Can Metro Shoes and Vedant Fashions be the next Asian Paints or Titan? Digant Haria answers

“India is all about the rich man’s consumption story and when I say rich man, I mean the top one crore families, people who are earning more than Rs 50,000 a month because these are technically the segment which is going to buy and that’s why a Metro Shoes will do better than Relaxo,” says Digant Haria, Co-Partner, GreenEdge Wealth

LIC was cheap when it went public but has become cheaper. Markets have rallied, everything has come back, but LIC is still languishing. Why is the market giving LIC a stepmotherly treatment?
There could be multiple reasons for it. It has happened in the PSU space that we think a stock is cheap and the market just makes it cheaper. A lot depends on how the management treats the investing community, how they change their disclosure levels. We saw last quarter that after the results, they never declared the embedded value. They had to call a special meeting for declaring embedded value.

These are the things that markets do not like in the short term. But having said that, any such investment needs a slightly longer term horizon and life insurance industry in general has started seeing better revenues and better growth prospects. Some day that will get reflected in the price but yes, the government on the seat of the management has the power to derate or rerate the stock by the way they communicate and disclose.

I think one time embedded value is something where I would still think that LIC is definitely not expensive but it is going to take time. It was disappointing that a lot of first time investors had to suffer this loss. But the market is never a one-way journey to anyone.

Asian Paints and Pidilite are great companies with expensive valuations. A lot of classic investors say they are good companies but not great stocks. But they created a lot of wealth. Do you think the same could happen to Metro Shoes and Vedant Fashions ?
I would say that there is a chance for great wealth creation because India is all about the rich man’s consumption story and when I say rich man, I mean the top one crore families, people who are earning more than Rs 50,000 a month because these are technically the segment which is going to buy.

So, in case of shoes, you just look at the divergence between what a Relaxo reported in the last one year and what Metro Shoes is reporting because Relaxo is not selling to the top one crore families of India but Metro Shoes is actually selling to that top one crore families of India who are doing well and who have got wealthier in this entire pandemic bull market.

So Metro Shoes definitely has a great runway to grow at 15-18% for very long time. No doubt but then we have seen that execution of that 15% to 20% CAGR in terms of revenue is not very easy though Metro has done it in the last 10 years and they can probably do it in the next 10 years. But we are already paying a very high multiples today so Asian Paints we can all go back and say that okay in 2010, they were still trading at 45 times and we still tripled or quadrupled our money but Asian Paints executed well.

If we are buying Metro Shoes and Vedant Fashions today, we are already taking that risk that the market is going to grow at 15% for shoes and wedding wear. That is fine but can these guys consistently grow at 15% CAGR? I am not too sure because we had another listing four years back called TCNS which owns these women’s brand called W. They could do really well initially but now they are struggling for that same-store sales growth because in the unorganised markets, it is really difficult to create a brand

Which is why though Vedant Fashions though they have done very well, I find that the entry barriers are very low. When you go to shop for a Titan or a Tanishq jewellery, there is a lot of trust because the gold has to be pure. So Titan has a really different proposition to give. In Vedant Fashions, I do not see that proposition. There could be a lot of local competition which will keep on coming and keep on being strong. So, I am not too sure if one should compare Vedant Fashions to an Asian Paints or Titan. Metro Shoes has a good chance of giving that CAGR but having said that, a lot of that growth is built in today and it is difficult to expect more than 10-12% CAGR even if things go right in these stocks.