Metro Brands shares rise 4%; what brokerages say about this Jhunjhunwala stock

Shares of Metro Brands Ltd rose more than 3 per cent during the trading session on Friday even as the footwear company reported a mixed set of numbers in the March 2024 quarter. However, brokerage firms are mostly neutral on the stock and see a muted quarter for the company ahead.
 

Analysts tracking the stock are positive on companies growth prospects but they also foresee muted demand in the June 2024 quarter on the back of elections and lesser number of the wedding days. Also, FIlA's inventory is another overhang on the stock, which caps the upside for the counter.
 

Metro Brands recorded a profit jump of 126.3 per cent on year-on-year (YoY) basis for the fourth quarter of FY24 at Rs 155.57 crore. The company's bottomline came in at Rs 68.74 crore during the corresponding quarter of the previous fiscal year.
 

The Jhunjhunwala-backed firm posted revenue from operations at Rs 582.98 crore, up 7.1 per cent as against Rs 544.13 crore during the same period last year. The company board of Metro Brand recommended a final dividend of Rs 2.25 per equity share for the financial year 2023-24.
 

Metro reported 7 per cent YoY growth in revenue missing estimates marginally but it managed to report a beat at the Ebitda level on account of moderating losses from FILA along with an improving product mix leading to a slight uptick in gross margin, said Nuvama Institutional Equities.
 

"Fila inventory clearance is running a bit behind schedule and is likely to be cleared by H1FY25. On Footlocker, Metro plans to open the first store by October this year. Given the gradual recovery and sluggish Q1FY25 due to lower weddings, and elections, we are trimming FY25E and 26E EPS by 6 per cent and 4 per cent, respectively, it said with a 'hold' tag and a target price of Rs 1,165."
 

Share of Metro Brands surged more than 4.04 per cent to Rs 1,159.95, commanding a total market capitalization of more than Rs 31,500 crore. The scrip had settled at Rs 1,114.85 in the previous trading session on Thursday.
 

Metro trades at rich valuations, at 57 times FY26E EPS, backed by a strong runway for growth, largely funded through internal sources, given its strong OCF-to-EBITDA ratio of over 75 per cent; and superior store economics reflected in the balance sheet and a healthy RoIC of over 50 per cent, said Motilal Oswal Financial Services.
 

"We have not factored in Fila and Foot Locker earnings, but we believe it has revenue potential of Rs 1,500-2,000 crore over the next 3-5 years. Since both the brands are in the initial stage of investing, we value Fila/Foot Locker at a 75 per cent discount to the potential value, which creates an option value of Rs 160 , arriving at a valuation of Rs 1,350 apiece," it said with a 'buy' call.
 

Rekha Rakesh Jhunjhuwala cumulative owned 2,61,02,394 equity shares, or 9.60 per cent stake in the company as of March 31, 2024, keeping it unchanged from December 2023 quarter. Her stake in the company is currently more than Rs 3,000 crore.
 

Prabhudas Lilladher cut its FY25/FY26 EPS estimates by 5/4.1% given tepid demand environment, more so in Q1FY25; longer than expected time to liquidate old inventory, launch new range/stores and slower ramp up in FILA; and BIS issues affecting high-end international imports
 

Metro Brands continued to sustain operating parameters with addition of 19 new cities in FY24; increase in online/omni-channel salience to about 10 per cent of sales without aggressive discounting; and 50 per cent of sales with MRP over Rs3000 in Q4.  We expect 210 net store additions including FILA, added with a 'hold' rating on the stock and target price of Rs 1,115.