Metro Brands Q4 Review — Robust Sales Performance; Accumulate: Dolat Capital

Metro posted strong results - reported highest ever quarterly sales. However, EBITDA & PAT missed our estimates as RM and operational expenses were higher than our estimate. The company witnessed 35% revenue growth on an unfavorable base of 26% - was encouraging. Acquisition of CBL also helped company to accelerate sales momentum.

Our recent channel check suggested that Metro is reporting better performance compared to peers. Considering penetration opportunity and ongoing brand additions, we expect the growth momentum to remain strong. Further, continuous premiumization is expected to keep ASP higher.

Going ahead, we believe that Metro has scope to expand in higher tiers where the penetration and cost of operation is low. Further, the company has lower penetration in Northern and Eastern markets, which offers high growth opportunity and the company is likely to focus on these geographies.

The company plans to add 200 stores over next couple of years which would help drive growth. Further, the top-line would be supported by volume growth at the store levels. However, with opening up of markets, EBITDA margins are expected to remain under pressure due to normalization of marketing and other operating expenses.

We believe that the demand for the company’s brands would remain high considering premium brand positioning, higher aspirations, demographic support and low penetration. Valuing the stock at 50x FY25E EPS. TP at Rs 1,032. Considering recent run-up in the stock price, we downgrade to Accumulate. Buy on dips.