Stepping into Success: Metro Brands Soars 153% Above IPO Price in Just One Year

Metro Brands, a pure-play footwear retailer in India, has been making significant strides in the market. Over the last six months, its stock price has witnessed a remarkable surge, climbing from ₹794 per share to ₹1,265 per share, marking a return of 59.31%. Even more impressively, the stock has risen by 71% from its one-year low of ₹736. It’s worth noting that Metro Brands made its stock market debut on December 22, 2021, at an issue price of ₹500 per share, and it currently trades a substantial 153% above its IPO price.

A recent boost to Metro Brands’ stock came when the analysts initiated coverage on the stock. Analysts assigned the stock an ‘Accumulate’ rating and a DCF-based price target of ₹1,231 per share. This development led to a 15.32% increase in the stock’s price, culminating in a new all-time high of ₹1,298.80 per share.

Metro Brands, which was established in 1955, operates as a one-stop-shop footwear retailer, catering to all age groups and occasions. With a presence in 182 cities, it operates in five different formats and boasts 766 stores as of Q1FY24.

What sets Metro Brands apart is its asset-right (light) model, which means it doesn’t engage in manufacturing but instead sources its products from over 250 trusted third-party vendors. This approach allows the company to keep its costs in check, ensuring variable salaries, minimal discounted sales, and a share of revenue in lease rentals. Such an asset-light strategy enables Metro Brands to focus on design innovations and effective inventory management.

Notably, in October 2022, Metro Brands made a strategic move by acquiring ‘Cravatex Brands’ for ₹2.02 billion. This acquisition aimed to strengthen the company’s position in the fast-growing athleisure space. It granted exclusive distribution rights for FILA, which comprises 24 stores, in the Indian sub-continent and ownership of the Proline Brand. The company has high hopes for FILA, especially given its success in China. While FILA reported a loss of ₹278.2 million in the last two quarters, Prabhudas Lilladher expects a similar run rate in the coming 2–3 quarters. The brokerage believes that FY25 will likely be a year of consolidation, with positive contributions expected in FY26.

Furthermore, Metro Brands stands to benefit from the upcoming quality control norms for footwear enforced by the Bureau of Indian Standards (BIS), commencing on January 1, 2024. These norms will require a BIS license for manufacturing, importing, or selling products covered by quality control orders. While this may lead to some supply-side disruptions in Q3/Q4FY24 as manufacturers adapt to the new standards, it is expected to enhance product quality and deter cheaper imports and counterfeits in the Indian market. This shift is likely to benefit large organized players like Metro Brands.

In the wake of the COVID-19 pandemic, the real estate industry saw a robust rebound in FY22–23, marked by record sales bookings. Metro Brands was no exception, achieving its highest-ever sales in terms of both volume and value, with 15.2 million square feet sold, amounting to ₹12,232 crore. This represented a substantial year-on-year growth of 56%.

Sales performance was robust across all four of Metro Brands’ key geographies, with each region contributing more than 2 million square feet of sales and a sales value exceeding ₹2,000 crore. Sales per store have increased from ₹26 million per store in FY19 to ₹31 million per store in FY23. Analysts estimates a 1.3% increase in sales per store in FY24, followed by a 6.2% CAGR after that.

Looking ahead, Analysts forecasts a sales CAGR of 20.1% for Metro Brands, driven by a 19% CAGR in offline sales and an impressive 32% CAGR in online sales over FY23-26E. The company’s operations have seen solid growth, with a 18.6% increase in profit before tax (PBT) from operations during FY19–23. The brokerage anticipates a 4.7% growth in PBT in FY24 and a remarkable 17% CAGR over FY23-26E.

Metro Brands’ success can be attributed to its strategic approach, focused expansion, and adaptability to market dynamics. As it continues to innovate and expand its presence in new and existing cities, it is well-positioned to capitalize on the ongoing growth in the industry. While interest rate hikes aimed at controlling inflation may impact the cost of capital, Metro Brands’ asset-light model and strong execution capabilities are expected to help it weather any challenges and continue its growth trajectory.

In summary, Metro Brands has not only demonstrated impressive stock performance but has also strategically positioned itself in the footwear retailing market, making acquisitions that enable it to tap into the athleisure trend and stay ahead of evolving industry standards. With a strong track record and a focus on quality and customer satisfaction, Metro Brands appears poised for sustained growth in the coming years.

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