Jhunjhunwala stock to buy in 2025: MOFSL sees 20% upside on this Rs 4,700 crore RJ bet

After a flattish 2024, this Rekha Jhunjhunwala (RJ) stock bet can deliver 20 per cent return in 2025, MOFSL said in its latest note, citing strong runway for growth, funded through internal accruals, and superior execution and store economics, as reflected by the company in the form of healthy return on invested capital (RoIC) of 30 per cent.

As per the September quarter shareholding pattern, Jhunjhunwala held 14.4 per cent stake in this footwear retailer, which is worth Rs 4,735 crore as on Wednesday's trading price. The stock quoted at Rs 1,211.95 apiece, but MOFSL finds the stock worth Rs 1,460 per share, up 20.46 per cent. This is Metro Brands Ltd. The stock fell 3.38 per cent in the past one year.

MOFSL said Metro Brands' stock performance was flattish in 2024 due to both internal and external factors. Internal factors included the liquidation of old FILA inventory, which impacted gross margins and a decline in revenue per square fee., driven by a lower share of Crocs in the incremental store rollouts.

It noted that weak discretionary spending over the past few quarters, along with BIS-related challenges, have weighed on Metro Brands’ performance and resulted in modest revenue growth of 2 per cent in H1FY25.

Despite weak revenue growth and the impact of FILA liquidation, strong cost controls have helped MBL maintain its gross, Ebitda and PAT margins at 57 per cent, 28 per cent, and 14 per cent, respectively, all of which remained within the guided range in H1FY25, MOFSL said.

"In our view, MBL’s superior store economics (Rs 20,000 SPSF, 2 years store payback), combined with its strong cost controls, has enabled it to continue its outperformance over other footwear peers. With the liquidation of FILA inventory largely behind and a higher number of wedding days, we expect both SSSG and margins to improve from
2HFY25," it said.

With a strong net cash balance sheet and healthy operating cash flow generation of Rs 1,350 crore over FY24-27, MBL can potentially double its store count over the next three years through internal accruals. Conservatively, MOFSL is assuming 100-110 store additions on average annually over FY24-27 against an average of 380 annually based on MBL’s OCF generation.

"We value Metro Brands at 70 times December 2026 PE to arrive at a valuation of Rs 1,460 per share. We have not factored any significant contribution from FILA and Foot Locker in our estimates till FY27, and a faster ramp-up could provide further upside potential," it said.

The target price is factoring in 12 per cent revenue and 13 per cent Ebitda CAGR over FY25-50E, driven by 7 per cent CAGR in store additions, 4 per cent annual increase in store sales throughput and a terminal growth rate of 6.5 per cent.