Metro Brands Ltd:Annual Report 2023-24 Analysis

Metro Brands Ltd.: A Comprehensive Overview #

About the Company #

Year of Establishment and Founding History #

Metro Brands Ltd. (formerly known as Metro Shoes Ltd.) was founded in 1955 by Malik Tejani.

Headquarters Location and Global Presence #

The company is headquartered in Mumbai, India. It primarily operates within India, with a focus on the domestic market.

Company Vision and Mission #

While a specific, publicly stated vision and mission statement may not be readily available, Metro Brands’ operational focus suggests a vision of being a leading footwear retailer in India, offering a diverse range of styles and brands to meet the evolving needs of its customers. Their mission likely centers around providing quality footwear, excellent customer service, and a seamless retail experience.

Key Milestones in Their Growth Journey #

• 1955: Founding of the company with its first store.
• Expansion: Gradual expansion across key Indian cities.
• Brand Portfolio Development: Expansion of its brand portfolio to include in-house and third-party brands.
• IPO: Initial Public Offering (IPO) in December 2021.

Stock Exchange Listing Details and Market Capitalization #

Metro Brands Ltd. is listed on the National Stock Exchange (NSE) and the Bombay Stock Exchange (BSE). As of late 2023/early 2024, its market capitalization would need to be checked for the most current figure on financial websites.

Recent Financial Performance Highlights #

Recent financial performance would require checking current sources like the company’s annual reports, investor presentations, and financial news websites. Look for key indicators like:

• Revenue growth
• Profit margins
• Same-store sales growth
• Expansion of store network

Management Team and Leadership Structure #

• Chairman: Rafique A. Malik
• Managing Director: Nissan Joseph
• Chief Financial Officer (CFO): The current CFO’s name can be found on the company website.

Any Notable Awards or Recognitions #

Information about awards and recognition would require checking company press releases, annual reports, and industry publications.

Their Products #

Complete Product Portfolio with Categories #

Metro Brands offers a wide range of footwear products for men, women, and children, including:

• Formal Shoes: Leather shoes, Oxfords, Derbies, Loafers
• Casual Shoes: Sneakers, Slip-ons, Sandals, Espadrilles
• Ethnic Footwear: Sandals, Mojaris, Kolhapuris
• Sports Shoes: Running shoes, Training shoes, Basketball shoes
• Heels & Wedges: Pumps, Stilettos, Wedges
• Boots: Ankle boots, Knee-high boots
• Accessories: Bags, belts, wallets, shoe care products

Metro Brands also carries footwear from various brands, including Mochi, Walkway, Crocs, FitFlop, Skechers, Clarks, and many more.

Flagship or Signature Product Lines #

While the company doesn’t necessarily have signature product lines, individual brands under their umbrella (e.g., Mochi) have their own popular styles. Metro Brands’ strength lies in the breadth of its product offering and its multi-brand retail strategy.

Quality Certifications and Standards #

Details regarding specific quality certifications would require review of Metro Brands’ website and product labeling. Generally, footwear retailers adhere to standard industry quality control measures.

Recent Product Launches or R&D Initiatives #

Recent product launches are typically highlighted in company press releases and investor presentations. Initiatives are mainly brand-driven, depending on the brands Metro is currently offering to customers.

Primary Customers #

Geographic Markets (Domestic vs. International) #

Metro Brands primarily operates within the Indian domestic market.

Major Client Segments (Agricultural, Industrial, Residential, etc.) #

Metro Brands targets a wide range of customers across different demographics and lifestyle preferences. Their customer base primarily consists of retail consumers seeking fashionable and functional footwear for various occasions.

Distribution Network and Sales Channels #

Metro Brands utilizes a multi-channel distribution network, including:

• Exclusive Brand Outlets (EBOs): Company-owned and franchise stores.
• Multi-Brand Outlets (MBOs): Stores that carry multiple footwear brands.
• E-commerce Platforms: Online sales through their own website and other e-commerce marketplaces.

Major Competitors #

Direct Competitors in India and Globally #

• Domestic: Bata India, Relaxo Footwears, Khadim India, Campus Activewear
• Global: While not direct competitors in terms of retail format in India, global brands like Adidas, Nike, Puma, and Sketchers compete for market share in sports and casual footwear.

Comparative Market Share Analysis #

Market share data is subject to change. It is recommended to consult recent industry reports from research firms to determine accurate figures.

How they differentiate from competitors #

• Multi-Brand Strategy: Offers a wide variety of brands and price points.
• Extensive Retail Network: Large number of stores across India.
• Strong Brand Reputation: Long-standing presence in the Indian market.

Industry Challenges and Opportunities #

• Challenges: Rising competition from online retailers, changing consumer preferences, fluctuating raw material costs, economic downturns.
• Opportunities: Growing footwear market in India, increasing disposable incomes, rising awareness of fashion trends, expansion into Tier II and Tier III cities, leveraging e-commerce platforms.

Future Outlook #

Expansion Plans or Growth Strategy #

Expansion plans and growth strategy would require review of Metro Brands’ investor presentations and annual reports. Key areas to look for:

• Store expansion plans (number of new stores, geographic focus)
• E-commerce growth initiatives
• Brand portfolio expansion

Sustainability Initiatives or ESG Commitments #

Companies are increasingly focusing on sustainability and ESG factors. Review Metro Brands’ website, annual reports, and sustainability reports for any publicly stated initiatives.

Industry Trends Affecting Their Business #

• E-commerce growth: Shift towards online shopping continues to disrupt the retail landscape.
• Athleisure trend: Growing demand for athletic-inspired footwear.
• Sustainability: Increasing consumer awareness of ethical and sustainable products.
• Personalization: Demand for customized and personalized footwear options.

Long-term Vision and Strategic Goals #

Long-term vision and strategic goals are often outlined in the company’s annual reports and investor communications. Key areas to consider:

• Market leadership aspirations
• Financial targets (revenue, profitability)
• Expansion into new markets or product categories
• Innovation in product design and retail experience

Comprehensive Performance Overview #

3-Year Trend Analysis of Key Financial Metrics #

• Revenue from Operations: Strong upward trend, with 10.8% YoY growth in FY 2023-24, reaching ₹2,357 crores.
• EBITDA: Increased by 5.4% to ₹703 crores in FY 2023-24.
• EBITDA Margin: Slightly decreased to 29.8% in FY 2023-24 from 32% in the previous year.
• Profit After Tax (PAT): Grew by 18.0% to ₹418 crores in FY 2023-24, with margins increasing to 18.1%.
• Gross Margins: Stable at 58.1%.
• E-commerce Revenue: Grew 33% YoY in FY 2023-24, contributing 9.5% to total revenue, up from 7.9% in the previous year.
• Operating Cash Flow: Strong at ₹590 crores.
• Return on Equity (ROE): 21.95% in FY 2023-24.
• Return on Capital Employed (ROCE): 19.12% in FY 2023-24.

Business Segment Performance #

• In-house Brands (MBOs): Contributed 73% of revenue at Multi-Brand Outlets.
• Third-Party Brands (MBOs): Contributed 27% of revenue, including brands like Crocs, FitFlop, and FILA.
• Premiumisation: 50% of business sales came from products priced over ₹3,000, increased from 44% in the previous year.
• Product Category Mix (FY 2023-24): Footwear dominated across economy, mid-premium, and premium segments. Accessories contribute (clutches, wallets, foot care, belts, and shoe care).

Major Strategic Initiatives and Their Progress #

• Foot Locker Partnership: Strategic partnership for exclusive store operation rights in India, targeting premium sportswear and athleisure demand. Store openings planned for H2 FY 2024-25.
• Crocs Partnership Extension: Extended partnership securing exclusive rights in South and West India.
• FILA Business Integration: Demerged from Metro Athleisure Limited and merged into Metro Brands Limited for cost efficiencies and operational synergies.
• Store Network Expansion: Surpassed 800 stores with 97 net additions in FY 2023-24. Target of 225 store openings in the next two fiscal years.
• Omni-channel Presence: Enhanced with 33% YoY e-commerce revenue growth. Investments in technology for seamless online/offline integration.

Risk Landscape Changes #

• BIS Quality Control Order (QCO): Challenges due to mandatory BIS certification for factories. Inventory purchases front-loaded to mitigate supply chain disruptions.
• Competition Risk: Intense competition from unorganized retailers, established brands, and international players.

ESG Initiatives and Metrics #

• Footwear Recycling: Processed ~1,940 tonnes (~4.6 million pairs) of old footwear in FY 2023-24, representing 50% equivalent of footwear sold. Target: recycle one pair for every pair sold within two years.
• Renewable Energy: Solar power systems at Bhiwandi warehouses generated 254,467 units of renewable energy in FY 2023-24.
• Community Development: Donated ~3,500 pairs of shoes to underprivileged communities. Supported cobblers through awareness programs and health screenings. Funded school fees and infrastructure.

Management Outlook #

• FY 2024-25 Outlook: Footwear demand expected to increase, driven by economic growth, rising incomes, and digital penetration.
• Growth Drivers: Focus on in-house products, third-party brands, and the sports & athleisure segment (Foot Locker and FILA).
• Warehouse Expansion: Plans to add warehouse space in FY 2024-25 to enhance capacity.
• Long Term Goals: Focus on store expansion, driving premium segment and e-commerce, and strengthening online presence.

Detailed Analysis #

Metro Brands Limited Financial Analysis #

3-Year Comparative Analysis of Assets, Liabilities, and Equity (Consolidated) #

(₹ in Crores)

Significant Changes in Major Line Items (>10% YoY) #

• Property, Plant, and Equipment: Increased by 17.69%, primarily due to store expansion (118 new stores opened, including relocations).
• Right-of-use-Asset: Increased by 15.95%, driven by adoption of Ind AS 116.
• Current Investments: Increased by 57.95%, reflecting a strategic shift in the investment portfolio.
• Trade Receivables: Decreased by 28.12% due to increase of volume on E-commerce.
• Other Bank Balances: Decreased by 61.44% due to decrease in Fixed deposits and FD with maturity more than 12 months.
• Other Current Assets: decreased by 32.94%, primarily due to a reduction in advances.
• Equity Share Capital: Increased marginally (0.06%) due to the exercise of Employee Stock Options (ESOPs).
• Other Equity: Increased by 22.38%
• Non-current Lease Liabilities: Increased by 17.21% , reflecting the adoption of Ind AS 116.
• Current Borrowings: decreased by 100%.
• Trade Payables (dues of micro and small enterprises): Increased by 351.17% due to increase in purchasing from MSME.
• Trade Payables (dues of Creditors other than micro and small enterprises): Decreased by 31.69%

Working Capital Trends #

Analysis: #

Net working capital has increased, primarily due to higher inventory and investments. The current ratio remains strong, indicating good short-term liquidity.

Asset Quality Metrics #

Analysis: #

The allowances for expected credit losses and write-downs indicate a conservative approach to asset valuation.

Debt Structure and Maturity Profile #

Maturity Profile of Lease Liabilities (Undiscounted): #

• Less than 1 year: ₹224.56 Crores
• 1-5 years: ₹770.80 Crores
• More than 5 years: ₹457.04 Crores

Analysis: #

The Group’s debt primarily consists of lease liabilities, which have increased due to store expansions. The Company doesn’t have any other borrowing.

Off-Balance Sheet Items #

• Contingent Liabilities: Primarily related to disputed tax matters, totaling approximately small amounts compared to the total assets.
• Corporate Guarantees Provided by wholly owned subsidiary of the Company

Industry Benchmark Comparisons #

• Current Ratio: A current ratio of 3.34 is generally considered very healthy in the retail industry.
• Debt-to-Equity Ratio: A D/E ratio of 0.58 indicates moderate leverage.
• Inventory Turnover: A ratio of 1.46 indicates a slower inventory turnover.

Direct Analytical Statements: #

• The Group’s asset base has grown significantly over the past three years, driven by expansion in Property, Plant, and Equipment, and Right-of-Use Assets (leases).
• The increase in current investments suggests a focus on utilizing surplus funds.
• The Company has doubled down on its focus on Premiumisation and Casualisation by increasing the sale of products priced over 3000.
• The decrease in trade receivables indicates effective collection efforts or a shift towards more cash-based transactions.
• The capital structure is showing a sustainable level of leverage, with a majority of liabilities linked to long-term lease obligations.
• The Company is increasing investments in it’s Subsidiaries to enhance the efficiency and to drive better performance.
• Working capital management shows an increase, mainly due to rise in inventory levels, potentially to support growth and address supply chain regulations (BIS).
• The Group maintains a strong focus on asset quality, with provisions for potential losses.
• The off-balance sheet contingent liabilities are relatively small and do not pose a material risk.

Metro Brands Limited Financial Analysis (FY 2023-24) #

Revenue Breakdown #

• Segment: Fashion footwear, bags, and accessories.
• Geography: All operations within India.
• Standalone Revenue from Operations: ₹2,305.00 crores, 11.3% YoY growth.
• Consolidated Revenue from Operations: ₹2,356.70 crores, 10.8% YOY.
• E-commerce Sales (Standalone, including omni-channel): ₹215Cr, 33% YoY growth (9.5% of total revenue).
  • E-commerce Revenue CAGR (FY2019-24): 62%
• Products priced over ₹3,000 contributed 50% of business sales in FY 2023-24 (vs 44% in FY2023).

Cost Structure Analysis (Standalone) #

• Purchases of Stock-in-Trade: ₹1,031.80 crores.
• Employee Benefits Expense: ₹216.89 crores.
• Finance Costs: ₹78.50 crores.
• Other expenses: ₹427.20 crores.

Margin Analysis #

Standalone Basis #

• Gross Margin: 58.1%, consistent with the previous year.
• EBITDA Margin: 30.5% (FY 2023-24), 32% (FY 2022-23).
• PAT Margin: 18.1% (FY 2023-24), 17.18% (FY 2022-23).

Non-Recurring Items #

• Consolidated level reported one time non recurring demerger related impact of ₹4 crores.
• Consolidated PAT includes a business loss of ₹8 crores from Metro Athleisure Limited (Proline).

EPS Analysis #

Standalone Basis #

• Basic EPS: ₹15.37 (FY 2023-24), ₹13.03 (FY 2022-23).
• Diluted EPS: ₹15.31 (FY 2023-24), ₹12.98 (FY 2022-23).

Consolidated Basis #

• Basic EPS: ₹15.18
• Diluted EPS: ₹15.11

Cash Management: Financial Analysis #

Cash Flow and Liquidity Analysis #

Detailed OCF, ICF, FCF Components (Standalone and Consolidated) #

• OCF (Standalone): Increased to ₹584.54 crores in FY24 from ₹371.66 crores in FY23. Profit before tax was ₹465.85 crores, with significant positive adjustments for depreciation & amortization (₹227.61 crores) and finance costs (₹78.45 crores).
• OCF (Consolidated): Increased to ₹590.08 crores in FY24 from ₹380.67 crores in FY23.
• ICF (Standalone): Net cash outflow of ₹250.28 crores in FY24, primarily driven by the purchase of current investments (₹1,629.40 crores), capital expenditure on property, plant & equipment, and intangible assets (₹115.88 crores), partly offset by redemption of current investments (₹1,373.45 crores).
• ICF (Consolidated): Net cash outflow of ₹251.32 crores, driven by the purchase of current investments and capital expenditure.
• FCF (Standalone): OCF less capex indicates a positive free cash flow.
• FCF (Consolidated): Shows FCF of 338.76, derived from the OCF-ICF.

Working Capital Management Efficiency (Standalone and Consolidated) #

• Standalone: A net decrease in working capital of (₹58.23 crores) contributed positively to operating cash flow, primarily driven by an increase in Trade payables and a decrease in inventory levels.
• Consolidated: The movement in working capital during the current financial year improved OCF and added ₹48.95 Crores.
• Receivables Turnover (Standalone): Improved to 5.32 in FY24 from 4.51 in FY23.
• Receivables Turnover (Consolidated): Improved to 3.22.
• Inventory Turnover (Standalone): Slightly decreased to 1.45 in FY24 from 1.65 in FY23, indicating a possible decrease in efficiency of inventory management.
• Inventory Turnover (Consolidated): Slightly decreased to 1.46.
• Payables Turnover (Standalone): Decreased to 3.86 in FY24 from 4.18 in FY23, indicating a possible slowdown in payable payments.
• Payables Turnover (Consolidated): Decreased to 3.81.

Capex Analysis #

• (Standalone): Total additions to tangible and intangible assets is 115.76.
• (Consolidated): Total additions to tangible and intangible assets is 116.02.

Dividend and Share Buyback Trends (Standalone and Consolidated) #

• Dividend (Standalone): The company paid an interim dividend of ₹2.75 per share and proposed a final dividend of ₹2.25 per share, resulting in a total dividend payout ratio higher than the previous year. The total dividend payment for FY24 would be approximately ₹135.96 crores.
• Dividend (Consolidated): The Group paid an interim dividend of 2.75 and proposed a final dividend of 2.25.
• Share Buyback: No share buyback activity is reported.

Debt Service Coverage (Standalone and Consolidated) #

• Standalone: The company does not have any outstanding loans.
• Consolidated: DSCR shows 2.86.

Liquidity Position (Standalone and Consolidated) #

• The company maintains a healthy liquidity position, evidenced by the positive operating cash flows and a significant cash and bank balance, including current investments in mutual funds and fixed deposits.

Financial Analysis of Metro Brands Limited: Key Performance Indicators #

Profitability Ratios (3-Year Trends) #

• ROE: FY24: 21.95%, FY23: 23.21%, FY22: 16.64%.
• ROIC: FY24: 19.12%, FY23: 23.17%, FY22: 17.75%
• EBITDA Margin: FY24: 29.81%, FY23: 32%, FY22: 30.56%.
• PAT Margin: FY24: 17.63%, FY23: 17.18%, FY22: 15.95%.
• Gross margins: FY24: 58.1%, FY23: 58.07%, FY22: 57.86%

Liquidity Metrics #

• Current Ratio: FY24: 3.23, FY23: 2.83.

Efficiency Ratios #

• Inventory Turnover Ratio: FY24: 1.45, FY23: 1.65.
• Receivables Turnover Ratio: FY24: 5.32, FY23: 4.51.

Leverage Metrics #

• Debt/Equity Ratio: FY24: 0.58, FY23: 0.62.

Working Capital Ratios #

• Net Capital Turnover Ratio: FY24: 2.06, FY23: 2.27.

Comparisons with Industry Averages #

• The EBITDA margin (29.8%) is high compared to its peers.
• E-commerce sales grew at 33% YOY.
• The overall sector is projected to grow at a CAGR of 11%.
• The company plans to open 225 stores in two fiscal years.

Metro Brands Limited Financial Analysis: FY 2023-24 #

Revenue and Profitability Metrics #

• Revenue from Operations (Standalone): Increased by 11.3% to ₹2,305 crore.
• Revenue from Operations (Consolidated): Increased by 10.8% to 2,357 crore.
• Gross Margins (Standalone): Remained stable at 58.1%.
• EBITDA (Standalone): Grew by 5.4% to ₹703 crore, with a margin of 30.5%.
• PAT (Standalone): Increased by 18.03% to ₹417.81 crore, with a margin of 18.1%.
• E-commerce Revenue (Standalone): Grew by 33% YOY, contributing 9.5% to total revenue.
• 5-Year Revenue CAGR: 14%
• 5-Year EBITDA CAGR: 16%

Market Share and Competitive Position #

• MBL is positioned as one of India’s largest footwear specialty retailers.
• The company has one of the highest realisation per unit amongst listed footwear retailers in India.
• MBL is the leader in the organized footwear retail market.

Key Products/Services Performance #

• In-house Brands (Metro, Mochi, Walkway at MBOs): Contributed 73% of revenue.
• Third-Party Brands at MBOs (Crocs, FitFlop, FILA): Contributed 27% of revenue.
• Products priced over ₹3,000 represented 50% of business sales, up from 44% in the previous year.
• Average Realisation per unit(Mochi): ₹1650
• Accessories: Offered alongside footwear, including belts, bags, socks, wallets, foot care, and shoe care products.

Geographic Distribution and Market Penetration #

• Pan-India Presence: 836 stores across 193 cities in 31 states and union territories as of March 31, 2024.
• Store Network Expansion: Net addition of 97 stores.
• Store Growth: 100% store growth has been registered in last six years.
• Regional Presence: Strong presence across west, south, north, and east regions of India.
• MBL hold exclusive right in South and West India for Crocs.
• Tier 2 and Tier 3 Focus: Prioritizing expansion in these cities for in-house brands.

CAPEX and ROIC #

• Asset-Light Business Model: Footwear outsourced to vendors.
• Return on Equity (ROE) (Standalone): 21.95%
• Return on Capital Employed (ROCE) (Standalone): 19.12%.

Operational Efficiency Metrics #

• Asset-Light Model: Outsourcing of all footwear and products to trusted vendors.
• Lease Structure: Lease rentals structured on a fixed or revenue-sharing basis.
• AI-Based Supply Chain: Implemented to maximize capital efficiency and minimize dead stock.
• E-commerce Integration: E-commerce specific warehouse management system integrated with stores and online platforms.
• Inventory Turnover: Decreased to 1.45

Growth Initiatives and Challenges #

• Growth Initiatives:
  • Strategic partnership with Foot Locker to enter the premium sportswear and athleisure segment.
  • Expansion of physical store presence, targeting 225 new stores in the next two fiscal years.
  • Strengthening e-commerce and omni-channel capabilities.
  • Repositioning of the FILA brand for the Indian market.
  • Continued focus on premiumisation and casualisation categories.
• Challenges:
  • Potential supply chain disruptions due to the BIS Quality Control Order (QCO) for footwear.
  • Intense competition from unorganized retailers, established brands, and international players.
  • Managing margin risk in the online business due to promotions and discounts.
  • Adapting rapidly to the change in customer preference.

Risk Framework #

Strategic Risks #

• Severity: High, due to the potential impact on long-term growth and market positioning, particularly with new ventures like the Foot Locker partnership and repositioning of the FILA brand.
• Likelihood: Medium. The footwear market is competitive and consumer preferences are evolving rapidly.
• Trend: Increasing. Premiumisation and casualisation trends and the fast growth in sports, athleisure and sneakers segment are intensifying competition and the need for successful brand positioning.
• Mitigation Strategies: Diversified brand portfolio (in-house and third-party), strategic partnerships (Foot Locker, Crocs, FitFlop), expansion into Tier 2 and Tier 3 cities, and an omni-channel presence.
• Control Effectiveness: Partially Effective. Store network expansion and e-commerce growth demonstrate progress, but the success of new ventures (Foot Locker, FILA repositioning) is yet to be fully realized.
• Potential Financial Impact: Significant. Success in strategic initiatives could drive substantial revenue growth (11% YoY revenue increase in FY23-24), while failure could lead to inventory write-offs (as seen with FILA’s surplus inventory) and missed growth targets. The company states plans to open 225 new stores over the next two years.

Operational Risks #

• Severity: Medium. Disruptions in supply chain or store operations can impact sales and profitability.
• Likelihood: Medium. Reliance on third-party manufacturers and the implementation of BIS Quality Control Order (QCO) introduce potential disruptions.
• Trend: Increasing, temporarily. The BIS QCO implementation led to front-loaded inventory purchases, increasing inventory levels until full alignment is achieved by the end of 2024-25.
• Mitigation Strategies: Front-loading inventory purchases to mitigate BIS QCO disruptions. Vendor collaboration and guidance on BIS compliance. Investment in technology (AI-based supply chain model, e-commerce-specific WMS, OMS) to enhance efficiency and minimize dead stock.
• Control Effectiveness: Partially Effective. Front-loading inventory mitigates immediate supply chain risks, but long-term effectiveness depends on vendor compliance with BIS standards. Technology investments are ongoing.
• Potential Financial Impact: Moderate. Higher inventory levels (‘698.19 Crores in FY23-24 vs. ‘624.64 Crores in FY22-23) increase carrying costs. Supply chain disruptions could impact sales and margins.

Financial Risks #

• Severity: Medium. Market fluctuations, credit risk with trade receivables, and margin pressures from online discounting pose risks.
• Likelihood: Medium. The retail sector is subject to economic cycles and competitive pressures.
• Trend: Stable. The Company maintains strong financial metrics, but online discounting poses an ongoing challenge.
• Mitigation Strategies: Asset-light business model, efficient operating model (negotiation power, variable compensation, AI-based supply chain), disciplined financial management, and strong cash flow generation (Operating cash flow of ‘590 crores in FY23-24).
• Control Effectiveness: High. The Company has a proven financial track record, with 14% 5-year revenue CAGR and 16% 5-year EBITDA CAGR. EBITDA margins are 29.8%. Strong cash flow enables business expansion primarily through internal funds.
• Potential Financial Impact: Moderate. Margin pressures in online business exist (e-commerce sales grew 33% YoY, contributing 9.5% to total revenue).

Compliance/Regulatory Risks #

• Severity: Medium. Non-compliance with BIS regulations could disrupt the supply chain.
• Likelihood: Low. The Company is actively working with vendors to ensure compliance.
• Trend: Decreasing. The Company expects full alignment with BIS regulations by the end of 2024-25.
• Mitigation Strategies: Collaboration with vendors, front-loading inventory, and providing guidance on BIS compliance.
• Control Effectiveness: Partially Effective. Ongoing efforts are aimed at achieving full compliance.
• Potential Financial Impact: Moderate. Primarily linked to potential supply chain disruptions and inventory management challenges.

Emerging Risks #

• Severity: Medium to High. Rapidly evolving consumer preferences and the growing sports and athleisure segment represent both opportunities and risks.
• Likelihood: High. Consumer trends are dynamic and the competitive landscape is evolving.
• Trend: Increasing. Premiumisation, casualisation, and the sports and athleisure segment are gaining momentum.
• Mitigation Strategies: Partnerships with Foot Locker and FILA. R&D investments, omni-channel, and customer data and AI to drive product customization.
• Control Effectiveness: To be determined. The strategies are in place, but their effectiveness depends on successful execution and market reception.
• Potential Financial Impact: Significant. Success in capturing emerging trends could lead to substantial revenue growth, while failure could result in missed opportunities and lost market share.

Strategic Analysis of Metro Brands Limited #

Long-Term Strategic Goals and Progress #

• Aims to become India’s largest specialty footwear and accessories retailer.
• Consistent revenue and store count growth, reaching 836 stores in 193 cities.
• Aggressive store expansion is a priority, targeting 225 new stores over the next two fiscal years.
• Plans expansion of existing warehouse space to support overall business.
• Focus on Tier 2 cities and beyond to cater to the growing demand.
• Premiumisation and casualisation strategies, with ~50% of business sales from products priced over ₹3,000.
• Expanding product categories, especially in sports, athleisure, and sneakers.

Competitive Advantages and Market Positioning #

• Positioned as one of India’s largest footwear specialty retailers, curating India’s footwear wardrobe.
• Comprehensive product portfolio for all consumer needs and price points.
• Extensive pan-India store presence and a growing online presence, contributing 9.5% of revenue.
• High brand loyalty reflected by 56% of sales from repeat purchases through loyalty programs.
• Strategic partnerships with global brands like Foot Locker, Crocs, and FitFlop.
• Asset-light business model operating primarily on a “Company Owned and Company Operated” (COCO) retail model.
• Highest EBITDA margin among listed peers.

Innovation Initiatives #

• Use of Generative AI and robotic process automation across the organization.

Mergers and Acquisition Strategy and Execution #

• Strategic partnership with Foot Locker to expand into the premium sportswear and athleisure market in India.
• Demerger of the FILA business from Metro Athleisure Limited and merged into Metro Brands Limited.
• Open to Inorganic opportunities.

Management’s Track Record in Execution #

• Consistent revenue growth, with an 11% increase in FY 2023-24 and a 14% 5-year CAGR.
• Successful store expansion, doubling the store count in the last six years.
• E-commerce revenue growth of 33% year-on-year and 62% revenue CAGR (FY 2019-24).
• High EBITDA margins (29.8%) and operating cash flow (₹590 crores in FY 2023-24).

Capital Allocation Strategy #

• Primary focus on internal funding for business expansion.
• Commitment to growth capex, supported by a solid balance sheet and sustainable working capital.
• Allocation of resources for opening Foot Locker stores and inventory investments.
• Dividend payouts to shareholders, with a payout ratio of 32.72% for FY 2023-24.

Organizational Changes and Their Impact #

• Demerger of the FILA business from Metro Athleisure Limited into Metro Brands Limited.
• Leadership changes including the appointment of Mr. Mithun Padam Sacheti and Ms. Alisha Rafique Malik as Directors.
• Appointment of KPMG Assurance and Consulting Services LLP as the Internal Auditor.

ESG Framework #

Environmental Metrics and Targets #

• Processed ~1,940 tonnes (~4.6 million pairs) of old and discarded footwear in FY 2023-24, representing a ~50% recycling coverage, up from ~900 tonnes (~2 million pairs) in FY 2022-23.
• Long-term target: recycle one pair of shoes for every pair sold within the next two years.
• Two solar power systems at Bhiwandi warehouses (110 kW and 130 kW capacity) generated 254,467 units of renewable energy in FY 2023-24.
• Successfully completed the EPR target for 2023-24.
• Responsibly managed 310 kgs of e-waste, with 70 Kgs recycle and 240 kgs treated in accoradnce with CPCB guidelines.

Social Responsibility Programs #

• Funded the education costs of 86 underprivileged children.
• Supported infrastructure development in two rural schools.
• Provided practical exposure through on-the-job training to 228 unemployed youth under NAPS.
• Created awareness and education for 7,888 beneficiaries of the cobbler community on Government of India benefit schemes.
• Supported Prince Aly Khan Hospital in conducting 24 health checkup camps.
• Supported Head & Neck Cancer Institute of India in South Mumbai.
• Donated ~3,500 pairs of shoes to underprivileged communities through collaborations with NGOs.

Governance Structure and Effectiveness #

• The Board has ten members: three Executive Directors, one Non-Executive Nominee Director, and six Independent Directors (including one Woman Director).
• The Board composition complies with Sections 149 and 152 of the Companies Act, 2013 and Regulations 17 and 17A of the Listing Regulations.
• The Board and its Committees (Audit, NRC, CSR, Risk Management) hold regular meetings with all mandatory recommendations accepted by the Board.
• An independent director familiarization program is in place.
• A Whistle Blower Policy and mechanism are in place, with one reported instance resolved during FY 2023-24.
• The Company has a Code of Conduct to Regulate, Monitor and Report Trading by Designated Persons.
• All RPTs were conducted at arm’s length and in the ordinary course of business, with review and approval by the Audit Committee.

Sustainability Investments and ROI #

• Investment in rooftop solar systems at two warehouses in Bhiwandi (110 kW and 130 kW capacity) resulted in the generation of 254,467 units of renewable energy. Reduces reliance on non-renewable energy and contributes to cost savings.
• The Company’s continued efforts in eco-concious projects such as waste diversion projects where 1941 Tonnes were diverted away from landfills.

ESG Ratings and Peer Comparison #

• The Company received the Dun & Bradstreet ESG Award 2024 for the Apparel, Accessories & Footwear Sector.

Regulatory Compliance and Future Preparations #

• The Company is front-loading inventory purchases to mitigate potential supply chain disruptions due to the BIS Quality Control Order (QCO) for footwear.
• The Company is working with vendors to ensure compliance with BIS guidelines.
• No reported instances of fraud or material misstatements requiring reporting to the Audit Committee or the Board under Section 143(12) of the Act.
• The Company has complied with the Secretarial Standards issued by the Institute of Company Secretaries of India.
• The Company has a Code of Conduct to regulate, monitor, and report trading by designated persons and their relatives, in compliance with SEBI regulations.
• The Company has complied with all applicable provisions of corporate governance and reporting requirements, with the CEO and CFO providing necessary certifications.
• No penalties or strictures were imposed by regulatory authorities (SEBI or Stock Exchanges) during the last three years.
• The company has revised the Risk Management Policy and will implement a cloud based integrated POS system.
• The Company has invested in a dedicated warehouse management system(WMS) and will implement a state of the art Order Management System(OMS).

Future Outlook: Strategic Financial Analysis #

Management Guidance and Assumptions #

• Management anticipates continued revenue growth despite a normalized demand environment.
• Long-term focus on increasing revenue and profitability.
• Tier 2 and Tier 3 cities are a priority for expansion, targeting emerging markets.
• BIS Quality Control Order (QCO) will pose short-term challenges; inventory front-loading to mitigate supply chain risks, expecting a return to optimal levels by the end of FY25.
• Growth capex and warehouse space addition planned for FY25 to enhance capacity.
• Demerger of the FILA business will give cost efficiencies and operational synergies.

Market Growth Forecasts #

• The Indian footwear market is projected to grow at a CAGR of ~11%, reaching ₹191,000 crores by FY28.
• The branded sports and athleisure (S&A) footwear category in India is projected to grow at a 13% CAGR from FY25 to FY45.

Planned Strategic Initiatives #

• Aggressive store expansion, targeting 225 stores over the next two fiscal years (excluding FILA), focusing on Tier 2 and Tier 3 cities for in-house brands.
• Strengthening omni-channel presence by integrating e-commerce marketplaces, social media marketing, and own brand websites.
• Leveraging new-age technologies like customer data platforms, AI, and machine learning to personalize products and experiences.
• Strategic partnership with Foot Locker to introduce premium global sports, athleisure, and sneaker brands in India.
• Repositioning the FILA brand with new products sourced from global and local vendors, available through the existing Metro/Mochi network.
• Enhancing warehousing capacity.
• Evaluating opportunities for inorganic growth in the footwear and accessories space.

Capital Expenditure Plans #

• Significant growth capex is planned, supported by a solid balance sheet, adequate liquidity, and sustainable working capital.
• Allocation of resources to open Foot Locker stores with phased openings.
• Addition of warehouse space in FY25 to increase capacity.

Efficiency Improvement Targets #

• Leveraging generative AI and robotic process automation across multiple departments.
• Optimizing inventory and enhancing the shopping experience through an AI-based Planning and Merchandising system.
• Implementing an AI-driven Store Operations Management System for real-time monitoring and analysis.
• Reducing discounts and improving operational efficiencies in e-commerce to enhance profitability.
• Harnessing cost efficiencies and operational synergies through the demerger of FILA business.
• Aim to Recycle every shoe sold within two years.

Potential Challenges and Opportunities #

• Challenges:
  • Potential supply chain disruptions due to the BIS Quality Control Order (QCO) for footwear.
  • Intense competition from unorganized retailers, established and emerging brands, and international players.
  • Margin pressures in the online business due to promotions and discounts.
  • Risk associated with future third-party brand acquisitions and their integration.
• Opportunities:
  • Growing fashion aspirations, rising disposable incomes, and preference for branded products in India.
  • Expansion into Tier 2 and Tier 3 cities.
  • Significant growth potential in the sports, athleisure, and sneakers segment.
  • Digital penetration and e-commerce growth.
  • First-mover advantage in the premium sports and athleisure MBO space through the Foot Locker partnership.

Scenario Analysis and Sensitivity #

• BIS QCO Impact: Front-loading of inventory is a key sensitivity. A prolonged delay or stricter enforcement could negatively impact the supply chain and sales. The Management have assumed full alignment with the regulations and return to optimal inventory levels by end of FY25.
• Premiumization Trend: 50% of sales from products priced over ₹3,000 is a critical assumption. If consumer preference shifts or economic conditions weaken, this segment’s growth could be impacted.
• Foot Locker and FILA Performance: The success of these partnerships is crucial. If the brands underperform or integration challenges arise, it could affect projected growth rates.
• E-commerce Profitability: Success in reducing discounts and improving operational efficiencies in e-commerce is essential for sustaining the 33% growth rate and 9.5% revenue contribution.
• Recycling: Recycling of 50% of sold shoes is the current level with a target to achieve 100%.

Audit and Compliance Analysis #

Auditor’s Opinion and Qualifications #

• The Independent Auditor’s Report on the standalone financial statements expresses an unqualified opinion, indicating a true and fair view in conformity with generally accepted accounting principles in India.
• The Auditor’s Report for consolidated financial statements expresses that the opinion on the consolidated financial statements, in so far as it relates to the amounts and disclosures included in respect of these subsidiaries and joint venture, is based solely on the report of such other auditors.
• Proper books of accounts are maintained, except with respect to one joint venture where it has not maintained daily backups of books of accounts and other books and papers maintained in electronic mode in a server physically located in India.
• The accounting software used has an audit trail feature; however, it is not enabled for direct data changes using certain access rights.

Key Accounting Policies and Changes #

• The financial statements adhere to Indian Accounting Standards (Ind AS) and are prepared on a historical cost basis, with exceptions for certain financial instruments measured at fair value.
• The Company restated comparative financials for the year-ended March 31, 2023, to incorporate the effect of demerger of ‘FILA Business’.
• The Group adopted amendments: Definition of Accounting Estimates, Disclosure of Accounting Policies, and Deferred Tax related to Assets and Liabilities arising from a Single Transaction. The Group recognised deferred tax on leases separately rather than net basis without impacting balance sheet.
• Revenue recognition occurs upon the transfer of control of goods to customers, net of rebates, discounts, and returns. Specific policies exist for gift vouchers and loyalty programs.
• Property, Plant, and Equipment depreciation is calculated using the Straight Line method.
• Inventory is recorded at the lower of cost and net realisable value, on a moving average method.
• Financial Assets are categorized,measured at amortised cost, Fair Value through Other Comprehensive Income (‘FVOCI’), Fair Value through Profit or Loss (‘FVTPL’).
• Impairment of assets is assessed at the end of each reporting period.

Internal Control Effectiveness #

• The Auditor’s Report includes a separate report (‘Annexure 2’) on the adequacy and operating effectiveness of internal financial controls over financial reporting, rendering a positive opinion.
• The internal control system has been implemented for maintaining its books of accounts.
• The audit trail feature within the Company’s accounting software was operational, however, was not enabled for direct data changes.

Regulatory Compliance Status #

• The Company states compliance with applicable Secretarial Standards.
• The Company reports compliance with relevant SEBI Regulations and the Companies Act, 2013.
• The Company confirmed that it has not been declared a willful defaulter.
• No funds have been advanced/loaned/invested to intermediaries with understanding of onward lend or invest on behalf of the company.
• No funds have been received from funding party with the understanding to lend or invest in other persons on behalf of funding party.
• All mandatory requirements of Listing Regulations have been complied.

Legal Proceedings and Their Potential Impact #

• The Company disclosed the impact of pending litigations in Note 25 of the standalone financial statements.
• Contingent liabilities related to direct & indirect taxes are detailed and quantified, without indication of a significant financial risk.

Related Party Transactions #

• All Related Party Transactions (RPTs) were conducted on an arm’s length basis and in the ordinary course of business.
• The Company has a policy on RPTs, and omnibus approval is obtained for repetitive transactions.
• Disclosures of RPTs, as required by accounting standards, are included in the Financial Statements.
• No materially significant RPTs with Promoters, Directors, or KMPs that could conflict with the Company’s interests were identified.

Subsequent Events #

• No subsequent events, that were required to be disclosed, other than disclosed in the financial statements, have occurred as per management.
• A final dividend of ’ 2.25/- per equity share was proposed by the Board of Directors on May 22, 2024, subject to shareholder approval.

Analysis of Accounting Quality #

• The use of the historical cost basis, with specific exceptions for fair value measurement, is consistent with Ind AS.
• The application of the going concern assumption is deemed appropriate by management, with adequate disclosures.
• The restatement of previous year comparatives represents a modification in presentation due to demerger, affecting the comparison between the years.
• The use of estimates in areas like revenue recognition, asset impairment, provisions, and employee benefit valuations are standard practice.

Regulatory Risk Assessment #

• The primary regulatory risk highlighted by the Auditor, involves the compliance with the audit trail requirements in one of the joint ventures, which needs to be assessed and appropriately addressed.
• Pending litigations, are disclosed, but there’s no indication of substantial financial risk to the Company.