Metro Brands IPO subscribed 3.64 times at the end of Day 3: Read our analysis

Metro Brands Limited (Metro Brands) IPO which opened for subscription on 10th December has been subscribed by 3.64 times at the end of 3rd day of the issue. The company is looking to raise up to Rs 1,335.74 crore through the public issue. Here are the details: ## About Metro Brands Limited IPO **Metro Brands Limited IPO Date:** 10 December - 14 December 2021 **Metro Brands Limited IPO Price band:** Rs 485 - Rs 500 **Issue Size:** Rs 1,335 crore – Rs 1,368 crore (Fresh issue aggregating up to Rs 295 crore and offer for sale aggregating up to Rs 1,072.51 crore) **Reservation**: QIB 50%, Retail - 35, NII 15% **Post Issue Market Cap:** Rs 13,177 crore – Rs 13,575 crore **Minimum Investment:** Rs 15,000 **Bid lot**: 30 shares, and in multiples of 30 shares ## Objectives of the issue The net proceeds from the IPO will be utilised for the following purposes : - Expenditure for opening new stores of the company, under the 'Metro', 'Mochi', 'Walkway' and 'Crocs' brands - General corporate purposes ## About Metro Brands - Metro Brands was established in 1955 and is one of India's largest footwear specialty retailers. The company has been supported by **Mr. Rakesh Jhunjhunwala** as an investor since 2007. - It caters to the footwear needs of customers through a wide range of branded products for the entire family. They target the mid and premium segments in the footwear market that have a higher presence of organised players and growth in the overall footwear industry. - Metro Brands' popular 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 endeavour to drive their sales through a strong focus on product assortment – a **Theory-of-Constraints (TOC) method** for their supply chain, offering greater availability and reducing stock-outs. - They operate two warehouses in India, both located at **Bhiwandi in Maharashtra**, on a leave-and-licence basis as of September 30, 2021. Also, the company operates **598 Stores across 136 cities** spread across 30 states and union territories in India. ## Metro Brands Distribution Channels **Retail Stores** - Company operated 598 Stores in 136 cities across 30 states and union territories in India with a total Retail Business Area of 734,217 sq. ft. across its various brands. They primarily have two formats for our retail store: 1. **Multi-Brand Outlets** - They operate MBOs for Metro, Mochi, and Walkway brands, and also sell other brands in these MBOs including DaVinchi, J Fontini, Princess, Activ, and others.  1. **Exclusive Brand Outlets** - They operate EBOs for third-party brands such as Crocs™ in India.  **E-commerce and Omni-channel** - The retail stores are supported by company-owned e-commerce businesses in India, through websites, and business accounts on social media platforms and instant messaging channels such as WhatsApp. ## Metro Brands Financials  - The revenue reported by Metro Brands for FY19, FY20, and FY21 is Rs 1,217.07 crore, Rs 1,285.16 crore, and Rs 800.06 crore, respectively. The revenue for FY21 was lower because of the pandemic - most of its stores were closed for weeks. - The EBITDA for the same period was Rs 337.33 crore, Rs 353.51 crore, Rs 170.93 crore, respectively. - The EBITDA margins have reduced from 27% in FY19 to 21.36% in FY21. - The net profit reported in FY19, FY20, FY21 is Rs 152.73 crore, Rs 160.58 crore, Rs 64.62 crore, respectively. - The average EPS and RoNW for the last three financial years is 4.73 and 16.4%. - In FY21, In-Store Product Sales, Online Product Sales, and Omni-Channel Product Sales represented 91.93%, 6.15%, and 1.09%, of their revenue from operations, respectively. - In FY19, FY20, and FY21, the **advertisement and sales promotion expenses** were Rs 43.71 crore, Rs 47.98 crore, Rs 16.08 crore or 3.59%, 3.73%, 2.01%, of revenue from operations, respectively.  ## Metro Brands Listed Peers  Metro Brands face competition from organised and unorganised footwear retailers in India and compete with different retailers for different aspects of their business. Their key listed competitors include **Bata India Limited and Relaxo Footwear Limited**. Other competitors are Khadim India, Paragon Group, and Liberty Shoes. - Relaxo Footwears is the biggest player in the industry in revenue terms with total revenue of Rs 1,392.50 crore, followed by Bata India and Metro Brands. - The Earning Per Share (EPS) of Metro Brands is much lower compared to Relaxo Footwears. - RoNW is highest for Relaxo Footwears at 18.54%, and for Metro Brands, it stands at 8.24%. ## Metro Brands Industry Outlook The Indian footwear consumption in value terms is expected to **grow at a CAGR of 15%** to 17% between FY22 and FY25. Growth is estimated to be driven by value, with ASP of footwear expected to increase by a **CAGR of around 5% to 7%** between FY22 and FY25.  This is also expected to drive the growth of the market share of organized players by a **CAGR of approximately 20% to 22%** in the same period. The market share of online footwear sales is also expected to grow at a **CAGR of 26% to 30%** between Fiscal 2020 and Fiscal 2025.  ## Metro Brands USPs **India's largest pan India footwear retailers** - It is one of the largest Indian footwear specialty retailers, and is among the aspirational Indian brands in the footwear category (CRISIL). They strive to remain relevant to their customers as they evolve in their premiumization journey and recorded the highest Average Selling Price in FY21. **Wide range of brands and products** - They are a one-stop-shop family retailer catering to the footwear needs of men, women, and children for different occasions including casual and formal events. The wide range of brands allows them to operate across the economy, mid and premium segments.  **Efficient operating model** - Metro Brands has long-standing relationships with most vendors and works with them to continuously introduce new designs, which are regularly updated. In the last three financial years, they have dealt with over 250 vendors for different products. They have been dealing with certain of their vendors for over 20 years. **Asset light business** - Metro Brands is among the few footwear retailers in India to source all their products through outsourcing arrangements without their own manufacturing facility, resulting in an asset-light model. It is based on third-party manufacturing supported by active brand portfolio management, optimum store size and layout, and long-term lease arrangements.  ## Metro Brands Growth Potential **Expand the store network in existing and new Indian cities**  - For the Walkway brand of footwear, the company plans to focus on franchise arrangements to increase the network of Walkway stores in India. It will utilise proceeds from the Fresh Issue to establish 260 new stores, under various formats. The key factor influencing the expansion of its stores in the selection of suitable locations. **Leverage multi-channel platforms to pursue new business opportunities** - They will continue to leverage their existing multi-channel platform to evaluate similar opportunities in the future. They will continue to take a long-term view of the partnerships they have entered into with third-party brands, investing time to understand a new brand, the target customer segment, and their expansion aspirations. **Expand the portfolio of accessories and grow other allied businesses** - Metro Brands will continue to look at new opportunities to increase the in-house range of belts, wallets, socks, and handbags, by leveraging on its understanding of the Indian consumer market. They will also distribute the range of foot care accessories and insoles of another prominent footwear and foot care brand. **Introduce environmentally sustainable footwear** - Consumers all across the globe are increasingly demanding products that have a minimal impact on the environment. In response, it intends to intensify its product development efforts to develop and launch sustainable footwear through alternate sources by optimising raw materials. ## Metro Brands Risks **Unable to identify customer demand accurately** - The success of Metro Brands' business depends upon the ability to anticipate and forecast customer demand and trends. Any error in the forecast could result in either surplus stock, which they may not be able to sell in a timely manner, or at all. Such conditions will impact the company's revenue.  **Unsuccessful in maintaining and enhancing awareness of brands** - The company's success depends on its ability to maintain the brand image of existing products and effectively build its brand image for new products and brand extensions. Negative reviews from customers regarding the quality of products, dissatisfaction amongst vendors, inability to deliver quality products at competitive prices, and accidents, injuries, or crimes at stores could adversely affect public perception and hence, the business. **Unable to effectively manage or expand retail network** - They plan to further expand store network in India. However, as of now, they have not determined the location for such new stores. If they are unable to effectively manage or expand their retail network and operations or pursue a growth strategy, the new stores may not achieve the expected level of profitability. ## Metro Brands IPO: INDmoney analysis Metro Brands’ has reported a 38% decline in its total revenues to **Rs 800 crore in FY21, impacted by the ongoing pandemic.** The company’s profits also declined steeply to Rs 61 crore in FY21, due to lower footfalls during the period. At the higher end of the price band, **Metro Brands IPO is priced at a Price/Earnings of more than 210 times FY21 EPS (on a fully diluted basis)**, due to lower earnings in the previous year. If we annualize Apr-Sep 21 earnings, then the IPO is valued at about 158 times, which is still aggressive. However, peers Relaxo Footwear (108 times) and Bata India are also trading at very high valuations. Relaxo Footwear has higher return ratios as compared to the other two. Given the company’s strong product profile, asset light business model, healthy margins, strong sentiment due to marquee investors but aggressive valuations, **investors with a higher risk appetite and a long-term view could consider investing in this issue.** ### Subscription status (End of Day 3) (14th December 2021) | Category | Subscription (times) | |-----------|----------------------| | QIB | 8.49 | | NII | 3.02 | | Retail |1.13 | | Total |3.64 |