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Metro Brands IPO Fundamental Analysis (Subscribe for Long Term)

Metro Brands IPO  Fundamental Analysis

Key Business Highlights

  • Metro Brands (the Issuer) is the Indian footwear specialty retailer and it started with its first store in Mumbai in 1955 and has since evolved into a one-stop-shop for all footwear needs, by retailing a wide range of branded products for men, women, unisex, and kids, including casual and formal footwear. As of the end of H1FY22, the Issuer operated 598 Stores across 136 cities spread across 30 states and union territories in India.
  • Metro has a pan-India presence through a Store network in prominent high streets, malls, and airports, spread across 30 states and union territories in India as of September 30, 2021, and have opened 127 new MBOs (multi-brand outlets, including seven through franchises) and 110 new EBOs (exclusive brand outlets) in the last three Fiscals and H1FY22. As of the end of H1FY22, the company operated stores with a total Retail Business Area of 734,217 sq. ft.
  • The Issuer operates on an asset-light model with third-party manufacturing through long-standing vendor relationships, optimum store size and layout, and long-term lease arrangements. Metro Brands have 100% third-party outsourced products.
  • The Issuer sells under its own brands of Metro, Mochi, Walkway, Da Vinchi, and J. Fontini, as well as certain third-party brands such as Crocs, Skechers, Clarks, Florsheim, and Fitflop, which complement their in-house brands. Metro also offers accessories such as belts, bags, socks, masks, and wallets, at the stores. Footcare and shoe-care products are also sold through a joint venture, M.V. Shoe Care Private Limited, making it a one-stop-shop for all footwear and related accessories to the customers.
  • Retail operations are carried out through stores and distributors as well as through online channels. The company follows the company-owned and company-operated (COCO) model. The company and its subsidiary Metmill also operate shop-in-shops (SIS) in major departmental stores across India. The Issuer also distributes products of third-party brands through MetMill and retail products through franchisees.
  • In FY21, in-Store Product Sales, Online Product Sales, and Omni-Channel Product Sales represented 91.93%, 6.15%, and 1.09%, of the Company’s revenue from operations, respectively (on a standalone basis) while in H1FY22, the same contributed 87.17%, 8.90%, and 3.03%, of the company’s revenue from operations, respectively (on a standalone basis).

Financial Review of Metro Brands

Metro posted total revenues of Rs 489.27 crore for H1FY22 and PAT of Rs 43.10 crore during the same period. The total revenues for FY21 reduced by 33%, to Rs 878.54 crore from Rs 1311.07 crore in FY20 due to the pandemic effect on the operations due to lockdowns. The Issuer posted PAT of Rs 65.22 crore for FY21 against Rs 159.73 crore in FY20.

The revenues increased by 6% in FY20 to Rs 1311.07 crore from Rs 1236.89 crore in FY19. The profitability margins have been strong throughout all the three fiscals as can be seen in the table.

Debt to equity is 0.74x as at the end of H1FY22. Return on net worth is 5.13%, 7.88%, 19.79% and 23.27% in H1FY22, FY21, FY20, FY19 respectively.

Table 1 - Financials and Ratios (Amount in Rs Crore)
Title H1FY22 FY2021 FY2020 FY2019
Total revenue 489.27 878.54 1311.07 1236.89
Operating profit -661.66 -1071.21 360.78 164.72
Profit after tax 43.1 65.22 159.73 151.2
EBITDA 144.72 250.01 378.58 355.63
Total Assets 1739.61 1659.34 1617.42 1321.51
Cash generated from operations 52.02 285.64 333.91 276.00
EBITDA margin 29.58% 28.46% 28.88% 28.75%
Net margin 8.81% 7.42% 12.18% 12.22%

Valuation and Peer Comparison

The Issue is priced at 154.32x with annualized EPS of 3.24 as at the end of H1FY22 calculated at the upper price band of Rs 500 per share. The sector P/E is 108.60 which indicates a fully priced issue. P/BV is 15.80x at NAV of Rs 31.64 as of the end of H1FY22. Bata and Relaxo are the listed peers of the Issuer as per the RHP. Other peers are Khadim (listed), Liberty (listed), Mirza International Ltd. (listed), and Paragon.

Table 2 - Metro Brands valuation and peers comparison
Particulars Bata Relaxo Metro
Face value per share 5 5 5
Total Income for FY 21 (Cr) 1,802.57 2,381.92 878.54
Net profit margin (FY21) -5% 12.30% 7.42%
EPS (As on 9 Dec 21) 1.84 11.73 2.43
NAV per share 136.79 63.29 31.17
Return on net worth -5.08% 18.54% 7.88%
P/E (As on 9 Dec 21) NA 110.82 NA
P/B (As on 9 Dec 21) 14.52 20.58 NA
Market price (As on 9 Dec 21) 1980 1313 NA
No. of retail stores 1526 398 586

The Issue Snapshot

Metro Brands Limited IPO opens on 10th Dec 2021 with an issue size of Rs 1367 crore (fresh issue Rs 295 crore). The price band of the IPO is Rs 485-500 per share. The retail quota is 35% and the minimum subscription amount is Rs 15000. The IPO closes on 14th Dec and is expected to list on 26th Dec. Proceeds of the IPO would be used to open new stores (Rs 225.37 crore).

Conclusion and Investment Strategy

The footwear market in India is fragmented, with organized players having a lower share as compared with unorganized players. The organized industry contributes to approximately 35% of the total footwear industry. This organized 35% of the industry is valued at Rs 229 billion in FY21. (Rs 294 billion in FY20) consists of players such as Bata India, Metro Brands, Mirza International, Paragon, Relaxo, Inc 5. Action footwear, and International brands such as Reebok, Nike, Puma, and others.

Metro Brands Limited is one of the largest Indian footwear specialty retailers present in India. The Issuer has a reasonable financial performance. The factors of concern are the presence of competition from both the unorganized and organized players and international brands as well. With the presence of so many players in the organized Indian footwear market, there is a need among brands to innovate and stay ahead of fashion. The sector would grow with growing urbanization in India but the rate of growth may be slower. Hence considering all these factors, one may apply for the long term.

Reviewer recommends Subscribe for Long Term to the issue.

Review By CA Priyanka Choudhary on 3rd Dec 2021

Review Author

About CA Priyanka Choudhary

CA Priyanka Choudhary, a freelance chartered accountant

Priyanka Choudhary Jain is a Chartered Accountant and an experienced credit analyst. She has worked with CRISIL as Senior Credit Analyst on ratings assignments including business and financial analysis in Corporates as well as the Public Finance Sector.

Email: [email protected]

DISCLAIMER: No financial information whatsoever published anywhere here should be construed as an offer to buy or sell securities, or as advice to do so in any way whatsoever. All matter published here is purely for educational and information purposes only and under no circumstances should be used for making investment decisions. Readers must consult a qualified financial advisor prior to making any actual investment decisions, based on information published here. Any reader taking decisions based on any information published here does so entirely at own risk. Investors should bear in mind that any investment in stock markets are subject to unpredictable market related risks. Above information is based on RHP and other documents available as of date coupled with market perception. Author has no plans to invest in this offer.


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