Initiating Coverage on Bata India - Better brands for better growth - Angel Broking

Bata India Ltd (BIL) is the largest footwear retailer in India, offering footwear, accessories and bags across brands like Bata, Hush Puppies, Naturalizer, Power, etc. BIL's ~70% revenue is derived from Men & Kids segment and balance from women's segment. BIL has over 1,400 Bata retail stores across India.

Shift in trend towards the organized sector to propel growth: The Indian footwear industry is valued at Rs. 50,000-55,000, which is expected to grow at a CAGR of ~15% going ahead. One third of the industry is mainly dominated by the unorganized sector. However, organized segment is expected to grow at a faster pace compared to the unorganized segment on the back of increase in household income and rising brand consciousness amongst Indian consumers. This would be beneficial for branded players like Bata India.

Strong retail stores expansion plan to boost growth: Currently, the company has 1,400 retail stores, which includes owned and franchise model (mainly presence in metro cities). Further, over the last 3 years, the company has added 135 stores (net addition). Going forward, the company has plans to open 500 stores (already identified 435 cities) mainly in tier-II and tier-III cities over the next 4-5 years. We believe Bata is brand for masses, and this is a growth driving factor going ahead.

New launches and higher ad spends to boost women's segment: Currently, women's footwear segment accounts for ~30% of Bata sales, which the company is targeting to increase to ~40% over the 3 years. We believe that the company would achieve strong growth going ahead mainly because of (a) Indian women footwear industry is growing faster (20%+ growth p.a.), (b) new launches of products (recently launched 950+), and (c) increasing ad spends from 1% to 2.5-3%.

Higher sales of premium products to aid margins: Currently, BIL's 40% sales come from premium products like Hush Puppies, Power, Marie Clarie, etc. BIL has plans to increase premium product sales from current level of total revenue over next two years.

Outlook and Valuation: We expect BIL to report net revenue CAGR of ~16% to ~Rs. 3,555cr over FY2018-20E mainly due increasing brand consciousness amongst Indian consumers, new product launches, higher number of stores addition in tier - II and III cities and focus on women's segment (high growth segment). Further, on the bottom-line front, we expect CAGR of ~19% to Rs. 311cr over the same period on the back of margin improvement (increasing premium product sales). Thus, we initiate coverage on Bata India with BUY recommendation and Target Price of Rs. 896.

Shares of BATA INDIA LTD. was last trading in BSE at Rs.824.25 as compared to the previous close of Rs. 816.7. The total number of shares traded during the day was 204388 in over 4486 trades.

The stock hit an intraday high of Rs. 833.6 and intraday low of 815. The net turnover during the day was Rs. 168774529.

Source : Equity Bulls

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