Big Bull holds the key as brand value supersedes profitability in issue pricing!
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METRO BRANDS OFFER AT A GLANCE |
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| Offer Type | Book Built |
| Platform | Main Frame |
| Offer Size | Rs1367 Cr (2,73,50,100 equity shares) |
| Fresh Issue | Rs 295 Cr (59,00,000 equity shares) |
| Offer for Sale | 2,14,50,100 equity shares (1072 Rs Cr) |
| Face Value | Rs 5 |
| Price Band | Rs 485–500 |
| Bid Lot | 30 Nos. |
| Implied M-Cap | Rs 13,575Cr |
| Implied Equity Cap | Rs 135 Cr |
| Free Float | 25.73% |
| Lead Manager | Axis Cap, Ambit, DAM Cap, Equirus Cap, ICICI Sec and Motilal Oswal. |
| Registrar | Link Intime |
| Listing | BSE, NSE |
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INDICATIVE ISSUE SCHEDULE |
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| Opening :10-Dec-2021 | Closing :14-Dec-2021 |
| Allotment :17-Dec-2021 | Refunding :20-Dec-2021 |
| Demat Credit :21-Dec-2021 | Trading :22-Dec-2021 |
The Offer
The Mumbai-based Metro Brands Ltd is entering the capital market with a Rs 1367 Cr IPO which consists of a fresh issue of Rs 295 Cr (translating into 59 lakh equity shares) and an Offer for Sale of 2,14,50,100 equity shares (valed Rs 1072 Cr) from eight existing shareholders, including seven promoter group members. The offer is being made through the book-building route with a price band of Rs 485-500 for Rs 5 paid-up share.
Applicants for the IPO should bid for a minimum lot of 30 shares and multiples thereof. The shares are proposed to be listed on the main frame of BSE and NSE on Wednesday, December 22, 2021. Axis Capital, Ambit, DAM Capital, Equirus Capital, ICICI Securities and Motilal Oswal Investment Advisors are acting as managers to the offer. Link Intime has been roped in as the registrar to the issue. The bidding opens on Friday, December 10, 2021 and closes on Tuesday December 14, 2021.
The company proposes to utilize the net proceeds of the fresh issue towards the cost of opening new stores, under the “Metro”, “Mochi”, “Walkway” and “Crocs” brands (Rs 225 Cr) and general corporate purposes.
Lineage
Metro is an Indian footwear retailer targeting the economy, mid and premium segments in the footwear market. Incorporated as Metro Shoes Private Ltd in 1977, the company has been converted to public twice between 1992 and 2007. Metro Shoes became Metro Brands in September 2018. Metro’s main promoter Rafique Malik has over 50 years of experience in the footwear retail business. The family had opened their first store under the Metro brand in Mumbai in the year 1955. Since then Metro has evolved into a one-stop shop for all footwear needs, by retailing a wide range of branded products for a family including men, women, unisex and kids, and for every occasion including casual and formal events.
Metro primarily follows the “company owned and company operated” model of retailing through its own Multi Brand Outlets (MBOs) and Exclusive Brand Outlets (EBOs). Metro has a pan-India presence through its store network in prominent high streets, malls and airports, spread across 30 states and union territories. As of September 30, 2021, the company had a network of 598 stores across 136 cities. It has opened 127 new MBOs (including seven through franchises) and 110 new EBOs in the last three fiscals.
Key Management
Main promoter Rafique Malik (71) is the chairman of the company providing strategic insights and overall direction based on his long experience and understanding of customer preferences and industry trends. Chairman’s daughter and co-promoter Farah Malik Bhanji is the managing director of the company. She has more than 20 years of experience in the footwear retail business and has helped the company in the expansion of store network, forging new strategic partnerships.
Another co-promoter and family member Alisha Malik, designated as President – E-Commerce and Marketing, has been instrumental in developing and managing Metro’s online channels. She has been associated with the company since 2009. In July 2021, Metro has engaged Nissan Joseph as its CEO, who brings more than 20 years of retail and brand management experience. He has in the past worked with Payless Shoes Pty Ltd and Hickory Brands, Inc. He has also spent over five years in key roles with Crocs.
Stakeholders
Of the present equity of 26.56 crore shares, the promoters’ family members, trusts and associates hold as much as 84% and Rakesh Jhunjhunwala family Trusts have 14.74%. Post public offer, the promoter group will hold 74.24% of which 66.82% will have negative cost of holding. In other words, after the lapse of minimum lock-in period of six months, if needed, more than 50% can be offloaded at any price. The cost of holding for Jhunjhunwala Trusts too is very low at less than Rs 10 as compared to the IPO cap price of Rs 500.
Business
Metro is one of the largest Indian footwear specialty retailers. It targets the economy, mid and premium segments in the footwear market. It retails footwear under its own brands of Metro, Mochi, Walkway, Da Vinchi and J. Fontini, as well as certain third-party brands such as Crocs, Skechers, Clarks, Florsheim, and Fitflop. The company also offers accessories such as belts, bags, socks, masks and wallets. Metro also retails foot-care and shoe-care products at its stores through a joint venture, M.V. Shoe Care Private Ltd, making Metro a ‘one-stop-shop’ for all footwear and related accessories to the customers.
Metro’s retail operations are carried out through offline stores and distributors as well as through online channels. It primarily follows the “company owned and company operated” model of retailing through its own Multi Brand Outlets and Exclusive Brand Outlets. It operates Metro, Mochi and Walkway branded MBOs and Crocs branded EBOs. Metro and its subsidiary Metmill also operate shop-in-shops in major departmental stores across the country. Also, Metro distributes products of third-party brands through MetMill and retail products through franchisees.
Financial Track
Metro achieved its peak performance in fiscal 2020. Revenue reached Rs 1285 Cr on which the company posted a profit of Rs 161 Cr. However, the COVID-induced lock-down played havoc in fiscal 2021. Turnover slumped 38% to Rs 800 Cr and operating profit slid to Rs 172 Cr from Rs 353 Cr. The company could post a net profit of Rs 65 Cr only with the help of other income of Rs 78 Cr!
In Fiscal 2021 Metro permanently closed 24 stores due to significant decline in footfalls on account of COVID-19. It has closed another 14 stores in the six months ended September 30, 2021 due to the residual impact of the pandemic. A face saving aspect is, despite the fall in sales, the company has maintained its EBIDTA margin at above 28% during last four years.
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Metro Brands Consolidated Financials (in Cr) |
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| Period Ended |
Sep-21 |
Mar-21 | Mar-20 |
Mar-19 |
| Months |
6 |
12 | 12 |
12 |
| Revenue |
456 |
800 | 1285 |
1217 |
| Operating Profit |
111 |
172 | 353 |
336 |
| OPM% |
24.4 |
21.4 | 27.4 |
27.6 |
| Other Income |
33 |
78 | 26 |
20 |
| EBIDTA |
145 |
249 | 379 |
357 |
| EBIDTA % |
29.6 |
28.4 | 28.9 |
28.8 |
| Interest |
24 |
44 | 40 |
34 |
| Depreciation |
65 |
122 | 121 |
94 |
| Net Profit |
43 |
65 | 161 |
153 |
| Equity (Implied) |
136 |
133 | 133 |
133 |
| Reserves (Implied) |
1003 |
695 | 675 |
517 |
| Fixed Assets |
759 |
728 | 721 |
597 |
Valuation
The company has, `in consultation with the lead managers’, allotted shares at a price of Rs 450 only in November 2021. After the offer for sale, a substantial portion of the promoters’ stake will have negative cost. The market savvy investor will hold an influential stake of more than 14% at a very low cost. Hence, after the 6-month lock-in period, unless the earnings surge enough to bring the P/E multiple to a respectable level, the stock is bound to come under pressure when the existing shareholders rush to the market.
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How Metro Brands compares with listed peers |
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Financials |
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| (Amount in Cr) |
Metro |
Relaxo | Bata | Mirza |
Khadim |
| Market Cap |
13575 |
31989 | 26129 | 1561 |
486 |
| Fixed Assets |
728 |
1056 | 1153 | 576 |
231 |
| Revenue |
800 |
2359 | 1708 | 1049 |
626 |
| Other Income |
78 |
23 | 94 | 1 |
18 |
| EBIDTA |
249 |
518 | 252 | 119 |
21 |
| Interest |
44 |
17 | 104 | 41 |
25 |
| Net Profit |
65 |
292 | -89 | 8 |
-33 |
| Equity Cap |
136 |
25 | 64 | 24 |
18 |
| Reserves |
1003 |
1548 | 1694 | 614 |
183 |
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Stock Features |
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| Current Price (Rs) |
500 |
1289 | 2033 | 130 |
271 |
| Face Value (Rs) |
5 |
1 | 5 | 2 |
10 |
| Book Value |
42 |
63 | 137 | 53 |
112 |
| Promoter Stake % |
74.3 |
70.9 | 53.0 | 67.7 |
59.9 |
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Profitability |
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| OPM % |
21.4 |
21.0 | 9.5 | 11.3 |
0.5 |
| Net Margin % |
7.4 |
12.2 | -5.0 | 0.8 |
-5.1 |
| Cash EPS |
7.00 |
16.18 | 13.65 | 6.22 |
3.50 |
| Earnings Per Share |
2.51 |
11.75 | -6.95 | 0.69 |
-18.33 |
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Discounting |
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| Price/Earnings |
199.0 |
109.7 | – | 187.3 |
– |
| Price/Cash EPS |
71.4 |
79.7 | 148.9 | 20.9 |
77.2 |
| Price/Book Value |
11.9 |
20.3 | 14.9 | 2.5 |
2.4 |
| Price/EBIDTA |
54.4 |
61.7 | 103.8 | 13.1 |
22.7 |
| Price/Revenue |
17.0 |
13.6 | 15.3 | 1.5 |
0.8 |
Concern
- The impact of the ongoing pandemic on the company’s business and operations has been significant.
- The premises of all Metro stores and warehouses are leased. Failure to renew the leases of the prominent stores on competitive terms, would adversely affect the operations of the company.
- Needs to improve on corporate governance. Some of its corporate records relating to changes in the share capital, allotments, transfers and acquisitions of shares made by promoters are not traceable.