Bata India - Quarterly blip, future intact; Buy - Anand Rathi

Bata India's 3QCY12 revenue was Rs.4.3bn, up 15.1% yoy, in line with our estimates. It recorded the lowest ever margin of 13.1% (200bps lower then we estimated) post-Q3CY10, primarily on the rise in selling expenditure and rental costs. We believe 3QCY12 was bleak as festive sales (Deepawali, DurgaPuja) in CY12 were delayed by 15-20 days which resulted in a rise in selling expenditure in recording sales. This would be recorded in 4QCY12, against 3QCY11 last year. We revise our rating from Hold to BUY with target price of Rs.965.

- Sales rise of 15% yoy. 3QCY12 revenue was Rs.4.3bn, up 15.1% yoy, in line with our estimate. We do not see any major slowdown with respect to footwear sales especially in economy and mass footwear segment. The opening of stores (more than 130 stores opened this year) and the rise in revenue per store are likely to help achieve an 18% revenue CAGR over CY12-14e.

- On rising costs, drag in margin. EBIDTA margin in 3QCY12 was 13.1%, a 121-bp drop yoy and 381bps sequentially. The drop was due to a rise in selling expenditure and higher rental costs. We believe that key reasons for the margin drop were selling expenditure on sales (the shift of festival sales from 3QCY12 to 4QCY12) for inventory clearance and high rental cost. This resulted in net profit rising only marginally, by 5.4% yoy, to Rs.321m.

- Estimates lowered for CY12. We have cut CY12 EBITDA and net profit estimates 10.5% and 9.3% respectively, following the weak 3Q margin. Our CY13e EBITDA estimate is down ~3.5%. with no change in CY14e figures.

- Valuation. On account of the 11.2% stock correction from our initiating report, we revise our rating from a Hold to a Buy, with a revised price target of Rs.965 (14% upside). At Rs.965, the stock trades at 25x CY13x. Risk: Rise in raw material prices.

Source : Equity Bulls

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