We maintain a buy rating on Bata India with a target price of Rs 1,375, valuing the stock at 30x CY15 EPS of Rs 45.8. We believe Bata is moving to the next orbit driven by aggressive store expansion plans, new investments in marketing, expansion in new product segments within women, kids and accessories and entering newer channels and markets to push sales. The stock trades at 36x and 28x CY14 and CY15 EPS, respectively.
Bata is making the right investments in advertising, brand building and store expansion as it plans to add 100 stores on net basis going forward, much higher than the 30 stores added in CY13. Similarly, Bata is aggressively penetrating into newer markets and channels through an entry in Tier 2, 3 and 4 cities and developing an aggressive strategy for e-commerce. The company has developed a special team for e-commerce and will have a two-pronged strategy: 1) sales being done through third party e-commerce platforms like Jabong, Flipkart, Snapdeal, etc and 2) sales being done through its own website and mobile app (to be launched shortly). It is also evaluating opening of exclusive Hush Puppies stores and Foot In stores in Tier 2 and 3 markets. It also plans to roll out its ERP program starting Q4CY14 which will not only improve working capital but drive sales. It plans to increase the price points of some products priced at Rs 499 upwards and reduce price points of some products priced ~Rs 1,049 downwards to Rs 999 owing to changes of duty on footwear in budget.
Motilal Oswal
