Metro Brands - Following A Disciplined Approach To Growth: Motilal Oswal

Motilal Oswal Report

Metro Brands Ltd. trades at a premium valuation, due to:

1. its internally funded growth and

2. superior store economics along with a strong runway of growth.

We factor in 24%/23% revenue/profit after tax compound annual growth rate over FY23-25E.

Key triggers for future performance:

Success factors and key recipe: Metro Brands' management’s prime focus has been on store discipline where cash flow forms the most crucial element from day one. With a disciplined store performance approach, management selects the right location and ensures rentals are in-check. The company avoids discounts, and incentivises the store manager. Underperforming stores with less than 5% margin are kept under stringent surveillance and are closed if productivity does not recover.

Tapping growth through new brands: Fila has exponential growth opportunity. Though Fila has only 25 stores versus 300-500 stores of the peers, its near-term focus is on re-energising the business by clearing the inventory . The growth potential of India and the underpenetrated S&A industry acts as a tailwind for the sector.

Near-term outlook muted but substantial opportunity ahead: Metro has witnessed consolidated buying/pent-up demand in the previous year. However, management now expects demand to be subdued as the customer wallet is split among travelling, dining, etc. However, the company sees huge opportunity going ahead and is likely to expand the reach significantly to 350 plus cities from 170 at present.

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