Buy Metro Brands Ltd For Target Rs. 1,400 By Emkay Global Financial Services Ltd
Prudently plugging porfolio gaps
Leveraging its strong balance sheet and best-in-class retail pedigree, Metro is prudently plugging portfolio gaps and remains a platform of choice for thirdparty brands looking to enter India. After announcing scalable partnerships with FILA/Footlocker, Metro has announced an exclusive, long-term distribution agreement to distribute Clarks across all offline/online channels in India and its neighboring countries. The agreement is a pure-play B2B model, where Metro has the right to purchase the inventory per the evolving consumer needs. Clarks is a global pioneer in comfort footwear for both, men and women, and is a preferred choice of consumers seeking premium footwear (ASP: Rs3,000-7,000) with modern style and exceptional comfort/quality. We reiterate BUY on the stock and our TP of Rs1,400 (60x Jun-27E EPS).
Enhances positioning in the premium Casual Footwear space
Metro Brands has been appointed the exclusive retail and digital partner for Clarks in India and neighboring countries, including Bangladesh, Bhutan, Nepal, Maldives, and Sri Lanka. Clarks offers comfort footwear at a premium price-point (ASP: Rs3,000-7,000), blending timeless designs with the evolving preference of consumers. Under the terms of a long-term distribution agreement, Metro has exclusive right to sell Clarks in all offline channels, incl Clarks mono-branded stores. Metro will manage Clarks’s e-commerce operations in India (including own website). The exclusive partnership marks Clarks’s official comeback to the Indian market, following the recent exit from its JV with Reliance.
Metro offers best-in-class proposition across key parameters
Metro offers a wide assortment of products (one-stop family destination) and addresses consumer needs across a large price-bracket with separate formats (ASP: Rs700- 12,000). Metro has perfected demand-based sourcing which ensures in-demand styles, prevents stock-outs, and drives higher throughputs (90-95% fresh mix). The work culture is highly progressive, with ~30% of employee payouts linked to store sales; motivated employees, along with a strong loyalty program, ensure better SSG trends (3- 4%). Financial discipline and higher throughputs warrant the shortest possible payback periods (2-3 years – the best among most reputed footwear companies in India).
All-around combo calls for superlative valuations
Metro has delivered revenue CAGR of ~15% over the last decade which it has strong potential to surpass in the coming decade. The company has exemplary financial discipline (21-22% EBITDA margin; ~60% CFO/EBITDA), which ensures growth through internal accruals, future growth optionality, and consistent reward to shareholders. Our extensive research around scope for existing formats, global benchmarking of potential for new/exclusive formats, and Metro’s long-term financial discipline grants us confidence that Metro deserves superlative valuations. We reiterate BUY on the stock, and our TP of Rs1,400 (60x Jun-27E EPS).
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