Buy Bata India; target of Rs 805: PINC Research

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Buy Bata India; target of Rs 805: PINC Research

PINC Research is bullish on Bata India and has recommended buy rating on the stock with a target of Rs 805 in its February 29, 2012 research report.

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PINC Research is bullish on Bata India and has recommended buy rating on the stock with a target of Rs 805 in its February 29, 2012 research report.

"Bata's Q4CY11 revenue stood Rs4.3bn, up 20.5% YoY and in line with our estimate. It recorded highest ever margin (post business restructuring) of 17.1% which is 60/270bps up YoY/QoQ. PAT increased by 31%YoY to Rs451mn and was 8.3% ahead of our estimate. We like Bata primarily because of (1) its strategy to focus on improving the per store sales (expect to improve to Rs15mn in CY13E from Rs11.5mn in CY11E) through better value mix and improving operational efficiency, (2) focus on outsourcing model to rationalise employee cost, (3) expected margin expansion by 280bps over CY11-13E on account of improvement in value mix (improving leather and industrial business pie) and outsourcing and (4) expected RoE and RoCE of 29.5% and 29.3% respectively in CY13E. Given the strong quarterly performance and expected improvement in working capital and margins going ahead, we maintain our 'BUY' recommendation on the stock and assign a 1-year forward multiple of 21x (from 19x) to arrive at a revised TP of Rs805 (Rs730 previously)."

"Bata's Q4CY11 revenue stood Rs4.3bn, up 20.5% YoY and in line with our estimate. It recorded highest ever margin (post business restructuring) of 17.1% which is 60/ 270bps up YoY/QoQ. We believe this improvement was primarily due to improvement in per store sale, reduced employee cost (11.9% in CY11 v/s 13.9% in CY10) and better product mix. PAT increased by 31%YoY to Rs451mn and was 8.3% ahead of our estimate. Average tax rate during CY11 was lower YoY due to LTCG being applicable on sale of Batanagar property in Q1CY11. Over CY11, Bata's B/S has improved with average working capital days improving to 73 days as against 94 days in CY10.We believe fall in inventory days is primarily on account of substantial reduction in WIP of property business and clearance sale during Q4CY11. The company is continuously investing in opening new stores (net fixed assets increased from Rs1.6bn in CY10 to Rs2.3bn in CY11) and is closing down cash drain stores (~2-2.5% of total stores). This has also resulted in improvement in per store sales and margins."

"Given the strong quarterly performance and expected improvement in working capital and margins, we maintain our 'BUY' recommendation on the stock and assign a 1-year forward multiple of 21x (from 19x) to arrive at a revised TP of Rs805 (Rs730 previously)," says PINC Research report.

Institutional holding more than 40% in Indian cos

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