Target: ₹2,151
CMP: ₹1,865.05
We upgrade our rating on Bata India Ltd to Buy with a revised target of ₹2,151 factoring strong sales recovery in the quarter.
Strong recovery in demand along with price growth (19 per cent y-o-y) resulted in revenue growth of 253 per cent y-o-y (42 per cent q-o-q). On a 3 year CAGR basis, revenue grew by 2 per cent from Q1FY20. Higher volumes led to recovery in EBITDA margin to 25.9 per cent Vs loss y-o-y while gross margin improved by 40 bps y-o-y to 56.6 per cent, supported by changes in mix and price growth.
The company now strongly focuses on cost reduction measures across operations & manufacturing including variabilisation of costs which along with improving product mix will drive sustainable margin expansion as the economy comes back to normal. The company focuses on adding franchise stores which will control rental cost (added 75 franchise stores in FY22).
Bata’s cost-saving measures across operations & manufacturing will drive sustainable margin expansion in future while the demand outlook is positive given normalisation of the economy.
We believe, Bata India has capability to revive its revenue growth trajectory as the economy is back to normal. The demand outlook is positive given normalisation of markets and the strong thrust of the GoI to revive the economy. Bata India has a strong brand recall & distribution reach and strong balance sheet.