Hold Bata India; target of Rs 1430: ICICI Direct

Trade

• Watchlist
• Portfolio
• Message
• Set Alert

 

 

live

• bselive
• nselive

Volume

Todays L/H

More

×

ICICI Direct's research report on Bata India

The Covid-19 pandemic had an unprecedented impact on the retail industry, forcing temporary closure of physical stores from mid-March onwards in India. The same materially impacted Bata’s performance in Q4FY20. Revenues de-grew 8.8% YoY to Rs 619.7 crore (I-direct estimate: Rs 629.6 crore). The management highlighted that for January-February, revenue grew steadily by 8.0% YoY (implying revenue de-growth ~42% YoY in March). Gross margins continued their positive trajectory and expanded 170 bps YoY to 58.8% owing to increased share of premium products. However, due to negative operating leverage (employee & other expenses up 235 bps each), EBITDA margins contracted 360 bps YoY to 10.3% (I-direct estimate: 11.0%). Absolute EBITDA de-grew 32.3% YoY to Rs 64.0 crore. Lower other income (down 39% YoY to Rs 17.1 crore) and higher effective tax rate (33% vs. 16.1% in Q4FY19) further impacted PAT (down 50% YoY to Rs 44 crore).

Outlook

Owing to a weak Q4, Bata exited FY20 with moderate revenue growth rate of 4.3% YoY. Strategy of premiumising product portfolio has yielded positive results for Bata with gross margins expanding 430 bps to 57.6% in FY17-20. Unfavourable product mix (shift towards mass category) may deteriorate gross margins for FY21E. The company has re-negotiated rental agreement with ~50% of high street landlords for the next nine months and is in constant engagement with others for the same. We bake in revenue and PAT CAGR of 7% and 18%, respectively, over FY20-22E. Bata has a debt free balance sheet with surplus cash at ~Rs 960 crore and a capital efficient business model with a negative working capital cycle. We believe that with its strong brand patronage and pan-India retail reach, Bata India should be able to revive its revenue growth trajectory as and when the impact of the Covid-19 is phased out. We have a HOLD recommendation on the stock with a revised target price of Rs 1430 (40x FY22E EPS).

For all recommendations report, click here

Disclaimer: The views and investment tips expressed by investment experts/broking houses/rating agencies on moneycontrol.com are their own, and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.

Read More