Rakesh Jhunjhunwala-Backed Metro Brands IPO: All You Need To Know
The footwear retailer's IPO will open on Friday and allow partial exit to its promoters.
Metro Brands Ltd., backed by veteran investor Rakesh Jhunjhunwala, will open its initial public offering on Friday to allow partial exit to its promoters and promoter group shareholders. This is the second initial share sale by a Jhunjhunwala-backed firm so far this month after Star Health and Allied Insurance Co.
The maiden offer of the footwear retailer comprises a fresh issue of Rs 295 crore and an offer for sale of 2.14 crore equity shares by promoters and other shareholders, according to its red herring prospectus. The company is estimated to fetch Rs 1,368 crore at the upper end of the price band.
The issue will be open for subscription during Dec. 10-14, with bidding for anchor investors opening on Dec. 9.
Through the IPO, promoters will offload nearly 10% stake.
The promoters—Rafique A Malik, Farah Malik Bhanji, Alisha Rafique Malik, Rafique Malik Family Trust and Aziza Malik Family Trust—hold 68.43% stake in the company, while the promoter group holds 15.57%. After listing, their shareholding will fall to 62.15% and 12.12%, respectively.
In the offer for sale, the promoters will sell 1.30 crore equity shares and the promoter group will offload 84.2 lakh equity shares. Other shareholders will liquidate the remaining 8,100 equity shares. Jhunjhunwala, the third-largest shareholder owning 14.73% in the company, however, isn't diluting any stake.
Issue Details
Fresh issue: Rs 295 crore.
Offer for sale: Rs 1,073 crore.
Implied market capitalisation post issue: Rs 13,177–13,575 crore.
Price band: Rs 485-500.
Face value: Rs 5 per share.
Lot size: 30 shares and multiples.
Listing: NSE and BSE.
Lead managers: Axis Capital, Ambit Pvt., DAM Capital, Equirus Capital, ICICI Securities, Motilal Oswal Investment.
Out of the net offer, 50% is reserved for qualified institutional buyers, 15% for non-institutional bidders and 35% for retail investors. The company has undertaken a pre-IPO placement of 73,136 equity shares at a price of Rs 450 per share, aggregating to Rs 3.29 crore for 94 allottees.
Objective
The company proposes to utilise Rs 225.37 crore of the net proceeds towards expenditure for opening new stores under the Metro, Mochi, Walkway and Crocs brands, and the remaining for general corporate purposes.
Business
The 66-year-old Metro Brands operates on an asset-light model with third-party manufacturing done through 250 plus vendors and lease arrangements. It owns brands such as Metro, Mochi, Da Vinchi, Walkway and J Fontini, and retails third-party brands such as Crocs, Skechers, Clarks, Florsheim and Fitflop.
Starting with shoes, the company now retails accessories such as belts, bags, socks and wallets at its stores. Its stores also offer footcare and shoe-care products through the joint venture with MV Shoe Care Pvt.
As of Sept. 30, the company operated 598 stores across 136 cities. It said, citing a Crisil report, that it had the third-highest number of exclusive retail outlets in the country in FY21.
Metro Brands primarily follows the company-owned-and-company-operated model of retailing through their multi-brand outlets and exclusive brand outlets. In FY21, sale of in-house brands contributed 69.2% to overall revenue, according to the red herring prospectus. The company saw a spurt in online business during the pandemic, which contributed to 12% of sales during April-September in FY22, from 1.65% in the corresponding pre-pandemic period of FY19.
Its operations are spread across metro cities, tier 1, 2 and 3 cities and towns with products across various price segments: economy (Rs 501 - Rs 1,000), mid (Rs 1,001 to Rs 3,000) and premium (more than Rs 3,001).
Metro Brands recorded a realisation per unit—ratio of revenue from total sales to volume of total sales—of Rs 1,321.3 in FY19, Rs 1,345.8 in FY20, Rs 1,328 in FY21, and Rs 1,381.3 in the six months through September.
The company has 73 registered trademarks in India and 11 globally. It has further made a total of 22 applications. Farah Malik, managing director at Metro Brands, said the company is also mulling tie-ups with more international brands. In FY21, the Mumbai-based company retailed over 25 third-party brands which contributed about 30.8% to its overall revenue.
Financials
Metro Brands' revenue from operations fell 37.7% in FY21 owing to Covid-19 restrictions across the country. It had shut 24 stores during the year ended March 2021 because of significant decline in footfalls and mall closures.
The company's net profit margins stood at 12.5% in FY20, before falling to 8.1% in pandemic-hit FY21. Its margin, however, was the highest among peers like Bata India Ltd. and Khadim India Ltd. in a year when large companies have seen 20-40% drop in revenue, according to its prospectus. Metro Brands also had the highest operating profit margin among peers during FY17-21.
The company has been steadily regaining margins as sales normalise. In the first six months of FY22, its profit margin stood at 9.5%. It expects margins to touch pre-Covid-19 levels with demand returning to normal levels.
Peers
In India’s organised footwear market worth around Rs 22,900 crore, Metro Brands competes with Bata India, Relaxo Footwears Ltd., Paragon Group, Mirza International Ltd., Liberty Shoes, Campus Activewear Pvt. and Khadim India.
Overall, the market in India is fragmented, with organised players having a market share of 35%. The Indian market is highly competitive with the presence of many international brands such as Hush Puppies, Marks & Spencer, Nike, Nine West, and Paul & Shark. Lifestyle brands such as Armani, Versace and Hugo Boss also sell footwear.
Competitive Strengths
One of India's largest pan-India footwear retailers with stores spread across all the four zones.
Wide range of brands and products catering to all occasions across age groups and price segments, resulting in strong customer loyalty.
Efficient operating model through deep vendor engagements, many of whom are associated with the company for more than 20 years now.
Metro Brands is among the few footwear retailers to source all their products through outsourcing arrangements. They don't have a manufacturing facility. Under most of their deals, Metro is required to pay for products to the third party only once these products are sold.
Under certain arrangements, they're also entitled to return ageing inventory to the brand owner, thereby limiting inventory risk.
Presence across multiple formats with an omnichannel presence.
Platform of choice for third-party brands looking to expand in India.
Strong promoter background and an experienced and entrepreneurial management team with a proven track record.
Strong track record of growth and profitability. The company has paid out dividend to shareholders consistently since 2000.
Risk Factors
The impact of the ongoing Covid-19 pandemic on its business has been significant. Its impact on operations in the future, including its effect on customers' ability to visit stores, is uncertain.
The cumulative cost of the total stores opened by the company may not be indicative of the market capitalisation after the offer, given that the basis of determining both are independent of each other.
Disruptions of third-party services, including vendors, due to limited and sporadic availability of raw materials, fluctuating and unpredictable demands, and disruptions in supply chain.
Both the company's warehouses are located in Bhiwandi, Maharashtra, and any adverse development affecting the region may impact its business, prospects, financial condition and operations.
Inability to identify customer demand accurately and maintain an optimal level of inventory in stores may impact operations adversely.
It may be unable to foresee or respond effectively to the changes in consumer preferences. As a result, there may be a decline in the demand for its products, thereby reducing its market share.
There could be risks involved in entering new geographic markets and expanding operations. Because of various challenges such as lack of familiarity with the culture, legal regulations, economic conditions and language barriers, it may face significant competition in new markets.
Any disruptions at such third-party manufacturing facilities, or failure of third parties to adhere to the relevant quality standards may have a negative effect on its reputation, business and financial condition.
Its business is manpower-intensive and subject to high attrition. Operation could be affected by work stoppages, increased wage demands by employees, or increase in minimum wages.
The growth of online retailers may create pricing pressures and increase competition if the company fails to strengthen its own online channel.
Promoters and promoter group will continue to exercise significant influence over the company after completion of the offer.