Dolat Capital is bearish on Bata India has recommended sell rating on the stock with a target price of Rs 1040 in its research report dated May 25, 2020.
Dolat Capital's research report on Bata India
Bata’s Q4FY20 financial performance was below our estimate. Lock down not only impacted the revenue performance but also impaired margins significantly. Given that 25-30% of Bata stores are in malls, the company would take longer to witness revamp in footfalls, which would severely impact profitability. Bata witnessed strong revenue growth in past couple of years, mainly led by increase in ASP’s. We believe that the expected downtrading would pressurize ASP’s going ahead. hough significant negative impact is expected on sales; costs like rent, other operation related costs would not decline in the same proportion. Hence Bata would take abnormally longer time to restore margins posted in pre-Covid period. We have revised our FY21E and FY22E EPS estimates at Rs 20.8 (-28.3%) and Rs 23.1 (-26.1%), respectively. We believe that the company would suffer due to 1) restrictions on footfalls in malls, 2) unfavorable base, 3) expected downtrading and 4) less scope for further growth in ASP’s, given unfavorable economic environment.
In addition, we believe that the re-negotiation in rent structure would be a challenge for Bata, which would hamper operational performance and profitability. We value Bata at 45x FY22E EPS to arrive at a TP of Rs 1040. Downgrade to SELL.
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