Bata India’s stock hit 52-week high of ₹859 on Wednesday on the BSE. Select analysts recently met the company management, which shared its gigantic plans. The company, largest Indian footwear retailer, plans to rebuild its image, offer better products (premiumisation), launch new products, enter new categories and add new stores among others, which all in turn will boost financial performance.

Besides, factors such as implementation of GST, increase in household income and rising brand consciousness amongst Indian consumers is already helping the organised players such as Bata gain from shift in demand from un-organised players.

Bata derives 70 per cent of its revenue from men and kids while the balance (30 per cent) from women’s segment (high growth category). The company plans the latter’s share to 40 per cent in the next three years as the segment is growing at more than 20 per cent.

Growth via ad spends

The company is embarking on celebrity endorsements for the first time after many years and has stepped-up spending on advertising with celebrity endorsers such as Smriti Mandhana — opener of the Indian women’s cricket team, and Bollywood actress Kriti Sanon. The management also indicated that a male celebrity endorser will also come on board towards the end of 2018.

Bata plans to almost triple its advertising spend to 2.5 to 3 per cent in FY19 from 1 per cent earlier. “Our re-rating has been driven by expectation of BIL getting into a virtuous cycle where higher footfalls driven by advertising will lead to higher pick up in same-store sales growth (SSG).

This along with revenue mix shifting towards premium products will help fund higher brand spending coupled with margin expansion. We believe it could help push Bata India revenue growth to low-mid teens and earnings growth to mid-high teens on a sustainable basis,” said Girish Pai, Head of Research at Nirmal Bang .

Currently, the company has 1,400 retail stores, which includes owned and franchise model (mainly presence in metro cities). It plans to add 500 stores (already identified 435 cities) mainly in Tier 2 and Tier 3 cities over the next 4-5 years.

Bata has plans to increase share of premium product such as Hush Puppies, Power, Marie Clarie,etc from current level of 40 per cent over next two years.

Nirmal Bang upgrades PE

The stock has gained 58 per cent in the last one year and analysts see further upside potential.

Girish Pai has upgraded FY20 price-to-earnings multiple on the stock to 36 times from 32 times earlier and hence revised its target price on the stock by 15 per cent to ₹952. “After the meeting we have upgraded our revenue and EPS estimates for FY19 and FY20 slightly. We now expect revenue/EBITDA/PAT CAGR over FY18-FY21 of 14 per cent, 19 per cent and 22 per cent, respectively, at a pre-tax RoIC of greater than 35 per cent during this period,” he said.

Earlier, Amarjeet S Maurya, analyst at Angel Broking initiated ‘buy’ rating on the stock with a target price of ₹896 and expects Bata’s revenue and profit to grow at a CAGR of 16 per cent and 19 per cent respectively between FY18 and FY20.

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