Prabhudas Lilladher gives ‘accumulate’ rating on the Metro Brands, sees huge runway for growth

PL has set the target price at Rs 1231 and expects sales to grow at 20.1 percent compounded annually over FY23-26.

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Prabhudas Lilladher has initiated coverage on Metro Brands with an ‘accumulate’ citing huge runway for growth given presence in fewer cities, rising online purchases, and acquisitions.

Prabhudas Lilladher has set the target price at Rs 1231 and expects sales to grow at 20.1 percent compounded annually over FY23-26. It expects EBITDA and net profit to grow 19.3 percent and 18.7 percent compounded annually over FY23-26.

Prabhudas Lilladher sees huge runway for growth for Metro Brands as it has a presence in just 174 cities, while Bata India and Tanishq have presence in 388 and 257 cities respectively.

Metro Brands has recently acquired Crocs, FILA, Fitflop, Birkenstock, and Cheemo. Drawing inspiration from its prior achievements with Crocs, the company intends to replicate its scaling strategy for FILA. This move is expected to inject a new dimension into the company’s growth prospects. However it might temporarily affect the company’s financial performance in the fiscal year 2024. There was a loss of Rs 278 million recorded in the Q4FY23 and the Q1FY24.

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Metro Brands acquired Cravatex Brands for Rs 2.02 billion in October 2022, gaining exclusive FILA distribution rights (24 stores) and the Proline Brand. They’re currently clearing older FILA inventory, expected to conclude by Q3FY24. Despite recent losses, the company is optimistic about FILA’s potential, inspired by its success in China which were around $4 billion sales or 2400 stores. A premium FILA re-launch is planned with 51 stores by FY25/26. FY25 is seen as a year of consolidation, with positive contributions expected from FY26.

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