This midcap footwear stock upgraded to 'buy’; strong brand recall, reach to aid revenue growth

Footwear major Bata India has been upgraded to a ‘buy’ by domestic brokerage Geojit Financial Services from the earlier ‘hold’ call given the margin improvement at the midcap entity. This latest upgrade on the stock is meaningful, as earlier in September this year, global brokerage Citi initiated a ‘sell’ call on the stock with a target of Rs 1,310.

The brokerage has accorded a target of Rs 1,870 to Bata, implying a potential run-up of 14 per cent from the last close. The brokerage is of the view that the company’s asset-light expansion strategy, coupled with cost measures, will support gradual margin improvement going forward.

It further highlighted that the gross margin at the footwear retailer expanded 300 basis points (bps) in Q2 to 58 per cent, while the EBITDA margin also improved 280 bps to 22.2 per cent on the back of improved channel mix, lower discount, and inventory management.

Volume revival to pick amid expanding footprint and increased marketing investments

While the topline at the footwear manufacturer saw a drag amid a shift in the festive season and lower mass segment demand given the inflationary pressure and higher GST imposition, Geojit held that the company’s drive towards store expansion and distribution reach, along with marketing investments, will drive future volumes.

“We expect revenue to grow at a CAGR of nearly 9 per cent over FY23E–25E,” added the brokerage in its report.

Besides, the report added that the company expects growth in both mass and premium segments, with the premium portfolio growing 1.5x of overall growth.

Company’s strategic initiatives

The company recently signed a comprehensive licensing and manufacturing agreement for the globally renowned fashion brand ‘Nine West’ and has also forayed into the apparel segment (Power brand), currently in 62 stores.

So, given the company’s strong brand recall as well as distribution reach, Geojit believes the company can revive its revenue growth trajectory. The brokerage values Bata India at 44x on FY26 EPS.

Shares of Bata India have underperformed the broader markets with a return of just 0.68 per cent in the last 1 year.

Technical charts suggest Rs 2000 in the offing for the shoe maker if it takes out Rs 1775 levels 

Jigar S Patel, Senior Manager - Technical Research, Anand Rathi Shares and Stock Brokers is of the view that since the last 2–3 years, the said counter has been stuck in the range of 1400-2000, approx. At the current juncture, it has taken support from the monthly ichimoku cloud, preceded by the tweezer bottom structure which is looking lucrative. As we advance, credible support is expected near 1500–1530, and resistance is seen near 1775–1750.

On the flip side, if BATAINDIA takes out 1775 on a weekly basis, then we may see 2000. As of now, buying on dips is advised, and one should keep booking partial profits at regular intervals, advises the expert.