01-01-1970 12:00 AM | Source: Geojit Financial Services Ltd
Mid Cap : Accumulate Bata India Ltd For Target Rs. 1,750 - Geojit Financial
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On the recovery path to normalcy…

Bata India Ltd (BIL) is the largest retailer and leading manufacturer of footwear in India with ~1,600 retail stores as of Dec 2020.

* We upgrade to Accumulate rating with a revised Target of Rs.1,750 (earlier Rs1,480) factoring volumes nearing pre-Covid levels.

* Q3FY21 revenue de-grew by 26%YoY, however, sequential growth was strong at +67%, indicating gradual recovery.

* EBITDA margin improved from 4.9% to 19.1% QoQ which is encouraging though it declined by 1,250bps on YoY basis. PAT was Rs.25.8cr compared to losses in the last two quarters.

* BIL’s cost saving measures across rentals, operations & manufacturing will drive sustainable margin expansion in future.

* Demand outlook is positive given GoI’s strong focus to revive the economy and vaccine rollout. Expect revenue/PAT to grow at 11%/8% CAGR over FY20-23E.

* We believe, BIL will be able to revive its revenue growth trajectory when the economy is back to normal. We value BIL at 53x on FY23 EPS.

 

Volumes nearing pre-Covid levels led by channel expansion

Q3FY21 revenue de-grew by ~26% YoY owing to Covid-19 led disruption, but on a sequential basis, growth was strong at +67% supported by festival demand and company’s channel expansion initiatives. The overall volumes reached 88% of preCovid levels. Sales through digitally enabled platforms now contributes ~15% of total revenue (10% in Q2FY21). For strengthening E-commerce channel, BIL rolled out ‘Bata ChatShop’, ‘Bata Home Delivery’ & ‘Bata Stores on Wheels’. To reach smaller towns, the company opens new stores via franchise route and ensures availability in multi-brand outlets via distribution channels. BIL opened 45 new franchise stores in the quarter taking the total franchisee to 221 and targets to open 500 in smaller towns by 2023. To generate demand in the current scenario, BIL has launched two new products to suit work at home. As the economy is coming back to normal, the company witnesses pick up also in Institutional channels and won orders from cement, steel & railway sectors. We expect revenue to grow at ~11% CAGR over FY20-23E.

 

EBITDA margin improves sequentially…

Covid-19 led disruption has changed the consumer preference and impacted the portfolio mix of the company. Formals (including school business) & Fashion categories continue to be subdued while Casual Fitness & Essentials are witnessing more demand. This change in portfolio mix has negatively impacted the gross margin (declined to 51.5% in Q3FY21 from 60.7% YoY). Due to high fixed cost structure of the company, EBITDA margin declined steeply (-1,250bps). However, the sequential improvement was significant (19.1% Vs 4.9% QoQ) aided by gradual improvement in volumes and cost saving measures. PAT was Rs.25cr compared to loss in previous two quarters. BIL now strongly focuses on cost reduction measures across rentals, operations & manufacturing which will drive sustainable margin expansion in future when the economy comes back to normal. During the 9MFY21, the company got rent concession for Rs.86cr

 

Valuation & Outlook

We believe, BIL will be able to revive its revenue growth trajectory when the economy is back to normal. The demand outlook is positive given the strong thrust of the GoI to revive the economy in the Union budget. BIL has strong cash balance of ~Rs.960cr. Factoring recovery, we upgrade to Accumulate rating with a revised Target of Rs.1,750 (earlier Rs1,480) by valuing at 53x on FY23E PE.

 

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