Bata India Ltd. share price target

Bata India posted 49% YoY degrowth in Q2FY21 revenue, in-line with our estimates.

The management highlighted that smaller towns witnessed a faster recovery rate (~75% of pre-Covid levels) while Tier I cities (Bata's key markets) are picking up pace at a slower rate (~50% of pre-Covid sales). In a bid to strengthen its wholesale distribution channel (~12% of revenues), Bata has significantly ramped up its touch-points with the company now servicing ~30,000 multi-branded outlets (MBOs). This enables it to leverage its brand strength in Tier III-V towns. Apart from MBOs, Bata will continue penetrating in newer towns through franchise operated stores (opened 200th store in...

We turn positive on the stock from a long term perspective given immense growth potential and revise our rating from SELL to HOLD with TP of Rs. 1,308 (earlier Rs.1,150/share) and continue to value it at a target multiple of 40x PE its FY23E EPS.

Valuation and Risks: Good brand recognition, market share and being amongst the very few companiesin the listed space in footwear, the company would continue to hold premiumvaluations.

Bata's Q1FY21 was largely impacted by extended lockdowns across the country till the first week of May and significant disturbances during the remaining period led to the contraction of revenue and Gross Margins for Bata India. Revenue for Q1FY21 declined by 85% YoY to Rs 135 cr

We recommend a SELL on Bata India with a Target Price of Rs 1116 downside of 10% from CMP of Rs. 1240 and Stop Loss Rs 1302.

Q1FY21 revenue de-grew sharply by ~85% YoY owing to lock-down in April & May, and nil production due to Covid-19 pandemic. Usually Q1 is the strongest quarter on account of high demand due to school openings. However, the schools are now closed due to lock-down. Despite gradual relaxation in lockdowns, prevailing uncertainties are impacting the discretionary demand. Currently BIL's ~85% stores are open and the company has achieved ~35-40% of the pre-Covid business levels as per management. To generate demand in the current scenario, BIL has launched two new products to suit work at home, strengthening E-commerce channel, rolled out two new...

Bata generates ~50% of the revenues from premium category footwears (MRP> Rs 1000+) and largely operates through its wide retail network contributing ~84% to the revenues. We, Initiate coverage with SELL rating on the stock with a target price of Rs 1150 as we value the stock at 40x P/E on its FY23

Valuation and Risks:A cash rich and clean balance sheet, management with excellent track record and high brand recognition will help sustain valuations.

In view of the current situation, management stated that the company is expanding its e-commerce presence with enhancing online channels, allowing delivery in more than 1300 cities and rolling out home delivery. Additionally, the company is focused on several cost management efforts including rental negotiations, closure of unviable stores and thrust on digitization across the organization to boost...