Bata India: Treading a difficult path

The six-month period to March 2017 may be hit on account of demonetisation, resulting in a decline in footfalls, consequently leading to a fall in revenue for FY17, say analysts


At Bata India, an unfavourable product mix adversely affected revenue growth. Nevertheless, better operating profit performance, robust other income growth and a decline in depreciation costs boosted pre-tax and one-time earnings. Photo: Ramesh Pathania/Mint
At Bata India, an unfavourable product mix adversely affected revenue growth. Nevertheless, better operating profit performance, robust other income growth and a decline in depreciation costs boosted pre-tax and one-time earnings. Photo: Ramesh Pathania/Mint

The current quarter can be divided neatly into two periods—pre-demonetisation and post-demonetisation. And life has been rocky post-demonetization for retail firms.

Footwear maker Bata India Ltd hasn’t been immune to the turmoil. Its revenues have declined about 10-15% in November—sales were severely affected in the first week of demonetisation—but improved somewhat thereafter, analysts from Motilal Oswal Securities Ltd said in a report dated 6 December.

Not that things were great for the company before demonetisation either—for the September quarter, its revenues had increased by a mere 1.6% year-on-year.

Factoring in the impact of demonetisation, Motilal Oswal has cut revenue estimates for FY17 and FY18 by 10% and 6%, respectively, and profit after tax estimates by 15% and 6%, respectively. Needless to say, the near-term outlook is tough.

The six-month period ending March 2017 is expected to be hit on account of demonetisation, resulting in a decline in footfalls, consequently leading to a fall in revenue for FY17, said ICICI Securities Ltd in a report on 29 November.

Earlier, too, the company wasn’t doing all that well. Revenue for the half year ended 30 September were flat from a year ago. Stiff competition from multinational companies and online retail platforms took a toll on revenue growth. An unfavourable product mix, too, adversely affected revenue growth. Nevertheless, better operating profit performance, robust other income growth and a decline in depreciation costs boosted pre-tax and one-time earnings. Apart from demonetisation, competition from online platforms has been a worry. Bata India has made efforts to improve its online presence. It has its own website and has also tied up with Amazon and Flipkart. New designs have been launched exclusively for the online channel.

“The company now offers 400 new products versus 130-150 last year,” said Motilal Oswal, adding that the initiatives taken by the company are likely to increase its online sales contribution from 3% currently to high single digits in FY18. Further, store rationalization and negotiation of lower rentals are expected to help.

What of the stock? After outperforming the benchmark Sensex in the initial few months of this fiscal year, the Bata India stock has underperformed subsequently. Currently, the share trades at 39 times estimated earnings for this fiscal year. That’s not cheap. Headwinds on earnings will continue from a near-term perspective, thanks to demonetisation and the resultant adverse impact on demand. Bata India investors face a rocky road ahead.

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