Metro Brands Limited (MBL), backed by ace investor Rakesh Jhunjhunwala, is floating its maiden public issue on December 10. The IPO will close for subscription on December 14.
MBL retails footwear under its own brands of Metro, Mochi, Walkway, Da Vinchi and J Fontini, as well as certain third-party brands such as Crocs, Skechers, Clarks, Florsheim and Fitflop.
MBL is among the top-five footwear brands in India and is ranked fourth in the domestic footwear market (in terms of sales in FY21).
Features of the IPO
The price band fixed for the IPO is Rs 485–500 per share of a face value of Rs 5 each. At the upper price band, the offer will fetch the company Rs 1,367.5 crore. It comprises fresh issue of shares worth Rs 295 crore and an offer-for-sale of Rs 1,072.5 crore by promoter selling shareholders who will offload 2.14 crore equity shares.
The lot size will be 30. The allotment of shares will be finalised by December 17 and shares will be transferred to demat accounts by December 21.
The company had undertaken a private placement on November 3, 2021, and allotted 0.73 lakh at Rs. 450 per share. Total cash consideration from the private placement was Rs. 3.3 crore.
Promoters hold 83.99 percent in the company and this will come down to 74.27 percent after the IPO, raising the public holding from 16.01 percent to 25.73 percent.
From the proceeds of the fresh issue, Rs 2.25 crore will be used to fund opening more stores of the company. The MBL shares will start trading on the BSE and National Stock Exchange on December 22.
Brokerage Recommendations
Though most brokerages feel that the company has good growth prospects and have advised investors to ‘subscribe’ to the issue, Angel One differed and assigned a ‘neutral’ rating to the IPO.
“The post-issue TTM (trailing twelve months) P/E works out to 91x (at the upper end of the issue price band), which is high considering MBL’s historical top-line and bottom-line CAGR of 9 percent and 6 percent over FY18-20,” it said. The company’s historical net profit growth is low compared to its peers like Relaxo Footwears.
However, MBL has an asset-light business model, strong brand value and a wide range of products. “We believe that these positives are captured in the valuations commanded by the company, hence we assign a neutral rating to the issue,” said Angel One.
MBL is prone to risks from any fresh wave of the pandemic, poor economic conditions in future may affect consumer spending, increased competition and slower expansion of store network, said Choice Broking.
“At a higher price band of Rs 500, MBL is demanding a P/E multiple of 89.2x (to its average earnings of Rs 5.6 per share over FY19-20), which is at premium to peer average of 71.7x,” the brokerage said.
It assigns a ‘subscribe for long term’ rating for the issue as it feels that “MBL has reported strong financial performance with robust cash flow generation and is consistently paying dividend since FY2000”.
IDBI Capital assigns a ‘subscribe’ rating to the IPO. “MBL’s aggressive plans on store addition and product portfolio expansion would cater to growing demand in branded footwear and pave the way for sustainable earnings growth and improved operational parameters in future,” it said.
It takes into consideration MBL’s strong growth potential because it is one of the largest pan-India footwear retailers, with a brand appeal among aspirational consumer segments. It also factors in MBL’s wide range of brands and products that cater to all age groups and market segments; its asset-light business with an efficient operating model; and it being a platform of choice for third-party brands looking to expand in India.
The company outsources 100 percent of its products from third-party vendors. “Any disruptions at such third-party facilities or failure of such third-parties to adhere to the relevant quality standards may have a negative impact on the company’s reputation, business and financial condition,” cautioned Marwadi Financial Services.
“A significant portion of the company’s revenue (Rs 189.5 crore, or 30.76 percent of the revenue) is generated from the sale of third-party brands, and the loss of one or more such brands, or a reduction in demand for their products could adversely affect the company,” Marwadi said.
It assigns a ‘subscribe’ rating to the IPO as it is available at reasonable valuation compared to its peers. “Considering the TTM (September 2021) adjusted EPS of Rs 5.55 on a post-issue basis, the company is going to list at a P/E of 90.01 with a market cap of Rs 13,5,75 crore while its peers namely Bata India and Relaxo Footwear are trading at a P/E of 922 and 111 respectively,” it said.
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