Metro Brands IPO review (May apply)

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Review By Dilip Davda on December 8, 2021

•    MBL is one of the largest footwear speciality retailers with the household brand.
•    The company posted profits even during the pandemic period amidst all odds.
•    It is on an expansion mode for increasing its outlets.
•    It is discounting all near term positives with aggressive pricing of the IPO.
•    Cash surplus investors may consider investing for long term rewards.

ABOUT COMPANY:
Metro Brands Ltd. (MBL) is one of the largest Indian footwear speciality retailers and is among the aspirational Indian brands in the footwear category (Source: CRISIL Report). It opened its first store under the Metro brand in Mumbai in 1955, and have since evolved into a one-stop-shop for all footwear needs, by retailing a wide range of branded products for the entire family including men, women, unisex and kids, and for every occasion including casual and formal events. As of September 30, 2021, the Company operated 598 Stores across 136 cities spread across 30 states and union territories in India. It targets the economy, mid and premium segments in the footwear market, which together are expected to grow at a higher rate compared to the total footwear industry between Fiscal 2020 and 2025. These segments have a higher presence of organized players and their growth in the overall footwear industry is expected to accelerate the growth of the organized segment in the footwear industry (Source: CRISIL Report). 

The Company had the third-highest number of exclusive retail outlets in India, in Fiscal 2021 (Source: CRISIL Report). In Fiscal 2019, 2020, and 2021 and in the six months ended September 30, 2020 and September 30, 2021, MBL recorded an EBITDA Margin of 27.72%, 27.51%, 21.36%, (7.57)% and 24.43%,respectively (on a consolidated basis). 

The Company recorded the highest Realization per Unit compared to the two leading players in India from Fiscal 2019 to Fiscal 2021 and in Fiscal 2020 it recorded the highest operating margins among the key players in India. Additionally, in Fiscal 2021, it recorded the highest net profit margin of 8.1% among footwear players having a majorly retail business model for reaching customers. (Source: CRISIL Report)

MBL 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, which complement its in-house brands. The company also offers accessories such as belts, bags, socks, masks and wallets, at its stores. It also retails footcare and shoe-care products at stores through a joint venture, M.V. Shoe Care Private Limited, making it a 'one-stop-shop' for all footwear and related accessories to customers.

MBL primarily follow the "company-owned and company-operated" ("COCO") model of retailing through its own Multi Brand Outlets ("MBOs") and Exclusive Brand Outlets ("EBOs"), to better manage customer experience at stores. It operates Metro, Mochi and Walkway branded MBOs and Crocs branded EBOs. The Company and its Subsidiary Metmill also operate shop-in-shops ("SIS") in major departmental stores across India.

ISSUE DETAILS/CAPITAL HISTORY:
To part finance its plans for openings of new 260 stores under its brands like Metro, Mochi, Walkway and Crocs (Rs. 225.37 cr.), general corporate purpose, MBL is coming out with a maiden IPO of fresh equity shares worth Rs. 295 cr. (5900000 shares at the upper cap) and an offer for sale (OFS) of 21450100 equity shares of Rs. 5 each (Rs. 1072.51 cr.). The company has fixed a price band of Rs. 485 to Rs. 500 per share. Minimum application is to be made for 30 shares and in multiples thereon, thereafter. The issue opens for subscription on December 10, 2021, and will close on December 14, 2021. The overall issue size of the IPO is 27350100 shares (Rs. 1367.51 cr.). Post allotment, shares will be listed on BSE and NSE. The issue constitutes 10.07 % of the post issue paid-up capital of the company. MBL has allocated 50% for QIBs, 15% for HNIs and 335% for the Retail investors. 

The joint Book Running Lead Managers (BRLMs) to this issue are Axis Capital Ltd., Ambit Pvt. Ltd., DAM Capital Advisors Ltd., Equirus Capital Pvt. Ltd., ICICI Securities Ltd., and Motilal Oswal Investment Advisors Ltd., while Link Intime India Pvt. Ltd. Is the registrar to the issue. 

Having issued initial equity at par, the company raised further equity in the price range of Rs. 18.055 to Rs. 650.00 between March 2007 and November 2021. It has also issued bonus shares in the ratio of 2 for 1 in January 2005, 2 for 1 in December 2008, 2 for 1 in November 2012 and 8 for 1 in December 2018. The average cost of acquisition of shares by the promoters/selling stakeholders is Rs. NIL, Rs. 1.27, Rs. 7.41, Rs. 14.09 and Rs. 14.16 per share. 

Post-IPO, MBL's current paid-up equity capital of Rs. 132.80 cr. will stand enhanced to Rs. 135.75 cr. Based on the upper price band of the IPO price, the company is looking for a market cap of Rs. 13575.37 cr. 

FINANCIAL PERFORMANCE: 
On the financial performance front, for the last three fiscals, MBL has (on a consolidated basis) posted turnover/net profits of Rs. 1236.90 cr. / Rs. 151.20 cr. (FY19), Rs. 1311.07 cr. / Rs. 159.73 cr. (FY20) and Rs. 878.54 cr. / Rs. 59.43 cr. (FY21). For the first half-year of FY22 ended on September 30, 2021, the company has earned a net profit of Rs. 43.10 cr. on a turnover of Rs. 489.27 cr. 

For the last three fiscals, it has posted an average EPS of Rs. 4.19 and an average RoNW of 14.38%. The issue is priced at a P/BV of 15.80 based on its NAV of Rs. 31.64 as of September 30, 2021, and at a P/BV of 11.93 based on post issue NAV of Rs. 41.90 (at the upper price band).

If we annualize FY22 earnings and attribute it to its post-issue paid-up equity capital, then the asking price is at a P/E of around 157.23. 

DIVIDEND POLICY:
The company has paid dividends for the last three fiscals (refer to page 210 of the RHP). MBL has distributed dividends prior to IPO. Post listing it will adopt a prudent dividend policy based on its financial performance and future prospects. 

COMPARISON WITH LISTED PEERS:
As per offer documents, the company has shown Bata India and Relaxo as its listed peers. They are currently trading at a P/E of 00 and 106.77 (as of December 07, 2021). However, they are not truly comparable on an apple-to-apple basis.  

MERCHANT BANKER'S TRACK RECORDS:
The six BRLMs associated with the offer have handled 58 public issues in the past three years, out of which 35 issues closed below the issue price on the listing dates.

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