Jhunjhunwala-backed Metro Brands eyes pre-Covid margins as sales normalise

The footwear retailer has seen demand pick up across categories post the second wave of the pandemic

Rakesh Jhunjhunwala-backed Metro Brands expects its profit margins to go back to pre-Covid levels once its sales normalise.

The footwear retailer's sales are moving back to normalcy with demand picking up across categories following the second wave of the pandemic.

During the pandemic, the company saw demand largely for casual and athleisure footwear.

The company's profit margins stood at 12.5 per cent in FY20, before falling to 8.1 per cent in FY21 due to sales taking a hit due to the pandemic. In the first six months of FY22, its profit margin stood at 9.5 per cent, according to the company’s presentation.

“In first half of this year, in spite of the adverse effect of covid second wave, our profit margins were trending at 9.5 per cent which is higher than the covid impacted year,” Kaushal Parekh, chief financial officer at Metro Brands, told Business Standard.

He added, “We feel that once our sales normalise back to FY20 levels, we should come back to the historical margins that we have demonstrated for so many years now.”

The company’s gross margins in the April-September period of FY22 stood at 57 per cent compared to 55.6 per cent in FY20, while its operating profit margins stood at 24.4 per cent in the first half of FY22 compared to 27.5 per cent in FY20.

Metro Brands revenue in the first half of FY22 stood at Rs 456 crore compared to Rs 176.5 crore in the same period last year. In FY20, its revenue stood at Rs 1,285.2 crore.

Due to higher raw material prices, Metro Brands plans to increase the price of its footwear between 3-5 per cent over the next few months.

“We are trying to absorb some (input cost pressures), we are ensuring that our vendors also give us the best pricing,” Farah Malik, managing director at Metro Brands said. Adding that price increases will be gradual and will be seen over the next three months.

The company has also seen the contribution of online go up significantly during the pandemic, Nissan Joseph, chief executive officer at Metro Brands said. He added that it has gone up from 1 per cent before the pandemic to now to 12 per cent of the company’s revenue.

Metro Brands is also looking to tie-up with more international brands and bring them into the country. “We will be actively dialoguing with different brands to grow, because we genuinely believe we give them a great platform to enter India and be successful in India,” Malik said.

The company plans to use the proceeds from the fresh issue of the initial public offering (IPO) to open 260 stores across the country. It has a total of 598 stores as on 30 September and has a presence in 136 cities. The store expansion will be across its four brands Metro, Mochi, Walkway and Crocs. It plans to raise Rs 295 crore from sale of fresh shares. The price band of the IPO is in the range of Rs 485 to Rs 500 per share. Its IPO will open on 10 December and close on 14 December.

At the upper end of the price band, the IPO size is pegged at Rs 1,367.5 crore, which includes an offer for sale of 21.45 million shares by the promoter group.