Metro Brands Limited Q2 FY25 Earnings Conference Call Summary

Financial & Operational Performance

• Metro Brands reported a 5.1% year-over-year standalone revenue growth for Q2 FY25, with EBITDA and PAT remaining constant compared to the previous year.
• The company’s e-commerce business contributed over 10% of total sales, with in-house brands representing over 70% of the total business.
• Sales of products priced over ₹3,000 constituted 53% of total sales, signifying continued demand for premium products.
• Metro Brands opened 23 new stores and closed 3 stores in Q2, resulting in a net addition of 20 stores.
• For the first half of FY25, the company opened 40 new stores and closed 5, leading to a net addition of 35 stores.
• The company maintains a stable PAT percentage for the quarter, reflecting operational rigor and financial discipline.
• Metro Brands observed a moderate reduction in net working capital days due to the stabilization of BIS-related supply chain disruptions in their core brands.

Future Prospects

• The company remains confident in achieving its previously provided guidance of 12-15% revenue growth for FY25.
• Management expects the business growth trajectory witnessed from Q1 to Q2 to persist, driven by consumer demand and the upcoming wedding season.
• Metro Brands anticipates a strong performance in the second half of FY25, particularly in Q3, due to the festival and wedding season.
• The company plans to open over 100 new stores (net) in FY25.
• While expansion plans for the Walkway segment are currently paused for business model refinement, the company expects growth to accelerate towards the end of FY25 and into FY26.
• Expansion plans for the Fila brand, particularly for EBOs, are expected to commence in the second half of FY26, contingent on the resolution of BIS-related challenges.

Margin Guidance

• The gross margin for Q2 FY25 was negatively impacted by approximately 100 basis points due to the liquidation of FILA inventory.
• Management anticipates a minor impact on margins in Q3 due to the remaining FILA inventory liquidation, followed by a return to normalized margins.
• Higher marketing costs in Q2, primarily due to the new autumn-winter campaign, impacted the EBITDA margin.
• For the full fiscal year FY25, Metro Brands targets an EBITDA margin in the 30% range.

Industry Outlook

• Management believes that the normalization of post-COVID market dynamics is largely complete, with consumer behavior becoming more predictable.
• The company sees opportunities arising from BIS regulations, particularly as they impact competitors more heavily reliant on imports.
• Despite challenges, Metro Brands is confident in the growth potential of the sports and athleisure segment in India.

Key Risks

• The most significant risk highlighted during the call is the impact of BIS regulations on the sports and athleisure segment.
• The regulations have caused supply chain disruptions, primarily due to the challenges associated with rapidly scaling up domestic production of specific high-tech products.
• Uncertainty regarding potential government relaxation of import restrictions adds further complexity.

Initiatives Taken by Management

• Metro Brands has implemented several strategies to mitigate the risks posed by BIS regulations, including:
  • Shifting sourcing to India for its core brands (Metro, Mochi, and Walkway).
  • Forward buying inventory to bridge the gap until domestic substitutes are available.
  • Exploring options for domestic manufacturing of raw materials and finished goods for brands like Fila.
• The company launched a new FILA footwear collection manufactured predominantly in India.
• Metro Brands signed a new agreement with New Era, a leading headwear and accessories brand, anticipating the opening of its first New Era kiosk shortly.
• The company successfully launched the first Foot Locker store in India, with plans to open a few more in the coming quarters.
• Metro Brands implemented a celebrity-led marketing campaign to expand its reach and cater to diverse consumer segments.
• The company is focused on optimizing working capital and reducing inventory levels.

Additional Insights

• Metro Brands’ cautious approach to expansion in the sports and athleisure segment is driven by a desire to make informed decisions amidst the evolving regulatory landscape. They are not abandoning the category but are carefully monitoring the situation and adjusting their strategies accordingly.
• While the BIS regulations present challenges, they also create opportunities for Metro Brands to leverage their existing domestic manufacturing capabilities and potentially gain market share from competitors more reliant on imports.
• The company’s strong financial discipline and focus on operational efficiency are evident in their consistent profitability and working capital management.

Taken a help of https://notebooklm.google/ so pardon me if there is any error in this summary.

Guys, do take a look at the post I’ve written on the Rage Coffee & GRM Overseas acquisition on my website.

Hope this helps shed some light on the acquisition.

You are near to your target valuation price of 2240/- …Can you again re-visit it and update ?

H1FY25 Concall Summary

Financial Performance:

For the first half of FY25, total income grew by 33% year-over-year, with Q2 showing a 30% increase compared to the same quarter last year. This robust revenue growth drove a significant rise in profitability, with profit after tax nearly doubling and profit before tax up by approximately 78%. Despite an equity capital increase from a June-end preferential infusion, return on net worth improved from 21% to 22%. The company’s balance sheet remains strong with cash and cash equivalents totaling ₹31.5 crore as of September 30th.

Segment Performance:

• SupTech (formerly Collect): Reported a 48% year-over-year revenue increase, mainly due to the South African Reserve Bank (SARB) contract implementation.
• RegTech (Iris Carbon and Iris iDEAL): Achieved approximately 20% growth.
• TaxTech: Recently expanded to Malaysia, this segment grew by about 15%.
• Geographic Performance: Revenue from Africa now comprises over 36% of total revenue, attributed to the SARB SupTech contract.

Margin Guidance:

While no specific margin guidance was provided, the company benefits from operating leverage, evidenced by a 27% growth in total expenses against a 33% rise in revenue for H1FY25.

Management’s Future Outlook:

Management is optimistic about future growth, supported by strategic investments in sales and marketing. Key growth areas include:

• SupTech Expansion: Aiming to capitalize on the demand for standardized regulatory reporting, especially across Africa, with new shared revenue business models.
• RegTech: Plans to boost growth by converting clients to enhanced offerings like Disclosure Management and capturing market share from competitors.
• TaxTech & DataTech: Although in the early stages, DataTech is viewed as a potential long-term growth driver, with more details to be shared as developments occur.
• ESG Reporting: Focus on the Middle East, targeting energy-rich regions where ESG adoption is increasing.
• Artificial Intelligence (AI): Exploring AI for productivity and product enhancement, particularly within the Litigation Management System to automate tax notice tasks and leverage case law.

Key Risks:

• Competition: Potential intensification in both RegTech and SupTech from established and new players.
• SARB Contract Dependency: Any decline in SARB contract revenue could impact financial performance.
• New Business Models: Uncertainty surrounds the success of shared revenue models.
• AI Implementation: Challenges may arise, and benefits may not meet expectations.
• Regulatory Changes: Shifts in regulation could affect product demand.

Industry Perspective:

• SupTech & RegTech Consolidation: Larger firms are acquiring smaller players, intensifying market competition.
• Demand for SupTech: Increasing as global regulators adopt standardized reporting.
• ESG Reporting: Growing adoption of ESG standards opens opportunities, particularly in regions like the Middle East.
• AI’s Role: Expected to drive efficiency and enhance product capabilities industry-wide.

Early-Stage Focus: DataTech & TaxTech

The DataTech and TaxTech segments are in the “very, very infant stage,” with limited revenue impact currently. However, management has “high hopes” for DataTech’s potential to contribute to future growth. Specific strategies and details for this segment will be disclosed as the business develops.

Pricing Strategy:

In the RegTech segment, management is implementing pricing enhancements by adopting a consultative sales approach, demonstrating added value, and introducing features that justify premium pricing. An example cited in the concall highlights a customer willing to pay four times the initial rate for an expanded Disclosure Management solution.

Overall, Swaminathan’s tone throughout the call suggests a leader who is confident in the company’s direction, optimistic about its prospects, and committed to transparent communication with investors.

Disclosure: Invested & the above is AI generated transcript