Bata India - Demand robust; store expansion on track - Motilal Oswal

Initiating new ad campaign, loyalty program to revive consumer appeal

- Demand environment remains robust; expect 9% SSS growth in 4QCY13

- A comprehensive loyalty program and a new advertisement campaign through recent tie-up with DDB Mudra in the offing

- To partially invest gains from better scale, mix improvement in new consumer initiatives

- To add 100 new stores every year; could revise target upwards if economy improves

Demand robust; focusing on women, kids and accessories

Bata has witnessed robust Same Store Sales (SSS) growth of 9% during 9MCY13. In our recent visit with the company, the management highlighted that despite economic headwinds, growth remains robust and SSS trends (~9% growth) should be maintained for 4QCY13. Bata opened 24 stores and closed 34 in 3QCY13, taking the total number of stores to ~1,400, of which 500 are now 'K' stores. The management maintained its guidance of opening 100 new stores every year. Women, kids and accessories are its key focus areas and the management believes these segments hold strong growth potential, given Bata's current under-representation in these categories. Women and kids segments now contribute ~45% to revenue; accessories contribute 7.5%.

Initiating new ad campaign, loyalty program to further consumer engagement

Bata is focusing on rejuvenating its appeal amongst Indian consumers. A couple of initiatives which the management highlighted are (1) a comprehensive loyalty program, and (2) a new advertising campaign. A loyalty program is currently missing in the Bata framework, and the management believes it can increase consumer stickiness and generate better footfalls. Recently, Bata hired DDB Mudra, which also handles advertising for large consumer companies like Adidas, Asian Paints, Unilever, Nestle, Marico and Pepsico, as its advertising agency. We believe both these initiatives, which should kick-in in CY14, will further stimulate revenue growth. The management highlighted that margin gains from better operating leverage and mix improvement will be partially utilized towards these initiatives.

Taking the right steps; maintain Buy

We believe that Bata is taking the right steps towards strengthening its share in the Indian footwear market. Focus on improving consumer engagement coupled with commitment to expand store count (100 stores per year) should enable Bata to achieve strong growth. We value Bata at 25x CY15E EPS of INR46.8 with a target price of INR1,170. Maintain Buy.

Source : Equity Bulls

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