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Strong recovery, topline crossed pre-covid level…

Bata India Ltd (BIL) is the largest retailer and leading manufacturer of footwear in India with ~1,700 retail stores as of Dec 2021.

We maintain our Accumulate rating with a revised Target of Rs. 2,135 (Rs. 2,290 earlier) factoring strong sales recovery in the quarter.

Q3FY22 revenue grew by 37%YoY (+37%QoQ) on a low base (de-growth of 26% in Q3FY21) and crossed pre-covid level sales first time.

EBITDA improved by 44%YoY to Rs. 169cr while PAT grew by 180%YoY to Rs. 72cr. Gross margin/EBITDA margin improved to 52.7%/20.0% from 51.5%/19.1% YoY

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

Demand outlook is positive given ongoing vaccination, re-opening of markets and GoI’s strong focus to revive the economy.

We believe, BIL will be able to revive its revenue growth trajectory as the economy is back to normal given its strong brand recall & reach. We value BIL at 52x on FY24 EPS.

Strong recovery helped to cross pre-covid level sales

Q3FY22 revenue grew by 37% YoY (+37%QoQ) on a low base (de-growth of 26% in Q3FY21). With the re-opening of markets we expect the volumes to pick up going forward. Topline has crossed pre-covid level sales for the first time. The distribution reach has now crossed 1,000+ towns in Dec 2021 Vs 892 in 2020. To reach smaller towns, the company opens new stores via franchise route and ensures availability in multi-brand outlets via distribution channels. The total franchisee reached 284 (200+ towns covered) Vs 250 in Q2FY22 and targets to open 500 in smaller towns by 2023. The company had introduced other channels like Bata Chatshop, Bata Store on Wheels and has launched products to suit work from home, Fitness at home and Monsoon collection to push volumes during Covid period. We expect revenue to grow at ~23% CAGR over FY22E-24E

Cost saving measures will drive sustainable margin expansion…

BIL reported EBITDA growth of 44%YoY to Rs.169cr (+42%QoQ) supported by recovery in sales. Gross profit margin improved to 52.7% from 51.5% in YoY. Covid19 led disruption has changed the consumer preference and impacted the portfolio mix of the company, from Formals (including school business) & Fashion categories to Casual, Fitness & Essentials. This change in mix had negatively impacted the gross margin. However, ease in lockdowns has gradually improved the margins in subsequent period and is likely to improve the product mix going forward. BIL now strongly focuses on cost reduction measures across rentals, operations & manufacturing which will drive sustainable margin expansion when the economy comes back to normal. The company focuses on adding franchise stores and targets to open 500 by FY23 which will control rental cost (added 34 franchise stores in Q3FY22 Vs 16 in Q2FY22). Also, the company got rent concession for Rs. 54cr in 9MFY22 (Rs. 86cr in 9MFY21 & Rs. 101cr in FY21).

Valuation & Outlook

We believe, BIL has capability to revive its revenue growth trajectory when the economy is back to normal. The demand outlook is positive given ongoing vaccination, re-opening of markets and the strong thrust of the GoI to revive the economy. BIL has a strong brand recall & distribution reach and strong balance sheet. We maintain our Accumulate rating with a revised Target of Rs.2,135 (Rs. 2,290 earlier) by valuing at 52x on FY24E EPS, factoring strong sales recovery in the quarter

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