Bata India - 2QCY13 results - Nirmal Bang Institutional

With 38bps/23bps rise in operating margin compared to our/Bloomberg consensus estimates, respectively, coupled with higher other income and a lower tax rate, net profit of Bata India (BIL) for 2QCY13 increased by 17.6% at Rs619mn, 5.7%/2.2% above our/Bloomberg consensus estimates, respectively.

With the focus shifting from market penetration-driven growth to margin expansion, lease rentals increased by a mere 2.3% QoQ. Following control over lease rentals and better gross margin, we have increased our EBITDA margin estimates by 40bps/20bps to 15.4%/16.2% for CY13/CY14, respectively.

Higher other income due to healthy operating ash flow and a marginally lower tax rate lead to 8.2%/7.4% increase in our net profit estimates for CY13/CY14, respectively. BIL generated healthy operating cash flow of Rs905mn in 1HCY13 compared to our estimate of Rs1,398mn for CY13. Healthy cash generation and improving margin in the current environment, where discretionary spending is on the decline, calls for a premium valuation.

We have increased our target multiple on BIL from 13.5x to 16.5x CY14E EV/EBITDA.

We have upgraded the stock to Buy (from Hold) with a revised target price Rs1,064 (Rs865 earlier).

Source : Equity Bulls

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