Buy Bata India; target of Rs 630: Axis Direct

Axis Direct's research report on Bata India

Sales grew 8.7% YoY despite consumer fatigue in Mar’17 after an extended End of Season Sale (EoSS). Gross margin declined 220bpsYoY on higher EoSS contribution, but EBITDA margin decline eased to 76bps on positive operating leverage (staff, rent, and other expenses down 40bps, 30bps, and 80bps YoY). Adj. PAT grew 27% on lower depreciation (driven by store rationalization) and high tax base.

Outlook

We see long-term benefits from key strategic changes like expanding into smaller cities through franchise model and focusing on increasing appeal to the youth and women (through higher advertising spends and new product launches). Even low- to mid-teen sales growth will help it to recover from 9-year low EBITDA margin of 11%. Maintain BUY with revised TP of Rs 630 based on 29x fwd P/E (Rs 580 earlier).