PL Stock Report - Metro Brands (METROBRA IN) - Q2FY24 Result Update - Festive demand, FILA key monitorables - Accumulate

Metro Brands (METROBRA IN) – Amnish Aggarwal – Head of Research, Prabhudas Lilladher Pvt Ltd

Rating: ACCUMULATE | CMP: Rs1,208 | TP: Rs1,231

Q2FY24 Result Update – Festive demand, FILA key monitorables

Quick Pointers:

§ Added 29 stores in 2QFY24, on course to add 100 stores for FY24

§ FILA to be relaunched in FY25 with growth to come in by FY25

MBL 2Q results were impacted by 1) Rs140mn loss in Cravatex brands 2) loss of sales due to delay in festival season by 2/3 weeks and 3) high base due to pent up demand in base quarter. MBL continued to sustain strong operating parameters with 1) addition of 8 new cities in 2Q and 15 in 1H24 2) increase in online/ Omni channel salience to 11% of sales without aggressive discounting 3) 400bps higher share of sales with MRP>Rs3000 in 1H24 and 4) addition of 56 stores across formats in 1H24. FILA integration is on track and MBL has closed 2 more stores in 2Q with 1H24 loss at Rs280mn. Long term growth strategy is in place led by 1) geographical and store expansion 2) brands licenses/acquisitions (Crocs, FILA, Fitflop, Birkenstock, Cheemo) 3) re-launch and scale up in FILA from FY25/26. We expect crocs store addition to accelerate in 2H (18 v/s 2 in 1H) while FILA losses will continue in 2H24.

We expect 355 net store additions including FILA and 6% sales CAGR per store post FY24 (1.1% only). We estimate Sales/EBITDA/PAT CAGR of 20.1/19.3/18.7% for FY23-26E. Though FY24 to remain depressed with 7.3% PAT growth, yet we expect 24.8% CAGR over next 2 years. Retain ‘Accumulate’ rating with TP of Rs1231.

Consol Revenues grew by 14.7% YoY to Rs5.8bn. Gross margins contracted by -64bps YoY to 59.1%. EBITDA grew by 2% YoY to Rs1.9bn (PLe: Rs8.4bn). Margins contracted by -397bps YoY to 32%. (PLe:9.3%). Adj PAT declined by -11.5% YoY to Rs0.9bn. ASP for Q2FY24 came at Rs1500. Added 29 net new stores in Q2 with entering 7 new cities. Ex of Cravatex, sales grew 13.8% while EBITDA grew by 10.7%, margins contracted by 80bps. Cravatex reported sales of Rs300mn, EBITDA and PAT loss of Rs170mn and Rs280mn in 1H24.

Concall highlights: 1) Overall demand remains flattish amid festive season shifting to Q3, however demand is seen picking up in October month with similar trend to be continued for rest of the quarter. 2) Fila inventory will be liquidated by FY24 end and the brand will be re-launched subsequently. FY25 will be the year of consolidation followed by rapid scale up in FY26. 3) West and South continue to outperform while eastern market remains flattish as durga pooja got shifted in Q3FY24 4) E-commerce sales continue to gain traction with increasing its share in overall sales led by strong demand from in-house brands. 5) Contribution of EOSS inched up by 250bps to 7.5% in 1HFY24 vs 5% in 1HFY23. 6) GM to remain in the range of 55%-57% for FY24. 7) EBITDA margin to remain in the range of 30%-33% with Ad spend to be in the range of 3%-4% for FY24. 8) PAT margin to remain at 15%-17% for FY24. 9) ASP ex-accessories came at Rs 2250 10) Guidance of opening ~200 store in FY24-FY26 remain intact with focus on expanding metro and Mochi brand to new cities 11) MBL has opened 2 stores of crocs so far and plans to add 20 stores in FY24 12) Walkway has seen setback as it moved out of 15 D’Mart stores last year, brand offers long term potential

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