Hold Bata India; target of Rs 1430: ICICI Direct

ICICI Direct's research report on Bata India

Bata’s revenue trajectory moderated in Q4FY19 (after reporting double digit revenue growth in the past two quarters) with growth of 7.4% YoY to Rs 679.4 crore. The management highlighted that retail sales (85% of revenues) continued to see 11% revenue growth (SSSG: ~7%). However, absence of one-off institutional order worth ~Rs 20 crore and subdued performance in e-commerce channel (due to regulatory changes) impacted overall revenue growth. EBITDA margins for the quarter improved 90 bps YoY 13.9%, mainly driven by gross margin expansion to the tune of 120 bps YoY 57.1% (on account of higher proportion of value added products in the revenue mix). Higher other income and lower effective tax rate further boosted PAT growth (up 69.6% YoY to Rs 88.3 crore).

Outlook

Bata has a robust balance sheet having healthy cash and bank balance worth Rs 839.0 crore and negative working capital cycle. Efforts towards premiumisation of product portfolio yielded better profitability for Bata over the last couple of years with RoCE improving significantly from 16.0% in FY17 to 23.7% in FY19. We anticipate healthy revenue trajectory for Bata will sustain, driven by enhanced focus on fast growing categories such as sports, youth and women and swift pace of store additions. Furthermore, scaling up of premium products (currently at ~30%) and controlled operational cost structure are key triggers for steady margin expansion. We model in revenue and PAT CAGR of 13% and 18%, respectively, in FY19-21E. Bata is currently quoting at valuation of ~37x P/E on FY21E EPS. We have a HOLD rating on the stock with a revised target price of Rs 1430 (40.0x FY21 EPS of Rs 35.8).

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