Late legendary stock market investor Rakesh Jhunjhunwala left for heavenly abode on August 14, 2022 and before his untimely demise, two companies backed by him -- Metro Brands and Star Health and Allied Insurance Company -- made their stock market debut in December 2021.
While the former one has proved to deliver multibagger returns to the investors post its Dalal Street debut, while the latter one has been a wealth destroyer post the Covid-19 pandemic. Both the companies reported a mixed set of numbers for the first quarter of the ongoing financial year (Q1FY25).
Rekha Rakesh Jhunjhunwala owned 2,61,02,394 equity shares, or 9.60 per cent stake in Metro Brands as of June 30, 2024, which is worth Rs 3,258.9 crore. Similarly, the promoter duo owned 10,07,53,935 equity shares or 17.2 per cent stake in Star Health Insurance by the end of the recent quarter. Their stake in the standalone health insurer is valued at Rs 5,754.6 crore.
Metro Brands' standalone net profit slipped 3.27 per cent YoY to Rs 92.35 crore in Q1FY25. The footwear retailer's revenue from operations declined marginally to Rs 563.21 crore in the June 2024 quarter. Ebitda declined 4.8 per cent YoY year on year to Rs 180 crore, while Ebitda margin contracted to 32 per cent in the quarter ended 30 June 2024.
Motilal Oswal Financial Services believes that soft demand and delayed BIS implementation are affecting FILA’s repositioning, and a moderation in margins could weigh on growth. But, in the long term, healthy store economics, steady store adds and a growth opportunity in Fila/Foot Locker should drive growth.
"A combination of superior store economics and a strong runway of growth should allow Metro to garner rich valuations going ahead. We have not factored in Fila and Foot Locker earnings in our estimates, but we believe they have revenue potential of Rs 1,500-2,000 crore over the next 3-5 years,' it added arriving at a valuation of Rs 1,460 per share with a 'buy' call.
On the other hand, SMIFs said that Metro Brands disappointed on the top line front in Q1FY25 while surprises positively on the margin front. The marginal decline in revenue was due to lower wedding dates, loss of business days due to elections and heatwave across the country. Revenue de-growth was led by decline in volumes while realisations remain unchanged, it said.
"The structural growth opportunities of the company remain intact supported by store and brand additions across all its formats; rising share of premium products; FILA and Footlocker to lead the growth in Athleisure segment; and deeper penetration in Tier 2/3 cities," SMIFS added. However, it has a 'reduce' rating on the stock with a target price of Rs 1,249.
Metro Brands' results missed estimates with revenue de-grew by 1.1 per cent due to subdued demand conditions on account of harsh summer season, elections & lower wedding dates during the quarter, said Dolat Capital. Lost momentum will be regained in H2FY25E driven by the festive season, penetration opportunities and ongoing brand additions, it said.
"We downward revise our FY25/26E EPS estimates to factor in Q1 performance and muted demand across industry. However, we continue to believe that Metro would outperform peers given its premium brand positioning, higher aspirations, demographic support and low penetration," with added with a 'reduce' rating and a target price of Rs 1,312.
Metro Brands was listed at the bourses on December 22, 2021, when the company raised a total of Rs 1,367.51 crore via IPO, selling its shares for Rs 500 apiece. The stock currently is trading at Rs 1,270, with a total market capitalization of 34,000 crore. The stock has gained 154 per cent from its IPO price so far.
Star Health reported a 10.8 per cent YoY increase in net profit at Rs 318.9 crore for the June 2024 quarter. The private health insurer reported an increase in its gross written premium (GWP) for Q1FY25, up by 18 per cent YoY to Rs 3,476 crore. The company made an underwriting profit of Rs 140 crore during the April-June 2024 quarter.
Star Health and Allied Insurance’s Q1FY25 profit was in line with estimates driven by better-than-expected investment performance, offsetting the impact of higher-than-expected claims ratio. FY25 should benefit from price hikes, higher growth in new channels, recovery of new business growth and better investment performance, said ICICI Securities.
"These would lead to management guidance of COR improvement of 100 bps in FY25 while the company enjoys structural advantage of scale and network across hospitals, agents, AUM and opex ratio. We factor in a combined ratio of 96 per cent, investment yield of 7.5 per cent and GDPI growth of 18 per cent for FY25," it added with a 'buy' rating a target price of Rs 728.
Star Health printed soft NEP growth on account of sluggish GDPI growth and retail health GDPI was modest, translating into a 116-bps market share erosion. Loss ratios increased to 67.6 per cent due to higher claims incidence, and higher spending on wellness initiatives, reflecting in higher overall CoR of 99.2 per cent, said HDFC Securities, which has a 'buy' rating on the stock.
"We expect Star Health to deliver a 21 per cent PAT CAGR over FY24-26E on the back of strong underwriting capabilities and a robust claims review process. As the largest standalone health insurer. Our thesis is anchored on an unparalleled agency-dominated distribution network, retail-dominated business mix, and best-in-class opex ratios," it said with a target price of Rs 715.
On the other hand, Rakesh Rekha Jhunjhunwala promoted Star Health raised Rs 7,249.18 crore via its IPO as it sold its shares for Rs 900 per share. The stock made its debut on December 10, 2021 and the stock was seen at Rs 570 on Wednesday, with a total valuation slightly below Rs 34,000 crore. The stock is down 37 per cent from its IPO price so far.
Later, Jhunjhunwala family-backed Concord Biotech Ltd made debut in August 2023. However, the listing was around one year after his demise. Jhunjhunwala and its associates own 24.1 per cent stake or 2,51,99,240 shares in the company amounting to Rs 3,975 crore as of Q1FY25.