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Axis Securities Report
Bata India Ltd.'s result was below our/street estimates across all parameters. Bata India's revenue grew by a marginal 0.4% YoY (versus our estimate of 10% YoY) due to muted performance in the mass end of the portfolio. However, the premium portfolio continued to remain strong.
Gross margin was up by 127 basis points to 56.1%, improved on account of a better channel mix, prudent discounts, and efficient inventory management. Ebitda margin stood at 20.2% (down by 272 bps YoY) due to higher ad-spends and costs associated with enterprise resource planning implementation. Reported profit after tax at Rs 58 crore was down by 30% YoY mainly due to higher depreciation.
Outlook:
We remain positive on the long-term outlook of the company as its investment in back end processes will drive overall efficiency, and its efforts on premiumisation and casualisation strategy through fast-growing sneakers and franchise-led expansion in tier three-five towns will bear fruits in the longer run.
The company's focus on prudent expansion of the retail network and marketing investment is further aiding the positive outlook. However, the company is facing shortterm challenges such as:
A large part of the mass portfolio is still under pressure, and
The management's continued investments in strengthening systems and processes technology adoption will impact the margins in the short term.
Hence, we have maintained our wait-and-watch approach on the company and maintain our 'Hold' rating on the stock
Valuation and Recommendation:
We expect Bata's Sales/Ebitda/ profit after tax to grow at 8%/10%/14% compound annual growth rate over FY23-26E and maintain a 'Hold' rating on the stock with a revised target price of Rs 1520/share.
We value the company at 43 times December- 25 earning per share.
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