Inventory to purchase in 2025: Motilal Oswal sees 20% upside in Rekha Jhunjhunwala portfolio inventory Metro Manufacturers; right here’s why

Inventory to purchase in 2025: After witnessing a subdued 2024, Rekha Jhunjhunwala’s portfolio inventory Metro Manufacturers may stage a turnaround. The inventory is projected to ship a 20 per cent return in 2025, in line with a current notice by Motilal Oswal (MOSL), with sturdy progress potential, environment friendly execution, and superior retailer economics appearing as potential drivers.

Metro Manufacturers Share Goal Worth

MOSL has set a goal worth of ₹1,460 on Metro Manufacturers inventory, implying a 20.46 per cent upside potential.

As of the September 2024 quarter, Rekha Jhunjhunwala held a 14.4 per cent stake in Metro Manufacturers, valued at ₹4,735 crore based mostly on the present buying and selling worth of ₹1,211.95 per share. 

Challenges in 2024

Metro Manufacturers skilled a subdued efficiency in 2024 because of a mix of inside and exterior elements. Inner challenges included the liquidation of FILA stock, which impacted gross margins, and resulted in decrease income per sq. foot because of a decreased share of Crocs in new retailer rollouts. Externally, weak discretionary spending and regulatory hurdles associated to the Bureau of Indian Requirements (BIS) weighed on the corporate’s efficiency.

Regardless of these challenges, the corporate managed to take care of gross, EBITDA, and PAT margins at 57 per cent, 28 per cent, and 14 per cent, respectively, throughout H1FY25, reflecting its sturdy price management measures.

The inventory’s efficiency in 2024 was, nevertheless, unstable. It rose throughout six months and declined within the remaining six. Over the previous 12 months, the inventory misplaced 3.38 per cent, however from its 52-week low of ₹992.65 in June 2024, it has risen 27 per cent.

At the moment, the inventory is 12 per cent beneath its peak of ₹1,430.10, achieved in August 2024.

Key Funding Rationale

MOSL highlighted its funding rationale as follows:

1. Progress Potential of FILA and Foot Locker

MOSL emphasised the long-term progress alternatives from FILA and Foot Locker. Whereas the launch of FILA unique model retailers (EBOs) has been deferred to H2FY26 because of BIS challenges, these manufacturers are anticipated to considerably contribute to Metro Manufacturers’ income within the medium time period. Mixed, FILA and Foot Locker may generate gross sales between ₹9,000 crore and ₹15,000 crore, equal to 38-63 per cent of Metro Manufacturers’ FY24 income.

2. Superior Retailer Economics and Value Effectivity

As per the brokerage, Metro Manufacturers’ sturdy retailer economics—that includes gross sales per sq. foot (SPSF) of ₹20,000 and a two-year payback interval—stand out within the aggressive footwear sector. With the liquidation of FILA stock largely accomplished and a rise in wedding ceremony days, MOSL anticipates an enchancment in same-store gross sales progress (SSSG) and margins from H2FY25.

3. Increasing Presence with Inner Funding

With 873 shops throughout fewer than 200 cities, Metro Manufacturers has ample room for growth. The corporate plans to deepen its footprint in present markets and enter new cities, focusing on a presence in 300 cities for its Metro and Mochi codecs, said MOSL.

It additional highlighted that the corporate can also be refining the shop economics of its value-focused Walkway model to strengthen its presence in Tier-3 and smaller cities. Supported by a web money stability sheet and working money stream of ₹13.5 billion over FY24-27, Metro Manufacturers is positioned to double its retailer depend by way of inside accruals.

MOSL’s Valuation Metrics

MOSL values Metro Manufacturers at 70 occasions its December 2026 P/E ratio, arriving at a goal worth of ₹1,460. The valuation incorporates a compound annual progress charge (CAGR) of 12 per cent in income and 13 per cent in EBITDA over FY25-FY50, pushed by a 7 per cent CAGR in retailer additions and a 4 per cent annual enhance in retailer gross sales throughput.

Disclaimer: The views and suggestions made above are these of particular person analysts or broking corporations, and never of Mint. We advise traders to examine with licensed consultants earlier than taking any funding selections.