Hold Metro Brands Ltd For Target Rs.1,034 by Prabhudas Liladhar Capital Ltd
Demand outlook mixed
We cut our FY27/FY28 EPS estimates by 3.0%/5.0%, factoring in
1) muted demand outlook in near term
2) continued delay in new-format store openings amid supply constraints
3) tepid improvement in operating metrics (sales/store up just 1.6% in 1Q)
4) limited margin expansion potential given elevated OPEX.
MBL's growth plans remain on track, supported by
1) Entry into new cities.
2) Healthy online/omni-channel contribution, accounting for ~13% of total sales (9% YoY sales growth in Q1.
3) Accelerated store openings in Walkway format (3 in 1Q27) aimed at capturing the value-conscious consumer (Tier-2 cities) and positioning MBL as a comprehensive footwear destination. We see the key growth delta emerging from MetroActiv, Clarks, FILA and Foot Locker as MBL launches new EBO’s and complements its product range. We estimate 12.2% EPS CAGR over FY26-FY28 and assign a DCF based target price of Rs1034 (Rs1187 earlier). We expect back ended returns given rich valuations of 52.6xFY28 EPS. Cut to Hold.
Financial Highlights
* Consol Revenues grew by 14.7% YoY to Rs7.2bn. Gross margins expanded by 15bps YoY to 59.5%
* EBITDA grew by 10.7% YoY to Rs2.1bn (PLe:Rs2.2bn). Margins contracted 107bps YoY to 29.8%. (PLe:30.0%). Adj PAT declined by 4.8% YoY to Rs0.9bn (Ple:1bn)
* Revenue/sqft came flat at Rs4350 while ASP were up by 6% to Rs1675
* Sales/store grew by 1.6% YoY to Rs6.9mn while cost of retail went up by 270bps QoQ led by higher OPEX
* Number of pairs sold grew by 7.8% to ~4.3mn pairs in 1QFY27
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