Buy Metro Brands; target of Rs 1050: Motilal Oswal

Motilal Oswal's research report on Metro Brands

Metro posted revenue growth of 24% YoY in 3QFY23, with strong store additions (48 stores) and healthy SSSG. PAT growth was soft at 12% YoY, despite high gross margin, due to aggressive store additions and marginal losses in Cravatex Brands post integration. We have largely maintained FY23/24 estimates as we have built in limited upside from FILA given its slow improvement in the next 2-4 quarters, though we are upbeat about it. We expect a revenue/PAT CAGR of 23%/ 21% over FY23-25. Metro’s superlative store economics, healthy portfolio of products and strong balance sheet/FCF productivity warrant a rich valuation. We reiterate our Buy rating on the stock.

Outlook

A combination of superior store economics and a strong runway of growth should allow Metro to garner rich valuations going ahead. We value the stock at 52x P/E on FY25E EPS to arrive at a TP of INR1,050. Reiterate our Buy rating on the stock.