Bata India hits record high; stock zooms 50% in 4-months

Shares of Bata India hit a new high of Rs 1,301 apiece, up 1 per cent on the BSE, surging 50 per cent in past four months after it reported a strong earnings growth in December 2018 (Q3FY19) quarter and foreign portfolio investors buying. In comparison, the S&P BSE Sensex was up 6 per cent during the same period.

Thus far in the calendar year 2019 (CY19), Bata India has outperformed the market by gaining 15 per cent, against unchanged benchmark index. In CY2018, it soared 52 per cent, as compared to a 6 per cent rise in the Sensex.

Bata India reported strong growth of 51 per cent in net profit at Rs 103 crore in December 2018 quarter (Q3FY19). The footwear company had a profit of Rs 68 crore in the year-ago quarter.

Operational revenues grew 16 per cent at Rs 779 crore in Q3FY19 against Rs 674 crore in the corresponding quarter of previous fiscal. Ebitda (earnings before interest, taxation, depreciation and amortisation) margin improved 450 basis points to 21 per cent from 16.5 per cent.

Foreign portfolio investors (FPIs) have increased their stake in Bata India for the third straight quarter. FPIs holding in the footwear company rose to 10.35 per cent at the end of December quarter from 8.78 per cent in September and 6.19 per cent in the March quarter.

Meanwhile, total institutional investors holding in Bata India touched an all-time high of 32.71 per cent in December quarter. Earlier, they hold 31.79 per cent stake in the company at the end of September 2012 quarter.

Analysts at Nirmal Bang Equities believe there is potential for an upside surprise on the margin front (and therefore on EPS) going forward if the company executes well. Much of the change in fundamentals has come about because of a change in the leadership of Bata - both at the global and local level.

“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 have upgraded our rating on Bata India from 'Accumulate' to 'Buy' with a revised target price of Rs 1,479 based on 42x March 2021E EPS. 42x represents +0.5SD higher than its five-year 12-month forward mean P/E multiple,” the brokerage firm said in result update.

Analysts at Edelweiss Broking believe that a high-quality consumer brand in the growing fast fashion footwear category taking all the right initiatives to drive growth, improve brand strength and propel earnings is likely to trade akin to the leader in the consumer space, thus assign 42x PER multiple to FY21 earnings to arrive at our medium-term price target of Rs 1,500. Further, this high-quality consumer brand has all the potent ingredients in place for the further surprise on growth levers, which we believe makes it a compelling compounding story to be played over the long-term time frame, the brokerage firm said.

At 10:36 am; Bata India was trading 1 per cent higher at Rs 1,297 on the BSE, as compared to unchanged benchmark Sensex at 35,899 points. A combined 508,659 equity shares changed hands on the counter on the NSE and BSE so far.