Rakesh Jhunjhunwala-backed Metro Brands IPO opens today: Should you subscribe to the issue?

Rakesh Jhunjhunwala-backed footwear retailer Metro Brands will open its initial public offer (IPO) today (December 10). The IPO will close on December 14. Rekha Jhunjhunwala, wife of the ace investor, is the third-largest shareholder in the company, owning a 14.73 per cent stake.

The firm has fixed a price band of Rs 485-500 per share. The grey market premium (GMP) of the issue stands at Rs 80 today.

Considering the GMP of Rs 80, the share is likely to list on BSE at Rs 580 to the issue price on December 22.

Metro Brands plans to raise Rs 1,368 crore through the share sale. The firm raised a little over Rs 410 crore from anchor investors on Thursday.

The company has allotted 82.05 lakh equity shares to anchor investors at Rs 500 apiece, taking the total transaction size to Rs 410.25 crore. Societe Generale, Goldman Sachs, Abu Dhabi Investment Authority, HDFC Life Insurance Company, SBI Life Insurance Co Ltd, Tata AIA Life Insurance Co Ltd, HDFC Mutual Fund (MF), Aditya Birla Sun Life MF, Sundaram MF and ICICI Prudential MF are among the anchor investors.

The IPO comprises fresh issue of equity shares worth Rs 295 crore and an offer for sale of 2.14 crore equity shares by promoters and other shareholders. Currently, the promoters and promoter group hold 84 per cent stake in the company and will sell nearly 10 per cent stake through the IPO.

Half of the issue size has been reserved for qualified institutional buyers (QIBs), 15 per cent for non-institutional investors and 35 per cent for retail investors. Lot size of the IPO is 30 shares for which one will have to spend Rs 15,000. A retail-individual investor can apply for up to 13 lots or 390 shares by spending Rs 1,95,000.

The allotment of shares will be finalised on December 17, 2021 and the firm will make its debut on BSE and NSE on December 22. Link Intime India Private Ltd is the registrar to the IPO.

Proceeds of the issue will be used toward expenditure for opening new stores under the Metro, Mochi, Walkway and Crocs brands and for general corporate purposes. Axis Capital, Ambit, DAM Capital Advisors, Equirus Capital, ICICI Securities and Motilal Oswal Investment Advisors are the book running lead managers to the IPO.

Currently, the company has 598 stores in 136 cities spread across India. Of these, 211 stores were opened in the last three years. The company sells footwear brands such as Metro, Mochi, Walkway, Da Vinchi and J Fontini, as well as certain third-party brands such as Crocs, Skechers, Clarks, Florsheim and Fitflop. It also offers accessories, such as belts, bags, socks, masks and wallets at its stores.

Here's look at what brokerages said about the prospects of the IPO.

Choice Broking is positive on the share sale in the long term.

"In FY21, whole footwear retailing was impacted by the pandemic led restrictions. Thus, we have benchmarked the IPO valuation to the performance during FY19-20. At higher price band of Rs. 500, MBL is demanding a P/E multiple of 89.2x (to its average earnings of Rs. 5.6 per share over FY19-20), which is at premium to peer average of 71.7x. MBL is one of the largest footwear retailers with around 3-4% market share in the organized market space. It has reported strong financial performance with robust cash flow generation. The company is consistently paying dividend since FY 2000. Thus considering the above observations, we assign a 'Subscribe for Long Term' rating for the issue," said the brokerage.

Angel One has assigned a neutral rating to the IPO.

"In terms of valuations, the post-issue TTM P/E works out to 91x (at the upper end of the issue price band), which is high considering MBL's historical top-line & bottom-line CAGR of 9% and 6%, respectively over FY18-20. Further, the company's historical net profit growth is low compared to its peers Relaxo Footwears. However, Metro Brands has asset light business, strong brands and wide range of products but we believe that these positives are captured in the valuations commanded by the company. Thus, we have a NEUTRAL rating on the issue," the brokerage said.

Marwadi Shares and Finance has given a subscribe call to the issue.

"Considering the TTM (Sept-21) adjusted EPS of Rs 5.55 on a post-issue basis, the company is going to list at a P/E of 90.01 with a market cap of Rs 135,754 mn while its peers namely Bata India & Relaxo Footwear are trading at a P/E of 922 and 111 respectively. We assign a 'Subscribe' rating to this IPO as the company is one of India's largest pan India footwear retailers with a brand appeal among aspirational consumer segments Also, it is available at a reasonable valuation as compared to its peer," the brokerage said.