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We maintain BUY on Metro Brands, while cutting our TP by ~8% to Rs1,150 from Rs1,250 (50x Sep-28E EPS vs 54x earlier), on a relatively slower ramp-up of FILA/Foot Locker/Walkway. The TP cut is multiple-led as the cut in topline growth is offset by better margins on slower expansion. 2Q operating performance was 3-4% ahead of estimates, led by better gross margin as topline was in line at ~12% yoy. The 2Q topline growth moderation is a blip, as the festive shift impacted growth by 250-350bps; Metro remains confident of delivering mid-teens topline growth as it expects a relatively stronger 2H, helped by a festive shift. Store expansion was muted, at 21 net additions in 1H vs outlook of triple-digit additions in FY27 (post-1Q). Despite building in a slower ramp-up, we maintain our positive stance on the back of strong midteens growth prospects, bolstered by its existing portfolio (Metro/Mochi/Walkway/Crocs), new scalable partnerships (Foot Locker/ FILA/Clarks), and optionality from a healthy balance sheet (~40% cash at FY26-end). The stock has been an underperformer (CY26TD: -23%), and new growth engines/leadership investments have to fire for the stock to re-rate, in our view.

Revenue in-line; gross-margin expansion drives EBITDA beat

Revenue grew ~12% yoy (in line with our/street estimates), though impacted by the festive shift (~250-350bps) to 3Q. Among channels, growth was broad-based at 11-12% for both offline (in-store) and e-com (including omni-channel). 2Q online mix remained flat at 14.2% of topline. Revenue per sqft for in-store sales remained broadly flat at Rs4,250 in 2Q (vs Rs4,300 in 2QFY26). Store additions were relatively muted at 12 net stores in 2Q (21 gross additions). Net store additions moderated to 21 in 1HFY27 vs 58 in 1HFY26, as the company tightened store-opening criteria amid elevated rentals. However, management expects store additions to improve in 2HFY27, while remaining focused on opening profitable stores. Premium formats Crocs/Metro/Mochi saw 5/4/2 additions, respectively, while Walkway expansion slowed with 2 additions. Gross margin expanded by ~210bps yoy to 57.4%, driven by lower discounting during end-of-season sales along with a slight improvement in mark-ups. EBITDA margin expansion was limited to ~80bps at 27% due to higher employee expenses (up by ~140bps) due to minimum wage hikes and team investments. EBITDA at Rs1.9bn grew ~16% yoy and was ~4% higher than our estimate. Reported PAT came in at ~Rs758mn, up ~12% yoy though margin at 10.4% was flat yoy due to higher depreciation and lower treasury income.

Clarks EBO launch expected in 2H; refining Walkway’s expansion strategy

Clarks’ women’s range is now available across 400+ MBOs, while a limited men’s range is available across 100+ MBOs. The complete store-exclusive range is expected to become available in 3Q and on its D2C website, with Clarks EBOs planned for 2HFY27, subject to supply and assortment stabilization. Walkway’s existing-store initiatives continue to perform well, while the company refines its new-store expansion strategy amid mixed performance from recently opened stores.

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