Strong fundamentals, low valuation make Bata India a good pick

The share price of footwear major, Bata India, has reacted negatively to the lacklustre results in the past few quarters and has tumbled by more than 20% from the recent high of Rs 989. However, analysts insist that the fundamentals of the company are intact and, therefore, Bata India will be able to improve its performance in the coming quarters.

This is because the lower sales growth in the past two quarters, 15% and 17%, respectively, was due to extraordinary factors.

The delay in the monsoon and the resultant fall in sales of rain shoes reduced the April-June sales, while the delayed festive season was the reason for the lower July-September sales. Its aggressive new store additions is one big factor for pushing up the rental expenses and putting pressure on margins.

The company is expected to report strong numbers during the October-December period due to the high sales triggered by demand in the festival season (Durga Puja, Diwali and Christmas). A strong winter has also increased the sale of ankle shoes and improved the blended realisation.

To augment its reach, Bata India is aggressively adding new stores to its existing retail chain of 1,250 stores. Though this will put pressure on the margins, the move will benefit the company in the long term.

The recent weakness in commercial realty is helping Bata India to get better deals for its existing/new stores, thereby, improving its margins.

Its 'Discover New' campaign is also getting a good response from young customers and resulting in more footfalls in its stores.

The free home delivery initiative is going to be another growth engine in the future. Strong brand, good management and a sound balance sheet, with net cash of around Rs 130 crore, are the other factors that will help it grow.

More importantly, the recent correction has brought down the valuation of this growth stock to reasonable levels and providing a good opportunity for long-term investors.

Selection methodology: We pick the stock that has shown the maximum increase in consensus analyst rating during the past month.

Consensus rating is arrived at by averaging all analyst recommendations after attributing weights to each of them (5 for strong buy, 4 for buy, 3 for hold, 2 for sell and 1 for strong sell) and any improvement in the rating indicates that the analysts are becoming more bullish on the stock.

To make sure that we pick only companies with a decent analyst coverage, this search is restricted to stocks with that have been covered by at least 10 analysts.

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