Buy Metro Brands Ltd For Target Rs. 1,350 By JM Financial Services Ltd
Revenue grew 9% YoY (5% miss) as revenue per sqft declined 3% YoY. The miss was on account of (i) Eid advancement to March, (ii) early onset of monsoon impacting the states of Gujarat and Maharashtra, and (iii) geopolitical tensions. Lower gross margin (~20bps lower YoY) and higher marketing spends towards brand building impacted EBITDA margin (lower ~50bps YoY). Store addition remained healthy as the company added 20 (net) stores; Walkway also registered addition of 4 stores in 1Q after a long time. The company has upped the ante on store openings in Walkway post getting the format right; this will help it to capture 80% of the footwear market. Addition of Clarks will complement the company’s existing premium portfolio and is expected to drive synergies at several levels. BIS implementation has led to some delay in the launch of Footlocker and FILA; store addition is expected in H2FY26. The management reiterated its long-term guidance of achieving revenue CAGR of ~15%+, gross margin of 55-57%, EBITDA margin of 30% and PAT margin of 15%. We reduce our FY26 EPS estimates by ~11% owing to weak consumption demand and delay in supplies due to BIS implementation; however, EPS cut for FY27-28 will be lower at 6-8% factoring in gradual recovery in demand. We maintain BUY with a revised TP of INR 1,350 (INR 1,400 earlier) based of 58x EPS as we roll forward our multiple to Jun’27
* Miss on revenue; higher marketing spends results in margin contraction: Consolidated revenue grew 9% YoY to INR 6.3bn in 1Q (5% miss) due to (i) Eid advancement to March, (ii) early onset of monsoon, and (iii) geopolitical tensions. Revenue per sqft declined 3% YoY INR 4,350. EBITDA grew 8% YoY to INR 1.9 bn (9% miss) as EBITDA margin contracted ~50bps YoY to 30.9% (JMFe: 32.2%) led by ~20bps YoY contraction in gross margin to 59.3% (JMFe: 59.5%) and ~60bps YoY higher other expense partially offset by ~30bps YoY lower employee cost. EBITDA margin was lower primarily due to higher marketing spend on brand building and positioning. PAT grew 7% YoY to INR 985 mn (9% miss).
|* 20 (net) stores added; premium product contribution continues to increase: The company opened 23 new stores and closed 3 stores in 1Q (net addition 20 stores), taking the total store count to 928. It also added 1 new city during the quarter (206 cities). Metro/Mochi/Walkway format witnessed the highest addition with 5/9/4 stores, while Crocs witnessed the addition of 2 stores (no store addition in FitFlop). Ecommerce sales (including omni-channel) grew by 45% YoY, contributing to 13.7% of the revenue (vs. 10.4% in Q1FY25). Own brand contribution contracted to 72% vs. 73% in 1QFY25 and 74% in 4QFY25. Contribution from products priced above INR 3,000+ increased to 56% (up 200/100 bps YoY/QoQ), while contribution from products priced between INR 1,500 and INR 3,000 saw their contribution declining by ~300bps YoY to 33%. ASP stood at INR 1,575 on an overall company basis.
* Footlocker, FILA, New Era updates: Footlocker: The management highlighted its cautious approach towards store opening due to concerns after BIS implementation under the Footlocker format but has guided for addition of 3 footlocker stores before festive season in 3QFY26. FILA: Relaunched FILA in FY25 leveraging other brands and is on track to open new EBOs in 2HFY26. New Era: Store addition planned in 2QFY26.
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