Metro Brands Q3 Results Review - Demand Remains Tepid, All Eyes On FY25: Prabhudas Lilladher

Prabhudas Lilladher Report

We cut Metro Brands Ltd.'s FY25/FY26 earnings per share estimates by 3.7/5.2% given-

1. tepid demand environment,

2. longer than expected time to finish old inventory and launch new range/stores in FILA with ramp up slower than earlier estimates and

3. increase in opex ahead of FILA/ Footlocker store launch.

Metro Brands continued to sustain operating parameters with-

1. addition of 15 new cities in nine months-24 (three in Q3),

2. increase in online/ omni channel salience to 10% of sales without aggressive discounting,

3. 500 bps higher share of sales with MRP more than Rs 3000 in in Q3,

4. on tract to open 100 stores in FY24 with 87 store already opened in 9M FY24 (added 31 stores in Q3).

While long term growth strategy is in place led by-

1. geographical and store expansion,

2. brands licenses/acquisitions (Crocs, Fitflop, Birkenstock),

3. re-launch and scale up in FILA/ footlocker from FY25/26.

We believe store closures in FILA by Q1 FY25 will curtail losses from Q2 FY25 (Rs 150 million in Q3 FY24 (Rs 430 million in 9MFY24) although losses might remain high in Q4/Q1 on high discounting and store closures.

We expect 250 net store additions including FILA and 6.3% sales/store CAGR over FY24-FY26, however we expect this to decline by 4.2% in FY24.

We estimate sales/Ebitda/PAT CAGR of 20.3/21.5/26.1% for FY24-26E.

Though FY24 is likely to remain depressed, hopes of FY25 recovery will help support valuations at 60.9 times FY26.

Retain ‘Hold with target price of Rs 1109 (Rs 1187).

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