Friday, 19 October 2012

Incredible Stocks-BATA

In this post we look at a company which was an early entrant in its sector. We all know BATA as an old brand name. Being an early bird has its own advantages as a good stock investment option. Since BATA was an early brand, it has reaped the benefits of the industry and is now the largest company by sales in India. BATA as a brand has now become a household name
and is the first choice of any purchaser. Hence, BATA can be said as having near-absolute monopoly in the industry today. It has 1250 retail outlets in about 500 cities. As per some news reports BATA is planning an expansion of its retail chain by 150 stores in Calendar year 2013 for which it has earmarked a capital expenditure of about Rs. 100Cr.

Is it a good stock to invest in? Well, some of the parameters have been tabulated below for the past 5 yrs. Let’s see what we can know from them :

2012 2011 2010 2009 2008 CAGR%
Sales (in Cr) 1842 1553.72 1266.43 1091.92 987.44 16.87
Profit(in Cr) 171 225.84 95.35 67.23 60.74 29.53
OPM% 14.9 15.5 13.3 11.3 9.07
ROCE% 31.85 42.07 42.48 37.12 30.77
ROE% 24.5 39.32 23.94 20.11 20.86
Debt/Equity na 0.04 0.04 0.08 0.18
Interest Coverage Ratio na 277.7 208.8 30.49 13.76
The CMP at the time of the post was Rs. 930/-

Some of the most important points that can be concluded from above are that the sales and profit have been growing at a CAGR of 16.87% and 29.53% respectively, which is an impressive figure even for such a big company. It also reflects on the fact that the there is still a large potential for consumer demand which is propelling the company YoY towards further expansion, higher sales and more profit.

The OPM figures are also impressive. One possible contributor to the good OPM is the fact that non-leather products in this sector enjoy an excise duty exemption of upto Rs500/per pair. Lower excise duty leads to better OPM.

Here we would like to convey that any company which grows profit CAGR more than sales CAGR needs lesser working capital. This also reflects in good ROCE.

Scalability, monopoly, higher ROCE gives better future price rejig. The stock is currently trading at a trailing P/E of 29.9 for CY12.

It can be a good bet for the future looking into the impressive parameters above and can well be another good stock to invest.

Stocks are as good an investment as any other financial instrument. But like any other financial instrument, this too has to be treated according to its rules. Understand stocks as investment option, study the company before investing and you could be the next Warren Buffet.