Hold Bata India; target of Rs 1380: ICICI Direct

ICICI Direct's research report on Bata India

Results for Q1FY21 were materially impacted due to; a) closure of stores for major period during quarter (~45 days), b) absence of school shoes sale (that forms significant part of Q1 revenues), c) nearly non-existent demand for formal, fashion footwear categories. Q1FY21 revenue fell 85% YoY to Rs 135 crore (vs. estimated de-growth of 75% YoY). Post lockdown relaxations, stores re-opened gradually but operations were impacted owing to frequent lockdowns and restrictions mandated by local administrations. Bata undertook rationalisation of fixed overheads with employee & other expenses down 14% & 57% YoY to Rs 85 crore & Rs 56.0 crore, respectively. Further, it secured significant lease rental waivers (~50%) leading to cost saving of Rs 50.1 crore. Despite a sharp reduction in operating overheads, EBITDA losses came in higher than our estimates owing to significant contraction in gross margins (down 1430 bps YoY to 40.4%). Subsequently, EBITDA loss came in at Rs 86.1 crore (I-direct estimate: loss of Rs 56.2 crore). Though ~85% of stores are currently operational, we expect reinstatement to pre-Covid sales levels to take a couple of quarters.

Outlook

Bata has a debt free balance sheet with surplus cash at ~Rs 960 crore and a capital efficient business model. We believe with its strong brand patronage and pan-India retail reach, Bata India should be able to revive its revenue growth trajectory as and when the impact of the Covid-19 is phased out. We reiterate HOLD recommendation on the stock with a revised target price of Rs 1380 (40x FY22E EPS, previous TP: Rs 1430).

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