Metro’s reported adj. revenue grew 11% YoY (in line) in 4QFY24, led by store adds. Productivity remained weak (-5% YoY) due to the high base; however, the decline was moderate. A higher contribution of INR3000+ ASP and own brand products improved gross margins, which, along with controlled cost, supported EBITDA/PBT growth of 10% each (10%/32% beat).In the near term, we believe that soft demand, delayed BIS implementation delaying FILA’s repositioning, and a moderation in margins could weigh on growth. However, in the long term, healthy store economics, steady store adds, and a growth opportunity in Fila/Foot Locker should drive a CAGR of 19%/25% in revenue/PAT over FY24-26. We reiterate our BUY rating on the stock.
OutlookWe have not factored in Fila and Foot Locker earnings, but we believe it has revenue potential of INR15-20b over the next 3-5 years (i.e. 30-40% share of Metro). Since both the brands are in the 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), arriving at a valuation of INR1,350 per share.
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