On Tuesday, Kotak increased the price target for Metro Brands Ltd (METROBRA:IN) shares to INR1,150 from INR1,100, while the firm retained a Reduce (3) rating on the stock. The revision reflects a cautious outlook despite acknowledging the company's operational strengths and market opportunities.
Metro Brands experienced a slight 1.1% drop in its first-quarter revenue, attributed to a 10% decrease in revenue per square foot. This decline was noted as significant both in absolute terms and when compared to peers. However, the company's variable cost structure was highlighted as a key factor that helped mitigate the impact on EBITDA levels.
The firm's analyst expressed appreciation for Metro Brands' execution capabilities and the potential in the market it operates in. Nevertheless, the company's current valuation was deemed high, especially considering the risks to earnings if demand recovery fails starting in the second quarter or the second half of the year.
In response to these concerns, the projected earnings per share (EPS) for the fiscal year 2025 were reduced by 5%. The new fair value (FV) is set at INR1,150, calculated based on 57 times the estimated EPS for September 2026. Despite the price target upgrade, the Reduce rating was maintained, indicating a continued cautious stance towards the stock.
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