IPO Analysis: Metro Brands Ltd

IPO Rating: Invest for long-term 

About the issue: 

Metro Brands is a popular retail destination that serves all footwear needs by offering a variety of products under various brands. The company is coming out with its initial public offering (IPO) of equity shares of the face value of Rs 5 per equity share. The maiden offer comprises of fresh issue of Rs 295 crore and an offer for the sale of shares worth Rs 1,072.51 crore by existing investors, according to its red herring prospectus. The price band of the issue has been fixed at Rs 485 to Rs 500 per equity share. The IPO opening date is December 10, 2021, while it will be closing on December 14, 2021. The issue will be listed on the exchange on December 22, 2021. The IPO market lot size is 30 shares. A retail-individual investor can apply up to a maximum of 13 lots (390 shares or Rs 195,000). The objects of the offer are to utilize the funds to open new stores of the company, under the ‘Metro’, ‘Mochi’, ‘Walkway’ and ‘Crocs’ brands and for general corporate purposes.  

Metro Brands IPO Details: 

About the company: 

Established in 1955, Metro Brands Limited is one of the largest Indian footwear specialty retailers, in India. The company caters to the footwear needs of customers through a wide range of branded products for the entire family including men, women, unisex and kids, and different occasions. The company targets the mid and premium segments in the footwear market which have a higher presence of organized players and growth in the overall footwear industry. Some of the company's well-known brands include Metro, Mochi, Walkway, Da Vinchi, and J. Fontini, as well as certain third-party brands such as Crocs, Skechers, Clarks, Florsheim, and Fitflop. Metro Brands also offer accessories such as belts, bags, socks, masks, and wallets, at their stores. The company also retails footcare and shoe-care products at their stores through the joint venture, M.V. Shoe Care Private Limited. The company follows the "company-owned and company operated" (COCO) model of retailing through their own Multi Brand Outlets (MBOs) and Exclusive Brand Outlets (EBOs), to manage their stores. 

As of September 30, 2021, the company operated 598 Stores across 136 cities spread across 30 states and union territories in India. The company has been supported by Rakesh Jhunjhunwala as an investor since 2007. 

Competitive Strengths: 

One of India's largest footwear retailers 

Wide range of brands and products 

Efficient operating model and asset-light business 

Presence across multiple formats and channels 

First choice for other national and international third-party brands 

Strong promoter background and an experienced management team 

Strong track record of growth and profitability 

Company Financials: 

The revenue of the company has declined in FY21 because of the covid-led lockdowns. The EBITDA margin has gone down from 27.72 per cent in FY19 to 21.36 per cent in FY21. The PAT margin too was affected as it went down from 12.55 per cent to 8.08 per cent in FY21. 

Recommendation:  

The Indian footwear industry has witnessed an increase in activity over the last few years, with the changing consumer attitude towards footwear. Shoes initially positioned as a value purchase, are now transcending into a lifestyle purchase. The segment is estimated at Rs 1 trillion as of Fiscal 2020. The segment witnessed a decline of approximately 31 per cent in Fiscal 2021 due to the lockdown restrictions imposed throughout the country to fight the coronavirus pandemic. Going forward, CRISIL Research expects growth momentum to pick up and the segment to reach an estimated Rs 1.4 trillion by Fiscal 2025, growing at a CAGR of approximately 21 per cent between Fiscal 2021 and 2025.  

The company promoters and management have more than five decades of experience in the business. Notably, Rakesh Jhunjhunwala has been invested in the company since 2007, and the offer for the sale of shares by existing shareholders does not include shares of Rakesh Jhunjhunwala.   

To increase revenue generation opportunities during the initial months of COVID-19, the company strengthened its omnichannel platforms, including online sales channels through its website, leading e-commerce marketplaces, and social media channels. Its key competitors include Bata India Limited and Relaxo Footwear Limited.   

The company recorded a realization per unit of Rs 1,321.29, Rs 1,345.80 and Rs 1,327.96, in fiscal 2019, 2020 and 2021, respectively, and revenue per sq ft of more than Rs 17,500, Rs 16,800 and Rs 10,150, in such periods, respectively. Its business has strong cash flow generation due to which it did not have any significant indebtedness as of March 31, 2021. The company financials are decent and had been making profits in the past. Hence, we recommend our readers/investors to invest in the IPO for the long term.