IGI Logo

Strong store additions to drive future growth.

Bata India Ltd. (BIL) is the largest retailer and leading manufacturer of footwear in India, with 2,000+ retail stores as of March 2023.

* We upgrade the rating to BUY with a revised target price of Rs.1,826 (from Rs. 1,620), factoring improving outlook.

* Revenue grew by 17%YoY in Q4FY23, aided by an improvement in the premium mix. For FY23, volumes recovered to pre-Covid levels while average selling price (ASP) improved by ~15% YoY.

* Inflationary pressure and an increased GST rate impacted volumes in mass categories, which are likely to improve gradually.

* Gross margin improved by 80bps YoY to 58.4%YoY, while EBITDA margin declined by 130bps YoY to 23% due to higher other expenses.

* BIL targets ~500 franchisees by 2024. already opened 419 across 370 towns (330 QoQ). This, along with store renovation, portfolio casualization, and distribution expansion, will support volumes.

* Asset light retail expansion and cost efficiency measures will enhance margins. Given its strong brand recall & reach, we believe, BIL can revive its revenue growth trajectory. We value BIL at 47x on FY25 EPS.

Healthy topline growth

Q4FY23 revenue grew by 17% YoY, mainly due to an improvement in the premium mix. Mass categories witnessed sluggishness in demand due to inflationary pressure and an increased GST rate. Focus on the premium mix aided improvement in average selling price (ASP), which was up by ~15% YoY in FY23. The company is strongly focusing on network expansion to improve volumes. The distribution reach has now crossed 1,370+ towns (1,150 QoQ). BIL has strong focus on expansion via franchisee route. During Q3FY23, BIL added 27 franchise stores. The total number of franchise stores reached 419 vs. 303 in FY22 (370 towns covered Vs 275 in Q1FY23) and targets to reach 500 in 2024. Digital penetration increased to 12% from 5% in FY20. ‘Sneaker’ and Floats categories led the growth with 1.16x & 4.68x respectively, in FY23 compared to last year. Sneaker studios to display up to 300 styles across 9 brands crossed 500 vs. 353 QoQ. Strong focus on store expansion & distribution reach, along with strong marketing investments, will drive future volumes. We expect revenue to grow at a CAGR of ~12% over FY23E-25E.

Cost saving measures will drive sustainable margin expansion…

Gross margin improved by 80bps YoY to 58.4%, aided by an improvement in premium mix. However, EBITDA margin declined by 130bps YoY to 23% (22.9% QoQ), due to higher other expenses. PAT growth was lower on account of lower other income due to the special dividend payout by the company last year. BIL’s initiatives for an efficient supply chain, flexible retail manpower (15% currently vs. 3% pre-Covid and aiming for 25%), and technology initiatives with multiyear benefits, will support margin improvement going forward. BIL’s strong focus on adding franchise stores will control fixed costs

Valuation & Outlook

The demand is expected to improve as the inflation recedes. We believe, BIL has the capability to revive its revenue growth trajectory given its strong brand recall & distribution reach and strong balance sheet. The special dividend of Rs.50.5 in FY22 (dividend yield of ~3.8%), helped to recover the return ratios to pre-Covid levels. We upgrade the rating to BUY with a revised target of Rs. 1,826 (Rs. 1,620 earlier), valuing BIL at 47x on FY25E EPS.

To Read Complete Report & Disclaimer Click Here

For More Geojit Financial Services Ltd Disclaimer https://www.geojit.com/disclaimer 

SEBI Registration Number: INH200000345

Views express by all participants are for information & academic purpose only. Kindly read disclaimer before referring below views. Click Here For Disclaime