Target: ₹1,620
CMP: ₹1,431.80
Bata India Ltd. (BIL) is the largest retailer and leading manufacturer of footwear in India, with 2,000+ retail stores as of December 2022.
We downgrade to Accumulate rating (from Buy) and revise our target price to ₹1,620 (from ₹2,155), factoring current weak demand. Revenue grew by 7 per cebt YoY aided by an improvement in the premium mix.
Average selling price (ASP) improved by 13 per cent y-o-y to ₹772. Inflationary pressure and an increased GST rate impacted volumes in mass categories, which is likely to improve gradually. Gross margin improved by 210 bps y-o-y to 54.8 per cent y-o-y, while EBITDA margin improved by 290 bps y-o-y to 22.9 per cent abetted by improved ASP and cost optimisation measures.
Bata India targets about 500 franchisees by 2024 and has already opened 392 across 330 towns. This, along with store renovation, portfolio casualisation, and distribution expansion will support volumes. Measures to improve the supply chain and asset light retail expansion, will enhance margins.
Given its strong brand recall & reach, we believe, the company can revive its revenue growth trajectory. We value BIL at 43x on FY25 EPS.