Stock To Buy: This Mid Cap Footwear Stock Likely To Gain 26%, Gave Over 175% Returns In 5 Years

Sharekhan, a leading brokerage firm, has recently published a report on Bata India Limited, where the brokerage suggests buy the stocks of the company for a target price of 2,370 apiece. Investors buying the stocks of the company at the current share price can expect a return of in price around 27% in 12 months, considering the brokerage's target price.

Bata India (Bata) clocked its highest-ever quarterly revenues at Rs. 943 crores; growth of 3.5x on a y-o-y basis (3-year CAGR stood at 7%) driven by improved footfalls, strong traction in casualisation and women footwear and a wider retail footprint.

Stock outlook

August 23, Tuesday, Bata India's current share price is Rs 1,869 apiece, trading 0.70% up. It was opened at Rs 1,852.05.

Currently, the stocks are trading Rs 276.90 apiece above the 52-week low and Rs 393 below the 52-week high respectively.

The 52 week low of the stock is Rs 1,592.10 apiece recorded on 31 August 2021 and the 52-week high is Rs 2,262 apiece recorded on 15 November 2021, respectively.

Returns on investment

The shares of the company in the past 1 week jumped 2.31% and 5.84% in the past 1 month, respectively. Over the past 1 year, the shares gained nearly 8.12% and 26.08% in the past 3 years, respectively. In the past 5 years, the shares surged 175.46%, giving multibagger returns.

Other Details

Bata India Limited is a mid-cap footwear company having a market capitalization of Rs 24,035.29 crore.

TTM PE ratio is 82.20. The P/B ratio is 13.23. TTM EPS is Rs 22.71. ROE Is 5.67%. The dividend yield is 2.92% and the face value is Rs 5. The debt to equity ratio is 0.

Revenues cross pre-COVID levels; strong momentum to sustain

Bata India's (Bata's) revenues beat pre-pandemic levels for the third consecutive quarter registering 3.5x y-o-y growth to Rs. 943 crore driven by higher footfalls, network expansion, relevant communication and portfolio casualization. Favourable revenue mix and various cost saving initiatives led to 45 bps y-o-y expansion in gross margin despite increase in raw material prices. EBITDA margin came in at 25.9% against a loss in Q1FY2022. EBIDTA stood at Rs. 244.7 crore versus a loss of Rs. 34 crore in Q1FY2022 and the adjusted PAT came in at Rs. 119.4 crore against a loss of Rs. 71.3 crore in Q1FY2022. The company added 74 stores and total number stores as on June, 2022 stood at 1,888 stores (68% of stores are COCO stores).

Key positives & Key negatives

According to the brokerage, the key positives are:

• Sneaker category contribution gone up by 400 bps to 17% vs. pre-COVID levels.
• E-commerce channel reported y-o-y growth of 2.7x.
• Bata in registered ~19% higher Average Selling Price (ASP) over Q1FY2022.

According to the brokerage, the Key negative is EBIDTA margins 160 bps lower compared to pre-COVID levels.

Management Commentary

Q1FY2023 revenue growth (excluding school shoes sales; 9% of revenues in Q1FY2023) was in strong double-digit on back of portfolio casualization, digital footprint expansion and consumer-relevant communication. Retail sales were lower compared to pre-COVID levels as the company close large number of non-profitability COCO stores. It expects like-to-like retail sales growth to improve in the coming quarters.

Sneakers, women's footwear and brands such as Hush Puppies registered strong double-digit growth in Q1. The company is focusing on re-engineering product portfolio at the mass end of the category, which is a laggard that is affecting overall revenue growth.

Footwear demand is strong and the company is banking on freshness of portfolio, consumer/market
investments (advertisement and promotional spends as % of sales stood at 5% of revenues in Q1) and higher sales on digital platform to drive consistent revenue growth in the coming quarters. Further, the company is focusing on improving the sales per retail store by through restructuring the retail staff per store, improving the customer satisfaction and optimising staff strengths during the festivals and key periods.

Bata's EBIDTA margins stood lower compared to pre-COVID levels. The company is focusing on variabilisation of the cost (including employee cost), improved product mix to high-margin products, increase in contribution of sales through franchisee stores and various cost efficiencies measures to improve the margins in the coming years.

Bata added 74 stores in Q1FY2023 with total number of stores at 1,888. Around 68% of stores are company-owned stores (COCO). It maintained its thrust on retail expansion drive in tier 3-5 cities through the franchise route adding 20 franchisee stores (net) during Q1FY2023, taking the total tally to 323 stores across more than 275 towns at Q1FY2023-end.

Revision in earnings estimates

The brokerage said, "We have fine-tuned our earnings estimates for FY2023 and FY2024. We expect Bata to cross pre-COVID-level sales by FY2023 and delivering consistent revenue growth in the medium term on back of its key growth levers."

 

Maintain Buy with an unchanged price target of Rs. 2,370

Bata will be one of the key beneficiary of strong revival in out-of-home consumption. New leadership is focusing on growth levers such as casualization of portfolio, expanding retail footprint through franchisee route and scaling up the digital revenues to drive consistent revenue and earnings growth in the medium to long term. "Stock trades at 60.6x/42.6x its FY2023E/24E EPS and 27.2x/21.2x it's FY2023E/24E EV/EBITDA. We maintain our Buy recommendation on the stock with an unchanged price target of Rs. 2,370," the brokerage said.

Disclaimer

The stock has been picked from the brokerage report of Sharekhan. 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 taking any investment decision.