scorecardresearchBata shares not too far from 52-week low but brokerages advise buying. Here's why

Bata shares not too far from 52-week low but brokerages advise buying. Here's why

Updated: 21 Nov 2022, 02:10 PM IST
TL;DR.
According to domestic brokerage firm Axis Securities, Bata has consistently generated strong operating cash flows and EBITDA margins over time, making it a capital-efficient company.
During the September quarter, Bata's distribution channel continued to scale up to over 1,100 towns.

During the September quarter, Bata's distribution channel continued to scale up to over 1,100 towns.

Shares of well-known shoemaker Bata India have been struggling to pick momentum after hitting a 52-week low of 1,607 apiece in June. The stock is currently trading at 1,677.60, just 4.26 percent higher than its one-year low.  

Bata India's downward trend began after the stock hit a high of 2,122 in January of this year and the stock has largely remained under pressure since. In the past one year, shares of Bata India have fallen over 20 percent. 

However, brokerages have maintained a ‘buy’ call on the stock after the announcement of the company's earnings for the September quarter. Here's why:

Most of the listed footwear companies have posted low profit growth for the September quarter due to higher operating expenses. Bata, on the other hand, managed to post a 47.44 percent YoY rise in its consolidated net profit at 54.82 crore, owing to increased store footfalls and multiple price hikes. The company had posted a net profit of 37.18 crore in the July-September quarter a year ago.

The revenue from operations during the quarter stood at 829.75 crore, up over 35.11 percent from 614.12 crore in the corresponding quarter of FY22. 

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Stock price chart of Bata India.

Higher raw material costs pushed the company's overall expenses up. During the second quarter, total expenses jumped by 35.13 percent to 668.8 crore, compared with 494.9 crore in the corresponding period last year. As a result, the operating profit fell 34.24 percent QoQ to 160.9 crore from 244.7 crore in the preceding quarter. However, compared to Q2 FY22, the operating profit was up 34 percent.

Bata's distribution channel continued to scale up to over 1,100 towns, and its digital business also achieved its "highest revenue" of 95 crore in Q2 FY23, contributing 11 percent of total sales.

According to domestic brokerage firm Axis Securities, Bata has consistently generated strong operating cash flows and EBITDA margins over time, making it a capital-efficient company.

The brokerage believes that by opening new stores in smaller towns where the unorganised segment is more prevalent, the company will gain market share and profit from it. 

Bata's casualization strategy through fast-growing sneakers will help attract a younger audience, the brokerage added.

Axis Securities remains positive on the stock from a long-term perspective given its immense growth potential. It has a "buy" call on the stock with a revised target price of 1,950 per share.

On similar lines, another domestic brokerage firm, Edelweiss, also maintained a "buy" call on Bata with a revised target price of 2,270 per share from 2,365 earlier. It valued the company at 50x FY25 earnings.

Edelweiss stated that the company's margins in the September quarter were impacted by the high cost of raw materials, but it believes a strong focus on expanding premium categories will help the company recover lost margins in the short term.

The brokerage also anticipates the company’s margins to gradually improve and reach pre-pandemic levels by FY25E.

ICICI Securities also has a “buy” call on the stock with a target price of 2,065 per share. According to the brokerage, a focus on cost reduction, omnichannel distribution, a shift in product mix (a greater proportion of casual footwear), and calibrated retail network expansion through asset-light franchisees can be structurally beneficial for Bata India.

17 analysts polled by MintGenie on average have a 'buy' call on the stock.

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of MintGenie.

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First Published: 21 Nov 2022, 02:10 PM IST