While the company is on a firm footing, the stock captures most of the near-term positives.

 
After clocking 9.6% CAGR growth in sales between CY04-09, analysts expect Bata India to record much higher growth of 15% in the next two years. The company’s renewed focus on wholesale distributors and institutional sales from the earlier retail strategy (currently 70% of business) will help drive up volumes.

Further, higher proportion of leather-based products (already up from 61% in CY04 to 67.4% in CY09) and positioning as a vibrant and contemporary young brand with more life-style oriented stores should help the company move up towards higher price point products. Says Pranshu Mittal, analyst, Centrum Broking: “Bata India is on the right track with above 10% sales growth.&"

The company has done exceedingly well on the profitability front too in the past few years. After net losses of Rs 63 crore peaking in CY04, it posted highest net profit of past one decade at Rs 67.4 crore in CY09. “Restructuring operations has been the key reason for overall improvement in profitability,&" states a Fullerton Securities report. This is further expected to jump 30% annually till CY12 thanks to the company’s cost rationalisation measures and its debt free position.

Apart from rationalizing stores (total currently at 1250) by closing down poorly performing outlets (73 in CY09) and increasingly adopting franchise model, Bata India is also streamlining its employee costs.  It has consistently brought down its staff costs as a percentage of sales from 26.5% in CY04 to 15.4% in CY09 partly due to implementation of VRS schemes and is further committed to improving productivity and efficiency of its employees through training programmes.

After reducing debt considerably from Rs 124 crore to Rs 25 crore in CY09, the company now is almost debt free with debt to equity ratio of 0.07 in CY09.  In this process the company has also saved on interest costs as well, which in turn has improved profitability (loss to profit). Analysts expect a further improvement in operating profit margin and net profit margin at 13.5% and 7.8% by CY11 from 11.8% and 6% in CY09 respectively.

Thus, all is now going well with the company, which targets to open 60 new stores annually and have 200 new ones in next three years. However upside in the stock seems limited as it already trades at 19 times CY2011 estimated earnings which is in line with the target multiple assigned by analysts. It is already close to the fair value of Rs 352.5 estimated by market experts. Bata India’s stock touched an all time high level of Rs 346 on 3 September 2010.  Analysts advise long-term investors to accumulate the scrip. Monetisation of real asset (Batanagar township project of 264 acres under 50:50 joint venture) would boost financials and will give a further fillip to the stock.