Bata India - Growth set to pick-up - Motilal Oswal

Driven by ~40 net store openings

- BATA plans to target untapped segments like Sports within kids category and wedding footwear.

- Company expects to launch its media campaign soon, which should boost revenue growth.

- Large Format Flagship Stores (where ASPs are higher) are doing better than the Small Format Family Stores, which will help boost margins.

CY14 promises a faster growth compared to CY13: Bata (BATA) reported net sales of INR5.54b (v/s est. INR5.78b) in 4QCY13, marking a revenue growth of 9%, primarily driven by SSSG of ~5%. SSSG was muted at 5% due to peers advancing their season sales to December, compared to January, and due to higher base effect (15-20 net stores addition in CY13 against 129 in CY12). Company expects CY14 growth to be faster than CY13 driven by ~40 net store openings, compared to 15-20 in CY13. BATA also plans to target untapped segments like Sports within kids category and wedding footwear. It plans to take Hush Puppies exclusive stores to other towns and launch its own mobile application in next two months. It also expects to launch its media campaign soon which should help boost revenue growth.

Higher growth in flagship stores and price increase drive margins: EBITDA margin for 4QCY13 stood at 18% (est. 15.7%), against 15.8% in 4QCY12, marking a YoY increase of 220bp. This was driven by 280bp increase in gross margins largely due to full impact of price hikes being visible during the quarter and due to higher contribution from accessories segment. However, rentals increased sharply by 27% YoY due to one-time service tax amnesty payment of INR50-60m and rental renewals. Management highlighted that the Large Format Flagship Stores (where ASPs are higher) are doing better than the Small Format Family Stores, which will help boost margins.

VRS, increased outsourcing and plant modernization to help improve margins: BATA booked an exceptional item of INR107m on account of VRS benefits paid to employees at the Patna plant. A tannery for manufacturing leather at the plant has been discontinued and outsourced. Plant modernizations should improve throughput, leading to lower employee costs through higher degree of automation and lower power and fuel costs.

Valuation and view: We are positively surprised by the margin expansion and believe that levers for further expansion remain strong. We lower the revenue estimate and raise the margin estimate leading to an upgrade in CY14E and CY15E EPS of 1.5% and 3.2% respectively. At CMP of INR1042, the stock trades at 26.5x and 21.6x CY14 and CY15 EPS respectively. We revise our target price from INR 1,170 to 1,200 on the stock valuing the company at 25x CY15 EPS of INR 48 on the stock.

Source : Equity Bulls

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