Bata India - Fleet of foot; initiating with Hold - Anand Rathi

Bata India (Bata) is the largest organised footwear player in the country, holding 15% share and distribution network of 1,300 stores. Currently, it is focused on large format store expansion in tier II and III cities. This, together with higher outsourcing of labour-intensive jobs, is likely to drive revenue and EPS CAGR of 19% and 25%, respectively, over CY11-13e. Also, margins are estimated to expand 400bps over CY11-14e. We initiate coverage on Bata with a Hold and TP of Rs.985.

- Focused on raising store count and value mix. Bata is now looking at net addition of 100 large format stores annually for the next two years in tier II and III cities. It is also eyeing to improve value mix of stores, with greater focus on the high-margin leather segment, together with enhancing revenue pie of accessories. Consequently, revenue per store is poised to rise to Rs.15.4m in CY14e from 10.8m in CY11.

- Higher share of outsourcing aiding growth. Rising footwear consumption and 100% capacity utilisation has created greater need for outsourcing (to 66% in CY14e from 38% in CY06, 58.9% in CY11). Same is the case for Bata, whose margins and return ratio have improved.

- Margins to continue upward march going forward. Margins have expanded 975bps during CY06-11 and are likely to improve a further 400bps (to 19.5%) in CY14e through fall in employee cost, spread of fixed overheads, better value mix and greater store efficiency.

- Valuation. We value Bata at target PE of 25x on CY13e EPS of Rs.39.3 and initiates with Hold rating on the stock with target price of Rs.985. Historically it has traded at 6-30x.At CMP of Rs.963, the stock is trading at PE of 20.7x on EPS Rs.46.5 for CY14e. Risk: Rise in input costs.

Source : Equity Bulls

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