BATAINDIA is one of the best stocks to play on India’s strongconsumption story. Due to its good product mix, we feel BATAINDIA will continue to report 15% CAGR on a top-line over the next two years from FY20-21E. On account of its track record of maintaining stable performance and the introduction of various new product launches, the stock is trading at 38x FY21E PE. We would like to allot a PE multiple of 45x on an FY20E basis to bring it to a target price of Rs. 2000.
Our current estimates do not assume a big turnaround in the wholesale business. After the meeting and post 1QFY20 which surprised on margins, we tweak our revenue and margin estimates for FY20 and FY21. We introduce FY22 estimates. We roll forward the basis of valuation to 1HFY22 EPS and retain the 42x PE multiple. 42x represents +0.5SD higher than its five-year 12-month forward mean P/E multiple. We expect BIL to clock revenue/EBITDA/PAT CAGR of ~13%/18%/16%, respectively, over FY19-FY22E with pre-tax RoIC expanding from ~63% in FY19 to ~80% in FY22E. We believe an Indian consumer story with the kind of financial profile that we described above deserves to trade at a premium to its five-year historical average. We retain our Accumulate rating on the stock.
We expect SSSG at 6.5% and decent operational performance in FY20. Thenegative impact of Ind AS 116 on PAT in Q1 was around Rs. 20 Mn. Bata has a strong balance sheet with negative working capital, zero debt and asset turnover ratio which is boosted because of rent rationalization meaures and stricter cost controls. We revise our view on the stock to “BUY” with an expected upside of 18% valuing the company at P/E of 52.6 ( 5-Year Average, 1 Year Forward) of the FY21E EPS.
Over the last couple years, revenue growth for Bata has been mainly driven by realisation growth, since volumes have remained constant at ~47 million pieces each year. Having built a strong portfolio of premium brands, the management is now focusing on maintaining a balance between volume growth and premiumisation. Furthermore, healthy store expansion plans (through franchise route) in non-metro cities is expected to provide growth impetus. We bake in revenue and PAT CAGR of 14% and 21%, respectively, in FY19-21E. Scaling up of premium products (currently at ~50%) and controlled operational cost structure are key triggers for steady margin expansion. We are yet to incorporate impact of Ind-AS 116 in our estimates. We have a BUY rating on the stock with a revised target price of Rs 1585 (42.0x FY21E EPS of Rs 37.8).
We expect BIL to report net revenue CAGR of ~15% to ~`3,805cr over FY2019-21E mainly due to increasing brand consciousness among Indian consumers, new product launches, higher number of store additions in tier II/ III cities and focus on high growth women’s segment. Further, on the bottom-line front, we expect CAGR of ~16% to 436cr over the same period on the back of margin improvement (increasing premium product sales). Thus, we maintain our Buy recommendation on Bata India with Target Price of 1,525.
Steady growth in retail channel; Maintain Accumulate Bata’s Q1FY20 financial performance was in line our estimates. Despite slowdown in most of the consumer categories, the company was able to post strong growth due to new campaigns and attractive product launches during the quarter. The e-com business posted double digit growth, which was encouraging considering its moderate performance in Q4FY19. The retail channel continues to grow steadily aided by premiumization. We have broadly maintained our FY20E and FY21E EPS estimates at ` 27.9 and ` 31.1, respectively. We value Bata at 45x FY21E EPS to arrive at a TP of ` 1,415. We believe that the company has a high growth potential, especially after the recent changes in the stores and strong new brand campaigns.Therefore, the high valuations for the stock is justified. Maintain Accumulate.
We have toned down our estimates a tad and lower our target price on BIL to Rs1,410 based on 42x March 2021E EPS and retain our Accumulate rating. The 42x represents +0.5SD higher than its five-year 12-month forward mean P/E multiple. We expect BIL to clock revenue/EBITDA/PAT CAGR of around 15%/19%/15%, respectively, over FY19-FY21E with pre-tax RoIC expanding from ~ 63% to ~ 69% during the period. The PAT CAGR looks lower as FY19 PAT is inclusive of tax refunds and interest income on that. We believe the Indian consumer story with the kind of financial profile depicts above deserves to trade at a premium to its five-year historical average.
We anticipate healthy revenue trajectory for Bata will sustain, driven by enhanced focus on fast growing categories such as sports, youth and women and swift pace of store additions. Furthermore, scaling up of premium products (currently at ~30%) and controlled operational cost structure are key triggers for steady margin expansion. We model in revenue and PAT CAGR of 13% and 18%, respectively, in FY19- 21E. Bata is currently quoting at valuation of ~37x P/E on FY21E EPS. We have a HOLD rating on the stock with a revised target price of Rs 1430 (40.0x FY21 EPS of Rs 35.8).