Rakesh Jhunjhunwala | Jhunjhunwala Stocks: This Jhunjhunwala Backed Recent Beginner Gets 38% Upside Target
While suggesting a two-year target of Rs 718, Ambit said near-term profitability could be volatile for Metro Brands due to commodity inflation and the risk of a slowdown in discretionary spending. But the brokerage firm trusted in the company’s ability to build a scalable franchise over the long term.
Ambit said Metro Brands is one of the few retailers in India to achieve revenue growth that has outpaced Bata and Relaxo over the long term. He noted that the company’s profitability and Ebitda margin exceeded those of its peers in FY10-20. The company has been successful in generating free cash flow in 10 of the past 12 years, he said.
Ambit said Metro is trading at 40x FY24 PE versus 38x for Bata and 69x for Relaxo despite better growth and a RoCE profile. His price target for the stock assumes a 380 basis point expansion in EBITDA in FY23-30, a total of 1,476 stores by FY30 and cost of equity (CoE) of 13%.
Earlier this week, Axis Securities said his company was playing in the fast-growing organized shoe retail market, given the industry is expected to grow 12-13% annually in FY20. -25 to reach Rs 53,000 to 55,000 crore.
Tailwinds from structural premiumization, accelerated store expansion, pivot to omni and platform positioning such as tie-ups like Crocs and Fitflop will be key growth drivers for the shoe retailer, had said Axis Securities.
The company is backed by Rekha Jhunjhunwala, wife of ace investor Rakesh Jhujhunwala. It held 14.43% of the company’s capital as of December 31.
Axis Securities finds the stock worth Rs 625, at 52 times March 2024 EPS, a 10% premium to its target multiple for Bata India.
The certificate had been listed in December 2021 at an issue price of Rs 500.
On Wednesday, the certificate reigned at Rs 524.95 apiece and traded in a wide range of Rs 426.10-673 since its market debut.
Axis Securities reports 32% revenue and 34% EBITDA CAGR in FY22-24. He also expects an improvement in return on invested capital (RoIC) to over 40% by FY23/24.
Metro Brands is a pan-Indian footwear retailer with 629 stores in 140 cities. Axis said the industry was seeing a structural shift towards mid- to high-end footwear and that 75-80% of the company’s revenue came from products priced above Rs 1,500.
The company has nearly 1 crore loyal members, spread across three brands and has high repeat rates of 50-56%, Axis said.
“Our work indicates an Ebitda margin of 27-29% (at the store level), a ROIC of 50-60%, an FCF/Ebitda conversion of 60-70% for mature stores and a return on investment overall about 2 to 2.5 years,” Axis said. Securities said.