A strong brand coupled with improving macro environment in a category dominated by unorganised will help Bata improve sales growth in the new GST era. Strategic changes like focus on franchisee model, improving product offering, and increasing appeal to women and youth will help achieve 12% sales CAGR over FY17-20E. EBITDA margin to improve from 11% in FY17 to 14% in FY20 as operating leverage kicks in with growth. While the EPS growth trajectory is intact (20% CAGR over FY17-19E), the stock price has appreciated almost 74% YTD and valuations, like for other consumer stocks, are now expensive (39x FY19E PE). Even our bull-case DCF (12% sales growth and margin expansion to 18%) suggests implied fwd PE of 32x. Hence, downgrade to ‘hold’ with a revised TP of `725.
In-line results: EBITDA grew 13% y-o-y led by new collections and an early festive period. EBITDA margin stood at 11%. PAT grew 24% y-o-y supported by higher other non-operating income (up 44% y-o-y).
Premiumisation to drive growth going forward: The company has been consistently working on premiumizing its product offering with focus on brands like Hush Puppies, Naturalizer, Marie Claire, etc. This quarter, the company launched Power Glidesteam and Airwalk collections targeting young millennials, with a marketing campaign featuring former Miss India World, Aditi Arya.
Higher focus on faster growing women and children categories: Bata launched a new category of footwear targeting the Tweens (aged 10-14 years) with a collection in casual, daily-wear, sports and outdoor sub-categories, thereby bringing a whole new set of audience to the stores.
Greater focus on creating a buzz around festivals: The company launched localised offers for the various festivals, roping in celebrities as a face for their festival campaign to drive greater consumer engagement.