Buy Bata India; target of Rs 880: ICICI Direct

ICICI Direct's research report on Bata India

Bata India is a major player in the Indian footwear market with a presence across men’s, women’s and kid’s footwear segment with price points ranging from the mass market to the premium category. It has a pan-India presence with the largest network of retail stores in the footwear industry with ~1300 stores in both metros and Tier I, Tier 2 cities. This enables it to garner a higher market share compared to other competitors Over the past couple of years, with the change in consumer preferences, Bata has constantly focused on tapping the fashion conscious youth, working women and children through introduction of latest and trendier styles of footwear. In the recent past, Bata has launched stylish ranges such as ‘European Collection’ and ‘The Buckline’. Bata’s gradual shift towards premiumisation is evident since average realisation per footwear rose 8% YoY to Rs 530/pair in FY17. Consequently, due to the improved product mix, gross profit per footwear increased 10% YoY to Rs 280/pair in FY17 In addition, Bata is also focusing on increasing its online presence through innovations to provide a user friendly shopping experience on mobile application and websites with interactive interfaces. Bata plans to expand its online presence via placement of online kiosks in major retail stores, tie up with payment banks and increasing the presence of product offerings through partner websites. In FY17, Bata sold 6.3 lakh pairs of footwear (3.8 lakh in FY16) through online channel and achieved revenue of Rs 69.2 crore ( Rs 36 crore in FY16) With green shoots visible in Q1FY18, we believe the management is on the right track to achieve healthy topline growth via: a) retail expansion through franchisee route in Tier II & Tier III cities and b) improved visual merchandising, refurbishment of existing stores and new styles of footwear to drive SSSG. In addition, constant enhancement of the product mix through increase in share of premium products will aid operating margins.

Outlook

We introduce FY20 estimates and expect sales to grow at 14% CAGR in FY17-20E while EBITDA is expected to grow at 25% CAGR in the same period on the back of higher proportion of premium products. Subsequently, this is expected to translate into enhanced ROCE from 16% in FY17 to 22% in FY20E. Given the strong revenue and earnings growth trajectory we continue to maintain our BUY recommendation with a target price of Rs 880 (31.0x FY20 EPS of Rs 28.4).

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