Reduce Bata India, target pric Rs 1,100: ICICI Securities
Bata’s cash generation took a hit given the weak performance.
By ETMarkets.com | Updated:
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ICICI Securities has given a reduce rating to Bata India with a target price of Rs 1,100 based on 38 times P/E multiple Mar-22E.
Despite market share gain, the fourth quarter results of Bata India with a 9 per cent fall in revenue, marks the start of a cycle of misses and consensus estimate cuts for retail companies, says the brokerage, Bata is likely to face multiple headwinds in medium-term – (1) delay in premiumisation tailwind (a key growth driver over the past 10 years) due to value focused consumers, (2) pressure from online competition (Bata is focusing on ecommerce but has a long way to go, in our opinion) and (3) a pause in the overall higher per capita spending on footwear (both volume and value terms).
Comparable revenue / EBTIDA / PAT (excluding the Ind AS 116 accounting changes) declined 9 per cent / 32 per cent / 36 per cent. The management stated that the decline was primarily due to the severe disruption of store operations in March-end. But has taken initiatives to ramp up its digital business – (1) expanding its ecommerce footprint through online marketplaces (now allowing delivery at over 1,300 cities), (2) rolling out home delivery across 900+ stores and (3) giving customers option to shop via WhatsApp chat with neighbourhood stores.
Investment Rationale
Bata’s cash generation took a hit given the weak performance. Working capital increased by 4 days to 52 (Mar’20) from 48 (Mar’19) primarily driven by lower payables (down by 4 days). Comparable OCF/ FCF declined 32 per cent / 44 per cent to Rs 2.3 billion / Rs 1.5 billion.
The brokerage adjusted its estimates to IndAS116 - FY22 earnings are largely unchanged; modelling revenue / EBITDA / PAT CAGR of 6 / 3 / 6 ( per cent) over FY20-22E. Key upside risk is faster-than-anticipated recovery in discretionary demand.
Financials
For the quarter ended March 31, 2020, the company reported consolidated sales of Rs 620.57 crore, down -25.31 per cent from last quarter sales of Rs 830.82 crore and down -8.77 per cent from last year's same quarter sales of Rs 680.24 crore. The company has reported net profit after tax of Rs 38.41 crore in the latest quarter.
Promoter/FII Holdings
Promoters held 52.96 per cent stake in the company as of March 31, 2020, while FIIs held 9.24 per cent, DIIs 22.84 per cent and public and others 14.96 per cent.
Despite market share gain, the fourth quarter results of Bata India with a 9 per cent fall in revenue, marks the start of a cycle of misses and consensus estimate cuts for retail companies, says the brokerage, Bata is likely to face multiple headwinds in medium-term – (1) delay in premiumisation tailwind (a key growth driver over the past 10 years) due to value focused consumers, (2) pressure from online competition (Bata is focusing on ecommerce but has a long way to go, in our opinion) and (3) a pause in the overall higher per capita spending on footwear (both volume and value terms).
Comparable revenue / EBTIDA / PAT (excluding the Ind AS 116 accounting changes) declined 9 per cent / 32 per cent / 36 per cent. The management stated that the decline was primarily due to the severe disruption of store operations in March-end. But has taken initiatives to ramp up its digital business – (1) expanding its ecommerce footprint through online marketplaces (now allowing delivery at over 1,300 cities), (2) rolling out home delivery across 900+ stores and (3) giving customers option to shop via WhatsApp chat with neighbourhood stores.
Investment Rationale
Bata’s cash generation took a hit given the weak performance. Working capital increased by 4 days to 52 (Mar’20) from 48 (Mar’19) primarily driven by lower payables (down by 4 days). Comparable OCF/ FCF declined 32 per cent / 44 per cent to Rs 2.3 billion / Rs 1.5 billion.
The brokerage adjusted its estimates to IndAS116 - FY22 earnings are largely unchanged; modelling revenue / EBITDA / PAT CAGR of 6 / 3 / 6 ( per cent) over FY20-22E. Key upside risk is faster-than-anticipated recovery in discretionary demand.
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Financials
For the quarter ended March 31, 2020, the company reported consolidated sales of Rs 620.57 crore, down -25.31 per cent from last quarter sales of Rs 830.82 crore and down -8.77 per cent from last year's same quarter sales of Rs 680.24 crore. The company has reported net profit after tax of Rs 38.41 crore in the latest quarter.
Promoter/FII Holdings
Promoters held 52.96 per cent stake in the company as of March 31, 2020, while FIIs held 9.24 per cent, DIIs 22.84 per cent and public and others 14.96 per cent.
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