Buy Bata India; target of Rs 650: ICICI Direct

ICICI Direct's research report on Bata India

At the company’s 84th annual general meeting (AGM), the management discussed various long term prospects. Bata plans to add 100 new company owned-company controlled (COCO) stores and around ~ 50 new franchisee outlets. The COCO stores are expected to open in malls and high street locations while the company will expand its presence in Tier II and Tier III cities via the franchisee route. Bata is planning to increase the share of women’s footwear from existing 26% to 35% over the next two years. To achieve the same, Bata is planning an aggressive advertising campaign to boost revenues from the women’s category.

Outlook

Since ~60% of the footwear industry is still dominated by unorganised players, GST would be positive for organised players like Bata as higher compliance cost for unorganised players would create a level playing field, which may lead to market share gains for Bata. The company’s efforts have been in the right direction with increasing focus on youth and women centric designs. In addition, Bata’s retail expansion via franchisee route in tier II and a tier III city augurs well. The company is planning to increase its advertisement spend as part of its brand building strategy. Aggressive retail expansion and enhanced product portfolio would aid in boosting revenue growth. We revise our revenues and earnings estimates upwards for FY19E. Accordingly, we upgrade the stock to BUY rating with a revised target price of Rs 650 (based on 30x FY19E EPS of Rs 21.7).