Top Brokerage Suggests Buy This Multibagger Mid Cap Footwear Stock, Sees 23% Upside

Axis Securities has recommended 'buy' Bata India Limited for a target price of Rs 2,200 per share, for a potential upside of up to 23% in 12 months. Bata India is among the brokerage's top picks for October 2022. Bata India is a leading Mid cap footwear company in India with a market cap of Rs 23, 162.59 crores.

Business Overview

Bata India Ltd. (Bata) stands among the most trusted branded footwear company in India. Having an extensive presence of over 85 years in the industry, the company offers footwear and accessories for the entire family. Its products are available across all price points from mass and mid-premium to premium. The company has a robust brand portfolio that comprises Bata, Bata Comfit, Bubblegummers, Hush Puppies, Scholl, Power, Weinbrenner and Naturalizer and Disney. Bata has a market share of 15% in the organized market and is present across 1500+ retail stores. Moreover, it sells through 25,000 MBOs and e-commerce platforms.

Stock Outlook & Returns

The current market price (CMP) of the Bata India stock on the NSE is Rs 1,799.15 per share. On NSE, the stock's 52 week low level is Rs 1,607.45, which was recorded on 17 June 202, and its 52 week high level is Rs 2,262, recorded on 16 November 2022, respectively.

In terms of return over the past 1 month, it has given a negative return of 6.05%. The stock in the past one year, has given 13.76% negative return. It has given 5.1% positive return in the past 3 months. In the past 5 years, it has given 132.3% multibagger return.

Post pandemic, organized players will come out stronger

Sales are expected to start kicking in due to overall pent-up demand and the opening up of the economy as large part of pent up demand still pending. Weaker unorganized players are expected to lose market share due to higher RM inflation and the pandemic has made them weaker on account of which organized players such as Bata are likely to get the benefit.

Low per-capital annual footwear consumption

India's per capita annual footwear consumption is very low at ~1.9 pairs compared to countries like China (3.3 pairs), Brazil (4.3 pairs), the USA (8.1 pairs) and the UK (6.2 pairs). The global average per capita annual consumption stood ~3.2 pairs for 2019, providing significant growth headroom.

Strong growth in India's Footwear Industry

India is the 2ndlargest global producer of footwear after China, accounting for 13% of global footwear production. The Indian Footwear market is estimated to grow at 8%/17% CAGR in volume/value terms over FY20-25E, driven by rising disposable income, increased consumer spending, healthy growth in ASPs, and modernization of the shopping experience. This growth will further be driven by the branded retail footwear market which currently has a share of 45% while unorganized players' share is 55%.

Aggressive distribution expansion to drive growth

Bata has been guided to expand its footprint across channels. It currently has ~1600 EBOs (1284+ company stores and 323+franchise stores) with ~33% of sales coming from the top 10 metros. The company has expanded its MBO reach to 1079 towns. Furthermore, it targets to add 500 asset-light franchise outlets in FY23-24.

Digital and Omni channel to provide growth impetus

Post pandemic, most companies have focused on reaching out to consumers through the omnichannel strategy including digital (e-commerce). Bata's omnichannel initiatives allow consumers to get home delivery from stores. Its endless aisle initiative makes all of the 7000+ styles available to the consumer, thus ensuring no sales loss for want of size or SKU. Apart from its own website, Bata's products are also available on other leading e-com platforms such as Amazon, Myntra, and Flipkart.

Valuation, Outlook, & Key Risks

According to the brokerage, Bata has maintained healthy operating cashflows and EBITDA Margins over the years, making it a capital-efficient business. In Q4FY22, the company's operations witnessed a healthy revival along with higher throughput per store and efficient capital allocation. "We believe a strong balance sheet with efficient working capital should help Bata to sail through the current situation smoothly. We expect the company to be a beneficiary of market share gains given store expansion in lower-tier cities where the unorganized segment is dominant and who would face pressure on passing on RM inflation through price hikes. We remain positive on the stock from a long-term perspective given its immense growth potential. Maintain BUY with Target Price of Rs 2,200/share and assign a PE of 43x FY24E EPS," the brokerage said.

According to the brokerage, the key risks are: a) Decline in discretionary spends, b) RM pressures, c) Higher discounting, and d) higher competition.

Disclaimer

The stock has been picked from the brokerage report of Axis Securities. 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.