Buy This Multibagger Midcap Stock, Q2 FY23 Revenue Grew 35% YoY, Buy For 29% Gains: Geojit

Analyst at leading brokerage firm Geojit in Retail Equity Research report on Bata India Limited (BIL) has placed a buy call on the stock of the company with a target price of Rs 2,155 apiece. The brokerage, considering the given target price, claims a potential upside of 29% from its current level.

Bata India Ltd (BIL) is the largest retailer and leading manufacturer of footwear in India, with ~1,950 retail stores as of September 2022. Given its strong brand recall & reach, the brokerage believe, BIL is capable of reviving its revenue growth trajectory. BIL is a Midcap footwear company having a market cap of Rs 21,580.42 crore.

Stock Outlook & Returns on Investment

The Bata's stock last traded on NSE at Rs 1,679.05 apiece, gaining 020% compared to its previous close. Its 52-week high level was recorded on 31 January 2022 at Rs 2,122 and its 52-week low was recorded on 17 June 2022 at Rs 1,607.45, respectively.

It has fallen 3.24% in the past 5 days, whereas, 7.32% in the past 1 month. It fell 11.59% in the past 3 months and 15.48% in the past 1 year, respectively. Over the past 3 years, it fell by 0.53%. However, in the past 5 years, it has given 128.09% multibagger returns.

Strong revenue growth

Q2FY23 revenue grew by 35% YoY, aided by growth in both volume and price. The casualization of the product portfolio supported growth, though the mass categories witnessed sluggish volumes due to inflationary pressure. The company is focusing on network expansion to improve volumes. The distribution reach has now crossed 1,100 towns Vs 966 YoY. During Q2FY23, BIL added 10 own stores, 30 franchise stores and 28 shop-in-shop (SIS). Total number of franchise stores reached 353 vs. 303 in FY22 (300+ towns covered Vs 275 in Q1FY23) and targets to open 500 by 2024. The digital penetration increased to 11% Vs 5% in FY20. Continued growth of 'Sneaker' category led the growth recovery. BIL has added 250 (125 QoQ) sneaker studios to display up to 300 styles across 9 brands. Focus on expanding distribution reach, including digital, along with strong marketing investments and casualization of products portfolio will drive volumes. We expect revenue to grow at a CAGR of ~31% over FY22E-24E.

Cost saving measures will drive sustainable margin expansion...

EBITDA grew by 35%YoY, supported by an improvement in gross margin (+210bps YoY to 55%) largely aided by price hike. Input prices have begun softening but are still at higher levels compared to pre-covid period. BIL now strongly focuses on cost reduction measures across operations & manufacturing, which, along with improving product mix and receding inflation will drive margin expansion going forward. Initiatives for efficient supply chain like regional sourcing for bringing the supply closer to demand clusters, flexible retail manpower (15% currently), significant technology initiatives with multiyear benefits, will support margin improvement. BIL's strong focus on adding franchise stores will control rental cost (added 50 franchise stores in H1FY23 vs. 75 in FY22 and targets 500 by 2024).

Valuation & Outlook

Geojit has said, "We believe, BIL has the capability to revive its revenue growth trajectory as the economy is back to normal. The demand outlook is positive given normalisation of markets and receding inflation. BIL has a strong brand recall & distribution reach and strong balance sheet. The company has paid a special dividend of Rs.50.5 apart from the normal dividend of Rs.4 (dividend yield of ~3%), which will improve the return ratios going forward. We maintain our BUY rating with a revised Target of Rs. 2,155 by valuing at 47x on FY25E EPS, factoring strong sales recovery and softening inflation."

Disclaimer

The stock has been picked from the brokerage report of Geojit. Greynium Information Technologies, the Author, and the respective Brokerage house are not liable for any losses caused as a result of decisions based on the article. Goodreturns.in advises users to check with certified experts before making any investment decision.