a ‘buy’ recommendation.
“Metro Brands is one of the few retailers in India that has consistently outperformed Bata and Relaxo on growth, profitability – EBITDA margin during FY 2010-20; and cash flow – generating FCF in 10% of the last 12 years With store expansion accelerating, we do not see any real risk to margin and cash flow, given store-level RoIC of 70-80% and payback period of <2 year," notes stated in.
The brokerage said that along with superior store economics, Metro Brands has become the fastest growing footwear retailer in India over the past decade. Its buy rating on the shares of Metro Brands comes with a 2-year target price 718.
An increase in the pace of store expansions for Walkway (own/under franchise), the ability to meaningfully scale FitFlop EBO and new tie-ups (similar to Crocs and FitFlops) could move according to the ambit. However, it sees online-led growth in discounts and low throughput per store as key risks.
“As store expansion accelerates, we expect Revenue / EBITDA / PAT CAGR of 14% / 17% / 21% over FY 2012-25E. The new format/brand expansion (similar to Crocs, FitFlops) could fuel growth over the long term and potentially drive growth. The brokerage note said that near-term profitability could be volatile due to the risk of slowdown in RM inflation and discretionary spending, but we are positive that this will create a scalable franchise over the long term.
Rakesh JhunjhunwalaBacked Metro brands got listed on major stock exchanges BSE and NSE in December 2021. The footwear retailer stock is up about 6% since its market debut.
The views and recommendations given above are those of individual analysts or broking companies and not of Mint.
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