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Premiumisation focus will improve margins.

Bata India Ltd. (BIL) is the largest retailer and leading manufacturer of footwear in India, with 1,916 retail store presence in 1,548 towns.

* We maintain our rating as Accumulate with a target price of Rs.1,689, considering the expected gradual improvement in demand.

* Volumes declined in Q1FY25 resulting in a revenue de-growth of 1.4% YoY driven by factors like heat wave and elections. However premium segments continued to perform well.

* EBITDA margin declined by 540 bps YoY due to higher ad and IT spend in which the major ERP spending has been completed this quarter which will normalise margins going forward.

* BIL adopts asset-light expansion, adding 33 franchisees in Q1FY25, totaling 566 and has a strong focus on E-commerce, store renovation with a thrust on portfolio newness.

* BIL has a strong focus on premium brands (40% mix) like Hush Puppies, Power, Nine West etc. will give better margins. BIL has launched its second Power EBO (exclusive brand outlets) in NCR and plans to expand to 15 stores by Dec’24.

* Given its strong brand recall & reach, we believe, BIL can revive its revenue growth trajectory. Expect revenue/PAT to grow at 9%/21% CAGR over FY24-26E. We value BIL at 52x on Sept 2026 EPS.

Premium categories help to achieve marginal revenue growth

Revenue dropped by 1.4% YoY to Rs. 945 cr dragged by factors like heat wave and elections. However premium segments continued to perform well. Capacity utilization was the best in 6 quarters. With a strong focus on network expansion, the distribution reach has now reached 1,548 towns. With asset light focus, BIL added 33 franchise stores in Q1FY25, and the total number of franchise stores reached 566 (vs. 448 YoY). Half of the franchise additions are coming from existing partners, which underscores the success of franchise channel. Bata’s strong focus on store expansion & distribution reach, along with marketing investments, will drive future volumes. The company has launched its second Power EBO (exclusive brand outlets) in NCR and plans to expand to 15 stores by Dec’24. The Power apparel segment is currently present in 70 stores. The management aims to reach 100 stores by December 2024. The company is planning 2 large product launches with distinct user benefits in Q2FY25. Considerable effort and investments have gone into sneakerization, casualization and fashion which would drive future volumes

Operating margin impacted by higher spend on IT and marketing.

EBITDA margin contracted by 540bps YoY to 19.6% on account of higher expenditure on marketing and IT. Other expenses rose by ~18% YoY due to this. The major ERP spending has been completed this quarter which will normalise margins going forward. BIL’s efforts on premiumization and cost optimization will support gradual margin improvement. The company's ERP module implementation will help in the improvement of inventory management, decision-making, and margins.

Valuation & Outlook

The enhanced investments in premiumization, technology, marketing, cost optimization, along with strong store additions are likely to bear fruits in the long run. We believe BIL has the capability to revive its revenue growth trajectory given its strong brand recall & distribution reach, and strong balance sheet. We maintain our Accumulate rating with a revised target price of Rs. 1,689, valuing BIL at 52x on Sept 2026 EPS.

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