Bata India has miles to go before significant earnings revival
Bata India Ltd’s shares jumped by 5% on Thursday. The excitement seems to be on the back of CNBC-TV18 news report stating that Bata is in talks with Adidas India for a strategic partnership for the Indian market. The stock exchanges have sought clarification from Bata regarding this. At the time of writing, the company was yet to respond to this.
Analysts point out given Bata’s thrust on premiumization/sneakerization, the development, if it eventually happens, would not be entirely surprising. “A tie-up would be positive sentimentally for Bata – just like in the case of Metro Brands, which is the national retail partner for Crocs in India,” said an analyst requesting anonymity. However, investors would watch the financial impact for Bata, especially the revenue growth
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For now, Bata’s growth path faces challenges such as subdued demand in mass categories, inflationary pressures, and intensified competition. Bata’s muted June quarter (Q1FY24) results mirror this pain. Lower volume growth led to a revenue growth of just 1.6% year-on-year to ₹958 crore. The advancement of end of season sale and discounts meant lower gross margin at 54.7% in Q1. The management said same store sales growth fell last quarter, albeit moderately.
As such, striking a good balance between growth and margin would be tough for Bata. The company is taking measures to save cost and revive its operating margin, but these will take time to yield results. Little wonder then that the earnings expectations have been tapered.
“Bata’s revenue growth is languishing and still lower than close competitor Metro Brands. The subdued growth trajectory along with weak operating margin outlook is likely to weigh on Bata’s near-term earnings growth revival,” said Akhil Parekh, senior vice president, Centrum Broking Ltd. “So, for now, we cut our earnings per share estimates by 6/2% for FY24/FY25 respectively,” he added.
The management expects demand in the mass categories to recover in the second half of the year led by festival and wedding seasons. However, it remains to be seen if this materializes. Amid this, Bata’s focus on premiumization has been a saving grace aiding its average selling price.
But that is not enough to give the stock’s lackluster performance a boost. So far in 2023, the Bata stock has risen by 5%, lagging Metro Brands’s nearly 24% returns. A meaningful revival in Bata stock hinges on turnaround in revenue growth and a grip on costs.
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Updated: 17 Aug 2023, 10:17 PM IST
