Rakesh Jhunjhunwala stock: Brokerage sees upside of 38% in Metro Brands; know positives

Billionaire investor Rakesh Jhunjhunwala-promoted footwear company – Metro Brands Limited’s (MBL) shares have a potential to grow up to 38 per cent, Ambit Capital said. The optimism is on the back of attractive valuations and business outlook. 

The stock of Metro Brands has been surging since the announcement of interim dividend. It has gained over 3.5 per cent in the last five sessions and closed over 1.5 per cent to Rs 548 per share on the BSE as compared to over 1 per cent fall in the S&P BSE Sensex. 

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Ace investor Rakesh Jhunjhunwala along with his wife Rekha Jhunjhunwala held 39,153,600 equity shares, which comprises of 14.4 per cent in the company, as per the latest shareholding pattern. The counter was listed at discount of 13 per cent to its issue price of Rs 500 per share on exchanges. 

According to Ambit Capital, Metro Brand's consistent impetus on brandex and processes around inventory management created asset-light yet scalable business model. This bundled with superior store economics (70-80% RoIC, <2-year payback period) led to MBL becoming the fastest growing footwear retailer in India in the past decade.” 

As store expansion accelerates, the brokerage expects revenue/EBITDA/PAT CAGR of 14/17/21 per cent respectively over FY20-25E. Similarly, new format/brand expansion (akin to Crocs, FitFlop) can fuel growth in the long term and drive potential upside, it added. 

Despite the near-term profitability remaining volatile due to raw material inflation and risk of slowdown in discretionary spending, Ambit Capital said that the company will build a scalable franchise in the long term. And, with two-year view, the brokerage sets target price of Rs 718 per share, implies 1,476 stores by FY30 (11 per cent CAGR vs 14 per cent over FY15-20).  

On valuations front, brokerage sees MBL trades at 40x FY24 P/E vs 38x/69x for Bata/Relaxo despite better growth and RoCE profile. The two-year target factors 340 bps EBITDA margin expansion over FY23-30, total 1,476 stores by FY30 and CoE of 13 per cent. 

Increase in pace of store expansion for Walkway (under own/franchisee), ability to meaningfully scale FitFlop EBOs and new tie-ups can drive further upside, it added.