IGI Logo

Improved performance led by better gross margins

Bata India’s sales grew 13% YoY almost touching pre-Covid (4QFY19) sales level. Sales recovery was impacted by Omicron in Jan’22. This was second consecutive quarter wherein sales stood in-line to pre-pandemic quarter. Gross margins improved by 450bps led by better product mix. For FY22, sales/EBITDA grew by 40/156% respectively. We expect gradual sales recovery to continue with sequential improvement in margins. We maintain our stance that Bata’s growth, like in past, will be largely led by increase in ASP. Its growth will be restricted given the fewer COCO store additions. And lastly we believe that in sneakers category Bata’s positioning is relatively weak and hence may face headwind as it tries and scales up. We maintain our estimates and REDUCE rating. We continue to value the business at 48x FY24E eps with TP of Rs1884.

Growth led by Sneakerization, footprint expansion and e-com

Bata’s ASP is up by 16% on a run-rate basis of which price hikes would contribute ~10%. Rest of the increase is on account of better product mix. Improving contribution from sneakers category has led to better product mix. Current contribution from sneakers is at ~20% of total sales. Another lever for growth has been franchisee store and SIS (Shop in Shop) led expansion. Franchisee stores have increased from ~173 to 303 and SIS stores have increase from 136 to 236 over the last two years. Sales from e-commerce have gone 2.5x fold over FY20-22

MBO expansion underway

MBO expansion underway MBO business includes wholesale and SIS business. Wholesale business is the large part of MBO contribution while SIS at this point remains minuscule. Bata has increased town coverage from 687 to 1047 over FY19-22 while its access to wholesale distributor has improved from 19% to 32%. Growth is driven by Men’s Dress category. Company has also launched on a pilot basis Men’s/Ladies open value added range. Despite the aforementioned measures MBO’s contribution stood at 13-15%, which we estimate is marginal improvement over its historical contribution of 9-10%. We are of opinion that it is going to be difficult to maintain brand equity and at the same time growth through MBO route.

Volumes yet to recover fully

Bata’s sales growth of ~40% in FY22, albeit on a very low base, has been on account of both volume and ASP recovery. However, as per our estimates we believe that volumes have yet not recovered back to pre COVID levels and ~15% below the FY20 volume. School shoes, though has showed improved traction since the pandemic, and has yet to recover fully. We also believe that office footwear volumes would not have gone back to pre-pandemic levels. Another reason for lower volumes, as highlighted by the management, is company has vacated low price point SKUs. Also, since the growth is led by franchisee stores there will be gap between volume and value growth. We estimate CAGR 3% volume growth over FY20-24E.

Valuation

We maintain our estimates and REDUCE rating. We continue to value the business at 48x FY24E eps with TP of Rs1884. We believe positives for next two years are already factored in to the current market price.

To Read Complete Report & Disclaimer Click Here

For More Centrum Broking Disclaimer https://www.centrumbroking.com/disclaimer/

SEBI Registration No.:- INZ000205331

Above views are of the author and not of the website kindly read disclaimer