Hold Bata; target of Rs 1650: ICICI Direct

ICICI Direct's research report on Bata

BATA’s revenue performance has been decent on SSSG front (-9% our estimate vs -12% for Metro) while retail expansion (at 11%) continues to be modest. Revenue growth at 2% YoY is un-exciting. Improvement in ASP (3%YoY) instills confidence in the execution of casualisation and premiumisation initiatives. However, early EOSS negatively impacted the operating profit margins. Compared to peers, deceleration in gross margin has been sharp (likely impact of high-intensity discounting). Aggressive expansion through franchise and SIS route (capital light) is positive but yet to yield result (despite doubling of franchise and SIS stores, margins remain below pre-COVID levels). We believe, while Bata’s focus on premiumisation, improving brand perception and expanding distribution are steps in the right direction, there will be challenges along the way. HOLD.

Outlook

We have cut our earnings estimates for FY24-25E by 12% and 6% respectively, modelling revenue / EBITDA / PAT CAGR of 11 / 14 / 25 (%) over FY23-25E. Maintain HOLD with a DCF-based revised target price of INR 1,650 (vs INR 1,500). At our target price, the stock will trade at 38x P/E multiple Mar-25E. Key upside risk is faster-thananticipated recovery in discretionary demand. Key downside risk is increase in competitive intensity.