Broker’s Call: Bata India (Reduce)
Bata India’s sales grew 13 per cent YoY almost touching pre-Covid (Q4-FY19) sales level. Gross margins improved by 450 bps led by better product mix. For FY22, sales and EBITDA grew 40 per cent and 156 per cent respectively. We expect gradual sales recovery to continue with sequential improvement in margins. We maintain that Bata’s growth, like in the past, will be largely led by increase in average selling price (ASP). Its growth will be restricted given the fewer COCO store additions.
Bata’s ASP is up 16 per cent on a run-rate basis, of which price hikes would contribute about 10 per cent. Improving contribution from sneakers category has led to a better product mix. Another lever for growth has been franchisee store and SIS (Shop in Shop) led expansion. Sales from e-commerce have gone 2.5x fold over FY20-22. The company has increased town coverage from 687 to 1,047 over FY19-22, while its access to wholesale distributor has improved from 19 per cent to 32 per cent. It has launched, on a pilot basis, Men’s/Ladies open value-added range.
Bata’s sales growth of about 40 per cent in FY22, albeit on a very low base, has been on account of both volume and ASP recovery. Another reason for lower volumes, as highlighted by the management, is that the company has vacated low-price-point SKUs. Also, since the growth is led by franchisee stores, there will be a gap between volume and value growth. We estimate CAGR 3 per cent volume growth over FY20-24E.
We believe positives for the next two years are already factored in to the current market price.
May 30, 2022