Rakesh Jhunjhunwala stock: Metro brands share price may rally 33%, Ambit initiates coverage with ‘buy’ rating

Rakesh Jhunjhunwala-backed Metro Brands’ stock price is expected to rally close to 33% from current levels, according to analysts at Ambit who have recently initiated the coverage of the stock. Seeing Metro Brands’ industry-leading throughput, superior store economics and fast trajectory of growth, Ambit has placed a ‘Buy’ call in the stock with a target price of Rs 718 per share. This is the second bullish outlook in favour of Metro Brands in recent weeks with Axis Securities having initiated the coverage with a ‘buy’ call. Rakesh Jhunjhunwala is a pre-IPO investor in Metro Brands. 

Valuations attractive

Analysts at Ambit said that Metro Brands trades at 40x FY24 P/E vs 38x/69x for Bata/Relaxo despite better growth and RoCE profile. Ambit said that the growth opportunity for apparel and footwear retailers remains large, very few retailers have got the economics right – leading to either high casualties or slower growth. “Metro Brands has been one of the few retailers in India to deliver profitable growth and generate free cash flows consistently for more than a decade,” they added. 

Growth drivers

Ambit’s near-term growth estimates build in 14%/25% revenue CAGR and 510bps/370bps EBITDA margin improvement over FY20-25/FY22-25, leading to overall 20%/32% EBITDA CAGR and 21%/32% PAT CAGR. For Metro Brands to achieve this, Ambit is estimating massive store addition for the company. “We are building in 824 stores of Metro + Mochi, 467 stores for Crocs and 185 stores for Walkway at the end of FY30. Basis our assumptions, MBL has a potential for 1,100 Metro/Mochi, 750 Crocs and 1,100 Walkway stores by FY30 spread across 175 cities,” they added.

Also Read: Jhunjhunwala-backed Metro Brands set to rally 20%, brokerage firm says ‘buy’ on strong growth potential

Metro Brands is among the few brands that have the ability to boast about growth, profitability and cash flows. The company has outpaced Bata on 3yr/5yr/10yr and Relaxo on 5yr/10yr revenue CAGR. In terms of profitability, it has consistently beaten its peers and has generated FCF in 10 of the last 12 years.

Target price

Currently, Metro Brands trades at Rs 538 per share. Ambit has a one-year target price of Rs 647 per share on Metro while the two-year target price is set at Rs 718 apiece. “Increase in pace of store expansion for Walkway, ability to meaningfully scale FitFlop EBOs and new tie-ups can drive further upside,” analysts said.

Earlier last week, Axis Securities pinned a target price of Rs 625 per share on Metro Brands. 

According to the latest shareholding data available on the stock exchanges, Rakesh Jhunjhunwala along with his wife Rekha Jhunjhunwala owns a 14.43% stake in the company. The couple, together own more than 3.91 crore equity shares of the company. The value of big bull’s stake stands at more than Rs 2,100 crore. 

(The stock recommendations in this story are by the respective research analysts and brokerage firms. Financial Express Online does not bear any responsibility for their investment advice. Capital markets investments are subject to rules and regulations. Please consult your investment advisor before investing.)

from | The Financial Express https://ift.tt/VkH7Qwe