Buy Metro Brands Ltd for the Target Rs.1,250 by Emkay Global Financial Services Ltd
We maintain BUY on Metro Brands while increasing our TP by ~6% to Rs1,250 (57x Mar-28E EPS) from Rs1,175. TP increase is largely earnings-led, helped by ~4% revenue-led EBITDA beat in Q4 and better commentary on margin protection (vs our cautious stance). Metro attributed the improved growth trajectory (EBITDA growth of ~20% in Q4) to healthy demand during the festive/wedding season and GST reduction on footwear priced below Rs2,500. With a relatively higher share of premium consumers (less price sensitive) and strategic stocking in Q4, Metro does not expect any significant deviation in its near-term growth or margin profile. Encouragingly, store expansion momentum has picked up, with 124 net additions in FY26, after a slower pace in FY25 (72 additions). We maintain a positive stance, on the back of strong mid-teen growth prospects, bolstered by growth in the existing portfolio (Metro/Mochi/ Walkway/Crocs), new scalable exclusive partnerships (Foot Locker/FILA /Clarks), and optionality from Metro’s positioning as a preferred partner for incoming global brands (backed by a healthy balance sheet with ~40% cash at FY26-end).
Revenue growth at multi-quarter high; store additions remain robust
Q4 revenue grew ~20% YoY and was 4-5% better than our/street estimates, led by festive/wedding demand, reduction in GST, and faster pace of store expansion. The ecom channel (including omni-channel) grew ~53% YoY in Q4, contributing ~12.2% to the topline, vs 9.5% in Q4FY25. Revenue per sqft was flat at Rs4,750, despite significant network expansion of ~19%. Store additions were robust, with 42 net additions in Q4, taking the overall store count to 1,032, led by continued acceleration in Walkway (12 additions), improved momentum in crocs (7 additions in Q4 vs 4 in 9M), alongside 12/9 stores added under Metro/Mochi, respectively. Gross margin expanded by 30bps YoY to 57.8%, while EBITDA grew ~21% YoY to Rs2.3bn, ~4% ahead of our estimates, led by better-than-expected revenue. EBITDA margin improved marginally to 30.8%. Reported PAT of ~Rs1.2bn was higher than our estimate, led by EBITDA flow through and higher other income on account of one-time gain of Rs70mn due to reversal of net lease liability
Walkway unit metrics improving; FILA ramp up expected in coming quarters
Walkway continues to present a large structural opportunity, particularly in Tier-3 and Tier-4 markets where the share of unorganized footwear is higher. The management indicated that the format is still being fine-tuned across different catchments and store formats, though profitability trends and unit economics are increasingly becoming attractive from an RoCE perspective. Foot Locker expansion remains calibrated amid ongoing BIS-related uncertainties around imported products, while FILA repositioning remains underway following inventory clean-up and initial store launches. The management expects FILA to become a meaningful contributor to the company’s growth over the next ~18 months. Clarks EBOs are expected to be launched in Q3FY27, following stabilization of the supply chain and assortments.
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