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Unleashing Potential: Motilal Oswal Recommends Investing in Metro Brands, Sets Bullish Target at Rs 1200

Unleashing Potential: Motilal Oswal Recommends Investing in Metro Brands, Sets Bullish Target at Rs 1200

**Metro Brands: Sustained Growth Amidst Challenges**

Metro Brands, a prominent player in the retail sector, has reported a commendable 15% increase in revenue, consistent with expectations. This growth was driven primarily by robust store expansions, bolstering the company's market presence. However, a nuanced perspective reveals an 8% dip in revenue productivity, attributed to the lingering effects of pent-up demand dynamics.

Remarkably, the gross margin remained resilient, largely attributed to the substantial contribution from products with an Average Selling Price (ASP) exceeding INR 3,000. Additionally, improvements in the Cost of Bill of Lading (CBL) gross margin further contributed to maintaining the overall gross margin integrity. Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA) exhibited a 2% growth trajectory, while Profit After Tax (PAT) witnessed a 12% decline. The latter figure, however, surpassed estimates by 8%, underscoring Metro Brands' commitment to operational excellence.

In the short term, potential challenges loom on the horizon. These include the risk of growth moderation, potential losses associated with the Fila brand, and a possible tapering of margins. 

Factors such as a recalibration in discounting strategies and third-party sales could impact the margin landscape. Despite these impending headwinds, the long-term outlook remains promising.

Forecasts for the forthcoming quarters indicate that the combination of healthy store economics and a steady influx of new stores under the Fila brand could pave the way for an impressive Compound Annual Growth Rate (CAGR) of 19% and 17% in revenue and PAT respectively, spanning the period from FY23 to FY25.

In light of these dynamics, we reiterate our BUY rating on Metro Brands. The company's trajectory suggests a potential for rich valuations in the future, underpinned by superior store economics and an expansive growth runway. A

s part of our revised valuation analysis, we have elevated the valuation multiple to 65 times the FY25E Earnings Per Share (EPS), up from the earlier 55 times. This adjustment yields a new Target Price (TP) of INR 1,200.

In conclusion, Metro Brands' ability to navigate challenges and sustain growth, coupled with its strategic expansion efforts, positions it favorably for continued success. This assessment underscores our confidence in the company's prospects and the endorsement of our BUY rating on its stock.


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