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Analyst Corner: Retain ‘Buy’ on bata with revised target Price of Rs 1,450

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New Delhi | Published: February 15, 2019 2:41:38 AM

Bata delivered a blockbuster quarter operationally with a 16% revenue growth and a 47-51% Ebitda/PAT growth (15-20% ahead of our estimate) led by an all-time high margin of 21%, aided by an all-time high GM of 58.6% (up 350 bps y-o-y/ 280 bps q-o-q) and tight cost controls.

bata, industryRevenue growth during the quarter was partly aided by festival season

Bata delivered a blockbuster quarter operationally with a 16% revenue growth and a 47-51% Ebitda/PAT growth (15-20% ahead of our estimate) led by an all-time high margin of 21%, aided by an all-time high GM of 58.6% (up 350 bps y-o-y/ 280 bps q-o-q) and tight cost controls.

We remain believers in Bata’s renewed strategy under a new leadership focusing on youth through refreshed product offerings, higher focus on sub-brands, improving brand perception (use of digital platforms, higher media spends and celebrity endorsements) and enhanced in-store experience. We revise our highest-on-street EPS estimates for FY20-21 by 10-12% led by a sharp margin improvement (note our FY21 GM estimate at 58.2% is lower vs current quarter reported). Retain our ‘Buy’ rating with a revised TP of `1,450 (from `1,120) as we roll-over to March 21 (based on 37x target P/E multiple).

Bata delivered a blockbuster operational performance this quarter — while revenues grew at a robust pace of 16% y-o-y to Rs 780 crore (2% ahead of our estimates), key highlight of the quarter was a strong 47% y-o-y growth in Ebitda to `164 crore (21% ahead of our highest-on-street estimates) led by a 450 bps y-oy expansion in Ebitda margin to an all-time high of 21% (330 bps ahead of our estimate). Margin expansion was aided by a 350 bps y-o-y (280 bps q-o-q) expansion in GM to an all-time high of 58.6% and tight cost control (rent fell 85 bps y-o-y and other expenses fell 50 bps y-o-y). Recurring PAT grew 51% y-o-y partially aided by a 60 bps y-o-y dip in ETR and a 28% y-o-y jump in other income.

Revenue growth during the quarter was partly aided by festival season; however, the management’s consistent focus on refreshing the brand appeal via refurbishing existing stores, higher media spends, celebrity endorsements, better consumer shopping experience via Red-concept stores (added 50 new stores), higher focus on sub-brands and renewed product portfolio is paying rich dividends, in our view.

Sustained premiumisation through greater impetus on new collections has been the key driver of GM expansion, in our view.

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