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Motilal Oswal Report
Metro Brands Ltd. trades at rich valuations, at price/earning of 55 times on FY26 estimates, backed by:
a strong runway for growth, largely funded through internal sources, given its strong operating cash flow-to-Ebitda ratio of over 50%; and
superior store economics reflected in the balance sheet and a healthy return on invested capital of +50%.
We believe the incremental opportunity in Fila and Foot Locker can further accelerate growth for Metro Brands, which is not captured in the valuation.
We factor in 21%/26% growth in revenue/Ebitda for FY24-26E and assign, PE of 60 times on FY26E profit after tax of Metro Brands' existing portfolio.
We have not factored Fila and Foot Locker earnings, but we believe they have revenue potential of Rs 15-20 billion over the next three-five years (i.e. 30-40% share of Metro).
Since both the brands are at initial stage of investing, we value Fila/Foot Locker at a ~75% discount to the potential value which creates an option value of Rs 160, thus arriving at a valuation of Rs 1,530 per share.
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