Sep 12, 2013 ... Metro Shoes. We had a meeting recently with Mr Jaiprakash J. Desai, chief
financial officer of. Metro Shoes. Following are the key highlights:.
Management Meet Update
Institutional Equities
Metro Shoes 12 September 2013
We had a meeting recently with Mr Jaiprakash J. Desai, chief financial officer of Metro Shoes. Following are the key highlights:
NOT RATED
Metro Shoes has three store formats: Metro (144 outlets), Mochi (75 outlets), and Value Line (35 outlets) - of which 20 are SIS (shop-in-shop) and 15 standalone stores - totalling 254 outlets in all with an area of 0.275mn sqft spread across 77 cities in India (future scope - over 200 cities). Except four-five stores, all other stores are profit-making. The company plans to open 70 stores annually (including 10 MSL or more shoes for less). The average size of an outlet is relatively smaller at ~1,200sqft compared to competitors like Bata India (~2,500sqft), but Metro Shoes prefers stores having a height of 14 feet so that the loft can be used as storage space for footwear and the floor area for retailing.
Jignesh Kamani, CFA
[email protected] +91-22-3926 8239 Saiprasad Prabhu
[email protected] +91-22-3926 8172
Metro Shoes does not believe in the franchise model as it impacts shops’ interiors and the motivation of sales staff. Therefore, all stores are operated by the company. Key in-house brands are Metro, Da Vinchi (premium brand), Mochi and MSL. Metro is positioned as a family brand, and Mochi as a youth brand with similar price points and offerings. Key outside brands are Red Tape, Woodland, Clarks, Lee Cooper, Samsonite, Dr. Schools, Crocs, Fila, Puma, Franco Leone etc. Inhouse brands contributed 70% to revenue, while outside brands contributed the balance 30%. Metro brand contributed 65%, Mochi brand contributed 32% and MSL contributed 3% to in-house brands’ revenue. The company sold 5.44mn pairs of footwear in FY13, with net revenue at Rs5,591mn in FY13 on a standalone basis. The company increased its standalone revenue by 29.9% CAGR over FY10-FY13 and by 20.4% in FY13. The company reported EBITDA margin of 17.9%/17.2% for FY12/FY13, respectively, compared to Bata India (BIL) which posted EBITDA margin of 14.9% for CY11/CY12 each, on the back of better revenue per sqft at Rs21,000 (compared to Rs7,000-Rs10,000 in case of BIL), service-oriented staff with persuasion skills, higher average selling price and lower lease rentals due to the revenue-sharing model in the initial period. The company operated with ex-cash working capital, as a percentage of sales, at 20.1% in FY13 compared to 13.4% in case of BIL in CY12. Metro Shoes is a debt-free company, which generated RoCE/RoE of 30.0%/31.7%, respectively, in FY13 compared to 26.1%/26.9%, respectively, in case of BIL in CY12. Geography-wise, the western region accounted for 36%, southern region 30%, northern region 22% and eastern region 12%. The company has a limited presence in the eastern region, in cities like Calcutta, Guwahati, Siliguri etc. The company has 2,500 employees. Style, excellent service and the quality of the products are USPs of Metro Shoes compared to competitors. Revenue per square feet for Metro Shoes is Rs21,000/year, the highest among footwear peers because of: 1) Service-oriented staff with persuasion skills, 2) Higher product density due to relatively lower area, at 1,200sqft compared to 2,500sqft in case of Bata India, 3)Storage of inventory on the loft of a store, thereby providing more retailing area on the floor, and 4)Store managers being paid only a commission on sales. In order to control costs, particularly lease rentals, ~60% of the company’s outlets are based on the revenue-sharing model, where it pays ~10% of its in-house brand sales and 7%-8% of outside brand sales as rentals. Please refer to the disclaimer towards the end of the document.
Institutional Equities
2
As regards costs per store, furniture and interiors cost Rs3.5mn-Rs4.0mn, inventory Rs3mn-Rs5mn and security deposit at Rs1mn. Total costs are Rs8mn-Rs10mn per store. The company keeps 8,000-10,000 pairs of footwear in a store, which are stored on the loft. Metro Shoes offers a minimum fixed wage to its sales staff, but they are given incentives for generating revenue. At all of the company’s stores, store managers are not on the payroll but they are paid a commission on sales. The company pays 6% commission on sales to store manager (~20%-25% of total commission) and sales staff. Generally, sales staff personnel are promoted to the post of store manager in order to keep them motivated. The company has two central warehouses, one at Byculla, Mumbai, of 20,000sqft and another at Bhiwandi, Thane, of 100,000sqft. It does not have any regional warehouse. To control inventory costs, the stores keep track of non-moving inventory through a software programme so that it can be shifted to other outlets where it is can move fast. The company does not manufacture any footwear, it works on the 100% outsourcing model. The share of imported footwear is only 15%, while the rest is sourced locally from small-scale industries (SSI) based in Delhi, Mumbai, Agra, Kolkata and Chennai. The company sources from ~155 vendors, and no vendor accounts for more than 2% of its overall sales. Generally, a vendor (being an SSI unit) would not like to increase its sales above Rs15mn to save on excise duty. As the company deals with ~155 vendors, sourcing of footwear would be a challenge going forward when it grows. Currently, the company does not have an in-house design studio and it plans to set it up in future. In order to control the quality of its products, all in-house brands are first brought to its warehouse where the staff conducts quality check and only then they are shipped to various outlets. SSG (same-store sales) growth stood at 10.0% in FY12, 8.5% in FY13, and 10%-11% in 1HFY14, (8% value, 3% volume). The company went for a price hike of 7.0%-8.0% in FY13 in order to pass on the burden of higher excise duty to the customers. As per the management, a standalone store is more profitable than the one at a mall. Average selling price (ASP) is Rs1,300/pair in case of Metro and Mochi brands and Rs425/pair in case of MSL brand. As regards footwear for men, the ASP is Rs2,000/pair and in case of footwear for women it is Rs900-Rs1,000/pair. The company spends 4% of its sales on advertisements, mainly window display, hoardings etc. The company has a loyalty programme (1.2mn loyal members) by way of Club Metro and Club Mochi, accounting for 30% of overall sales. The share of on-line sales is highly insignificant, with Metro Shoes generating monthly sales of only Rs0.5mn-Rs0.9mn from on-line platforms. The company introduces 30-40 designs in the ladies segment every week and 10 designs in the segment for men every month. The company believes that accessories are key to drive growth and so it has increased the share of accessories from 5% to 10% of sales over the past five years, although the margins in accessories are lower than in footwear. The company has two dedicated stores for sale of accessories. The difference in margins between premium and non-premium brands is generally 3%-4%. Similarly, gross margin is higher by 2%-3% in case of footwear for men compared to women’s footwear. Also, there is a 5%-6% difference in the margins between in-house brands and outside brands. The company has reduced inventory by 20 days in FY13 to 112 days (106 days in case of BIL in CY12), and it plans to reduce them by one month in FY14E. The company sells slow-moving inventory at a discount twice in a year, and generally the discount sales last for two weeks in Mumbai and for 8-10 days in non-Mumbai markets. In case of outside brands, 50% of them are sold on consignment basis, and in case of the balance 50% the company can return 5%-10% of the products to the brand owners. Footwear industry pays a higher tax of 24% (excise duty and VAT), which hurts its profitability. The management believes the tax would decline from 24% to18% on implementation of the GST (Goods and Services Tax) and thereby drive its margins in future.
Metro Shoes
Institutional Equities Disclaimer Stock Ratings Absolute Returns BUY > 15% HOLD 0-15% SELL < 0% This report is published by Nirmal Bang’s Institutional Equities Research desk. Nirmal Bang has other business units with independent research teams separated by Chinese walls, and therefore may, at times, have different or contrary views on stocks and markets. This report is for the personal information of the authorised recipient and is not for public distribution. This should not be reproduced or redistributed to any other person or in any form. This report is for the general information for the clients of Nirmal Bang Equities Pvt. Ltd., a division of Nirmal Bang, and should not be construed as an offer or solicitation of an offer to buy/sell any securities. We have exercised due diligence in checking the correctness and authenticity of the information contained herein, so far as it relates to current and historical information, but do not guarantee its accuracy or completeness. The opinions expressed are our current opinions as of the date appearing in the material and may be subject to change from time to time without notice. Nirmal Bang or any persons connected with it do not accept any liability arising from the use of this document or the information contained therein. The recipients of this material should rely on their own judgment and take their own professional advice before acting on this information. Nirmal Bang or any of its connected persons including its directors or subsidiaries or associates or employees or agents shall not be in any way responsible for any loss or damage that may arise to any person/s from any inadvertent error in the information contained, views and opinions expressed in this publication.
‘Access our reports on Bloomberg Type NBIE ’
Team Details: Name
Email Id
Direct Line
Rahul Arora
CEO
[email protected]
+91 22 3926 8098 / 99
Hemindra Hazari
Head of Research
[email protected]
Neha Grover
AVP Sales
[email protected]
+91 22 3926 8093
Ravi Jagtiani
Dealing Desk
[email protected]
+91 22 3926 8230, +91 22 6636 8833
Pradeep Kasat
Dealing Desk
[email protected]
+91 22 3926 8100/8101, +91 22 6636 8831
Michael Pillai
Dealing Desk
[email protected]
+91 22 3926 8102/8103, +91 22 6636 8830
Umesh Bharadia
Dealing Desk
[email protected]
+91 22 3926 8017 / 18
Sales and Dealing:
+91-22-39268226
Nirmal Bang Equities Pvt. Ltd. Correspondence Address B-2, 301/302, Marathon Innova, Nr. Peninsula Corporate Park Lower Parel (W), Mumbai-400013. Board No. : 91 22 3926 8000/1 Fax. : 022 3926 8010
3
Metro Shoes
