Prabhudas Lilladher has issued a “HOLD” rating for Metro Brands, with a target price of ₹1,268 per share, a marginal upside from the current price of ₹1,253. The rating reflects the company’s steady recovery in demand, alongside challenges posed by regulatory impacts and the competitive landscape. The long-term outlook remains positive, driven by store expansions and strategic brand partnerships. Below is a detailed analysis of the company's current performance and future projections.

Muted First Quarter but Improvement Expected in 2H FY25

Metro Brands faced a subdued Q1 FY25, but demand is expected to pick up in the second half of FY25.
Q1 FY25 saw lower-than-expected demand due to factors like fewer wedding days and election impacts. However, Q2 has started to show early signs of recovery, despite weather-related disruptions in regions like Gujarat and Rajasthan. The festive and wedding seasons in the second half of FY25 are anticipated to drive a significant rebound in sales. Management also expects a sharp recovery in consumer demand for its premium offerings.

Impact of Regulatory Changes on Sportswear and Athleisure Segments

Metro Brands is grappling with regulatory changes that have impacted the sportswear and athleisure segments.
The BIS (Bureau of Indian Standards) regulations have raised compliance costs for larger players in the domestic market, while smaller businesses remain exempt. The inclusion of non-certified countries like Vietnam and Thailand has further delayed Metro’s plans to relaunch certain brands. Despite these challenges, the company is working to strengthen its supply chain and domestic manufacturing to meet new standards. However, premium sportswear brands imported into India continue to face headwinds.

Strategic Expansion of Footlocker and FILA Stores

Footlocker’s cautious expansion in India and FILA’s relaunch are key components of Metro’s growth strategy.
Metro is set to open its first Footlocker store by Q3 FY25, with store sizes ranging from 3,000 to 7,000 square feet. The initial expansion will focus on sports footwear and athleisure, targeting premium customers with products priced above ₹6,000. FILA, which has shown promising feedback from its mini collection, is expected to relaunch its stores post-FY25. However, the current regulatory challenges could slow down store rollouts.

Financial Projections and Key Metrics

Metro Brands is projected to see steady revenue growth, though near-term profitability is under pressure.
For FY25, Metro’s sales are projected to reach ₹26,440 million, a 12.2% increase from the previous year. EBITDA margins are expected to remain stable at 29.4%, with PAT (Profit After Tax) expected at ₹3,778 million, marking an 8.4% decline year-on-year. Despite near-term pressures, the company’s long-term growth remains intact, with a forecasted 18.6% CAGR in PBT over FY25-27. The stock currently trades at a high valuation multiple, with a P/E ratio of 90.2x for FY25, limiting immediate upside potential.

Long-Term Growth Drivers: Store Expansion and Brand Partnerships

Metro Brands plans to add 225 new stores by FY26, expanding its retail footprint across India.
The company is aggressively expanding its store count, with plans to open 225 new stores over the next two years. This includes its core brands such as Metro, Mochi, and Walkway, as well as international brands like Crocs and FILA. The company’s total store count is expected to reach 1,045 by FY26, up from 739 in FY23. Along with store expansion, strategic partnerships with brands like Birkenstock, Crocs, and New Era Caps are expected to drive long-term growth.

Investor Outlook and Recommendation

Prabhudas Lilladher maintains a “HOLD” rating, with a target price of ₹1,268 per share.
While Metro Brands is poised for long-term growth through store expansion and brand diversification, near-term challenges, including regulatory hurdles and high valuations, limit the immediate upside. Investors are recommended to hold the stock and accumulate on dips for long-term gains as the company navigates these challenges and gears up for a stronger second half of FY25.