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We maintain BUY and TP of Rs1,250 on Metro Brands (57x Jun-28E EPS), as 1Q earnings miss of ~4% was led by higher employee costs and front-loading of marketing spends. Topline growth was in line at ~15% yoy, while gross margin improved by 20bps to 59.5%. 1Q growth was a culmination of a tough Apr/May26 (fewer weddings) and a healthy recovery in Jun-26. Metro remains confident of delivering mid-teens topline growth, though quarterly growth volatility cannot be ruled out due to shift in the festive season. Metro maintained its outlook of ~30% EBITDA margin and 13-15% PAT margin for FY27, as it expects operating leverage and normalization of marketing investments in the rest of FY27. While store expansion momentum moderated in 1Q (9 net additions), Metro remains confident of triple-digit store additions in FY27 (vs 124 additions in FY26). We maintain our positive stance on the back of strong mid-teens 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 (LTM: -15%), and new growth engines/leadership investments have to fire for the stock to re-rate, in our view.

In-line revenue; store additions expected to pick up in rest of FY27 Revenue grew ~15% yoy (in-line), led by healthy wedding season demand, though impacted by muted April-May (Adhik Maas), while sentiment improved from mid-June. Among channels, growth was led by offline (in-store) at ~16%, while e-com (including omni-channel) grew at a slower pace (~9% yoy). E-com growth was largely impacted by the ‘3P-SoR’ business as both the company's own website and marketplace omni business grew >60% yoy. Store additions were relatively muted at 9 net stores in 1Q (13 gross additions), though the management remains confident of store openings in triple digits in FY27. Walkway expansion slowed with 3 new additions, while premium formats, Metro/Mochi/Crocs, saw 1/1/2 additions, respectively. Gross margin expanded by 20bps yoy to 59.5%, while EBITDA margin at 29.8% declined by 110bps due to higher employee (up ~50bps) and higher other expenses (up ~70bps). EBITDA at Rs2.1bn grew ~11% and was ~4% lower than our estimate. Reported PAT came in at ~Rs953mn, down ~4% yoy due to higher depreciation/interest cost (IndAS impact) and lower treasury income.

Healthy initial traction in Clarks; long-term opportunity at 100-150 EBOs

Clarks has received healthy initial traction, with the women's range expanding from ~200 MBOs at launch to ~300 currently, with target of taking it to ~700 MBOs by FY27-end. Encouragingly, the management indicated that Clarks is largely incremental to the existing portfolio, with no cannibalization of existing brands (Metro/Mochi/DaVinchi/J Fontini), and is also attracting newer customers. Clarks’ EBOs are expected to be launched in 3QFY27, and the management sees long-term potential of 150-200 EBOs. Encouragingly, since the production of Clarks has moved to India, the management has been confident about investing further in the business.

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