Store augmentation to augur growth… • Bata India :: ICICI Securities, report link

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Store augmentation to augur growth…
• Bata India’s (Bata) Q3CY14 revenues posted growth of 13.1% YoY to
| 547.7 crore (I-direct estimate: | 559.9 crore). Revenue growth was
aided by early arrival of the festive quarter
• EBITDA for the quarter remained flattish YoY at | 63.3 crore. On the
margin front, gross margin expanded 21 bps YoY to 54.2% whereas
the EBITDA margin contracted 146 bps to 11.6%. As Bata continues
to augment its stores, rental expenses impede the EBITDA growth
as well as margin
• PAT for the quarter stood at | 39 crore posting growth of ~4% YoY
(I-direct estimate: | 42 crore)
Addressing structural concerns to improve performance
Despite being one of the oldest footwear brands in India, Bata has
suffered due to an unfavourable impression of a perception drag and
been unable to connect with the youth. This was due to a number of
factors like (a) crowded store formats; (b) subdued store staff, (c) lack of
presence in the media, etc. However, Bata has started taking corrective
action. Apart from the changes made to the store sizes and the store staff,
Bata is also spending on the brand image enhancement. In March 2014, it
launched ad campaigns across various mediums to connect to the youth
and position itself differently. It also continues to widen its product
portfolio with the launch of accessories like sunglasses, belts, umbrellas
etc. The management is planning to open new format stores, offer
aspirational designs and enhancing the product portfolio with wider range
of designs.
Volume growth to pick up driven by aggressive store addition
Over the last seven years, Bata’s revenues have grown at 15.4%CAGR.
This growth came on the back of an improving product mix, which aided
the company to report realisation growth of 10.9% in the period.
Volumes, on the other hand, increased a mere 3.6%. Going forward, we
expect Bata to maintain the growth rate and report a revenue CAGR of
14.9% contributed equally by volume and value growth (CY13-16E).
Going forward, we expect the retail expansion (store addition plans of
~100 stores each year) and the launch of new products to aid the growth.
Improving financials warrant a re-rating
Over the years, Bata has maintained a steady state topline growth of
~16%. However, its operating margin has expanded from 7.9% in CY07
to 16.2% in CY13 on the back of an improving product mix and improved
operational efficiency. Also, return ratios have improved on the back of
improved profitability. We expect the revenue growth momentum to
continue and expect operating margin to expand in CY15E and CY16E. On
the back of improving financials and consistent growth, we believe Bata is
a re-rating candidate.
Structural changes to improve financial performance; maintain BUY
We expect Bata to continue to command a better multiple than its peers
not only because of its size but also owing to the better financial health.
While 9MCY14 has been relatively slow, we remain hopeful of a revival
from CY15E onwards as the company’s brand building efforts fructify and
also the consumer sentiment revives. We, thereby, maintain our BUY
rating on the stock with a revised target price of | 1,450 (based on 30.0x
CY16E EPS of | 48.3).
LINK
http://content.icicidirect.com/mailimages/IDirect_BataIndia_Q3CY14.pdf