Accumulate Bata India; target of Rs 1670: Geojit

Geojit's research report on Bata India

Bata India Ltd. (BIL) is the largest retailer and leading manufacturer of footwear in India, with 1,835 retail store presence in 1518 towns (Dec 2023). We downgrade our rating to Accumulate with a revised target price of Rs.1,670, considering the demand weakness in mass market segment. Revenue growth was muted YoY in Q3FY24, impacted by weakness in the mass segment. However, premium segments recorded strong growth, resulting in gross margin improvement of 120bps YoY, while EBITDA margin declined by 280 bps YoY due to higher ad and IT spend. BIL adopts asset-light expansion, adding 90 franchisees in 9MFY24, totaling 509, will support growth. Digital sales, currently 6% of revenue, grow at double digits. BIL has recently signed a comprehensive licensing & manufacturing agreement for the global brand ‘Nine West’ and the launch is expected in Q4FY24. Bata has also forayed into apparel segment (Power brand), currently in 62 stores. Given its strong brand recall & reach, we believe, BIL can revive its revenue growth trajectory. We value BIL at 47x on FY26 EPS.

Outlook

The enhanced investments in technology and marketing, as well as tight control on overhead costs, are likely to bear fruits in the long run. We believe, BIL has the capability to revive its revenue growth trajectory given its strong brand recall & distribution reach and strong balance sheet. BIL currently trades at 49x 1Yr Fwd P/E. Considering the continued weakness in demand, we downgrade our rating to Accumulate (from BUY) with a revised target price of Rs. 1,670, valuing BIL at 47x on FY26E EPS.