scorecardresearchFootwear industry seeing sustained growth, says Nuvama; initiates coverage

Footwear industry seeing sustained growth, says Nuvama; initiates coverage on these two stocks

Updated: 22 Apr 2023, 10:11 AM IST
TL;DR.

Sports & Athleisure (S&A) is predicted to increase at the quickest rate (17% organised CAGR FY20-25, about twice as fast as other segments).

Nuvama Research: India's footwear industry is seeing sustained growth (FY15-20 CAGR: 9%).

Nuvama Research: India's footwear industry is seeing sustained growth (FY15-20 CAGR: 9%).

India's footwear industry is seeing sustained growth (FY15-20 CAGR: 9%) with an accelerated organised shift (CAGR: 13%) driven by the expansion of online channels (FY20 share: 16%), according to brokerage firm Nuvama Institutional Equities.

There are still several areas of growth; Sports & Athleisure (S&A) is predicted to increase at the quickest rate (17% organised CAGR FY20-25, about twice as fast as other segments). From a channel standpoint, the brokerage anticipates that online share (FY25E share: 22%) will continue to increase.

The organised Multi Brand Outlets (MBO) footwear channel, nevertheless, presents a chance due to its restrained level of competition.

According to the brokerage, the industry it chooses must be a mix of channels, brands, and enterprises. On a number of growth/scalability, manufacturing/sourcing & designing, competitive intensity & moats, and platform optionality characteristics, it has evaluated the major listed players.

Metro Brands Ltd has the top rating on this matrix due to its execution, optionality, and limited channel competition supported by respectable scalability.

Bata India Ltd has undergone numerous turnarounds. There is no evidence to suggest that the company's fortunes will change anytime soon. For Bata, the brokerage would be on the lookout for any position changes that could result in long-term same store sales growth (SSSG).

"We are initiating coverage on two major Indian footwear companies: Metro Brands at ‘buy’ with a target price of 978 (22% potential upside) and Bata at ‘hold’ with a target price of 1,548 (9% potential upside)," said the brokerage.

Let's look at the brokerage's outlook for the companies under its coverage.

Metro Brands

The Metro, Mochi, and Crocs formats that Metro Brands has developed are supported by strong store economics and great selection execution. Its current low penetration makes its growth narrative fascinating, according to the brokerage.

"We expect standalone revenues to clock a 19% CAGR over FY23–25E (FY19–25: 16%) driven by store addition across brands and productivity improvement. We also consolidate the financials of Cravatex Brands. After the spike in gross as well as EBITDA margins in FY23, we build in some moderation. Overall, we expect Metro to comfortably fund its own expansion internally," said the brokerage.

Bata India

Over the past 20 years, Bata India has taken a number of steps to revive growth. Despite pockets of growth as a result of these advancements, overall growth lagged peers. The brokerage attributes the erratic growth trajectory to the utility brand's legacy reputation, the marketing budget's restraint, and the mix of wholesale and online sales. The key to recovering durable growth is a clear shift in its view as an aspirational brand, which is a tall order even if initiatives continue. However, it is unlikely that incremental online/wholesale contribution will change the trend of growth.

"We are building in an 11% revenue CAGR for FY23–25E factoring in retail channel’s 9% CAGR. Online/wholesale is expected to clock a CAGR of 23%/12% to reach a revenue share of 9%/16% by FY25. We reckon EBITDA margin shall rise 150bp over FY23–25E to 15.2% driven by operating leverage, whereas gross margin would contract marginally due to channel mix," said the brokerage.

 

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First Published: 22 Apr 2023, 10:11 AM IST