Buy This Footwear Stock, Target Price Rs 2365: Edelweiss

Leading brokerage firm Edelweiss has recommended investors to buy the stock of Bata India for a target price of Rs 2365 with a potential gain of 19%.

According to Edelweiss, "Bata India (BATA)'s revenue grew by 2.5x YoY and 42% QoQ to INR943cr (7% higher than our estimate), led by pent-up demand for formal wear, continued momentum in sneaker shoes category and higher realisation on account of price hikes."

Bata India Stock Outlook

The current market price of the stock is Rs 1916 apiece with a 52-week high of Rs 2261 apiece and 52-week low of Rs 1608 apiece. The company has a market capitalization of Rs 24,635 crore. As per Edelweiss' latest report, if investors buy the stock at its current market price, it has the potential to surge to Rs 2365 apiece.

The stock has given a return of 182% in 5 years, 30% in 3 years, and 9% in 1 year.

Casuals and sneakers continue to drive growth

BATA is witnessing significant demand in fashionable, functional and comfortable footwear. As a result, BATA continued to focus on casual wear and sneakers category and invested in marketing campaigns to drive growth. The company opened 18 sneaker studios during the quarter, taking the total to 125 stores. The sneakers category now contributes ~19% to total revenue, ~4% higher than the pre-COVID-19 era.

BATA is focusing on multiple levers to grow the sneakers category, including designing collections, marketing and rollouts across various outlets.

Focus on store and distribution expansion

BATA continues to expand its reach through new franchisee stores and multi-brand outlets (MBOs). It opened 20+ new franchise stores (EBOs) in the quarter, taking the total to 323 with a target to reach 500 such stores over the next 2-3 years. BATA's MBO reach now stands at 30,000 outlets across ~1,100 towns.

The company's focus on extending distribution reach in smaller towns led to market-share gains from unorganised players. BATA is also focusing on a store renovation strategy to enhance customer experience, and renovated 64 stores during the quarter.

EBITDA and PAT of Bata India

Gross margin contracted by 97bps QoQ to 57% on account of RM cost inflation and unfavourable product mix. However, EBITDA grew by 51% QoQ to INR245cr, led by higher revenue, with EBITDA margin expansion of 157bps QoQ to 26% on account of savings in employee spend. PAT grew by 90% QoQ to INR119cr (6% higher than our estimate).

Valuation

According to Edelweiss, "Though BATA's ASP grew by 19% YoY (reflecting price hike on account of GST rate hikes and mitigation of RM inflation), its volumes are still a tad lower compared with pre-pandemic levels. We believe strong focus on formal, fitness and casual footwear, coupled with distribution expansion would help the company recoup lost volumes in the near term."

"Similarly, BATA's margins are at 90% of pre-pandemic levels on account of higher marketing spend during the quarter. We expect the company's margins to gradually improve and reach pre-pandemic levels by FY24E. We reaffirm our 'BUY' rating on BATA with a TP of INR2,365/share, valuing the company at 53x FY24E earnings."

About Bata India

Bata India is the largest retailer and leading manufacturer of footwear in India and is a part of the Bata Shoe Organization. Incorporated as Bata Shoe Company Private Limited in 1931, the company was set up initially as a small operation in Konnagar (near Calcutta) in 1932. In January 1934, the foundation stone for the first building of Bata's operation - now called the Bata. In the years that followed, the overall site was doubled in area. This township is popularly known as Batanagar. It was also the first manufacturing facility in the Indian shoe industry to receive the ISO: 9001 certification.

Disclaimer

The above stocks are picked from the brokerage report of Edelweiss Broking Ltd. Investing in equities poses a risk of financial losses. Investors must therefore exercise due caution. Greynium Information Technologies, the author, and the brokerage house are not liable for any losses caused as a result of decisions based on the article.