Motilal Oswal's research report on Metro Brands
The discretionary category has seen weak demand trends in the last few quarters, but METRO has continued to post industry-leading growth, led by steady footprint expansion. Although it could face moderation in SSSG and margin rebase in the near term, we expect the company to deliver secular 20% growth over the next five years, driven by its strong execution prowess evident from superlative store economics, a huge runway of footprint addition, excellent cashflow and ROIC profile, and new brand additions.
Outlook
We have not factored Fila and Foot Locker earnings, but we believe they have revenue potential of INR15-20b over the next 3-5 years (i.e. 30-40% share of Metro). Since both the brands are at initial stage of investing, we value Fila/Foot Locker at a ~75% discount to the potential value which creates an option value of INR160 (Exhibit 2), thus arriving at a valuation of INR1,530 per share.
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