Bata India Q1 Result: Operating profit improves despite discounts
The Bata India Ltd stock touched a 52-week closing high on Monday at Rs639.75, as the shoemaker announced better than expected profits for the June quarter last Wednesday.
Bata India’s Ebitda for the June quarter came in at Rs95.5 crore, better than analysts’ expectations and 12% higher than the same period last year. Ebitda refers to earnings before interest, tax, depreciation and amortization—an indicator of operating profitability.
The company did well on the revenue front too, clocking 11% year-on-year growth, higher than the 8.7% revenue growth seen in the March quarter. In fact, revenue had increased just 2% for financial year 2017 given that revenue growth was muted in the first three quarters. In that backdrop, June quarter revenue growth is encouraging. Also, same store sales growth at 10% is commendable.
“While the double digit same store sales growth this quarter can be partly attributed to the early end of season sale, we note that Bata is one of those few companies in our consumption coverage where Ebitda growth outpaced revenue growth despite increased discounting,” wrote analysts from Spark Capital Advisors (India) Pvt. Ltd in a report. Bata India’s gross margin improved 1% thanks to the introduction of value added products and change in the product mix.
Operating profit growth increased 12%, comparing rather favourably with 0.7% growth in the measure during the March quarter. Higher other income growth and decline in depreciation cost meant that the June quarter net profit increased by a fifth compared to the year ago quarter’s Rs60 crore.
After a steady start to the year, the outlook appears better. ICICI Securities Ltd believes management is on the right track to achieving healthy revenue growth via retail expansion through the franchisee route in Tier II & Tier III cities, refurbishment of existing stores and new styles of footwear driving same-store sales growth. Moreover, continuous improvement in product mix through increase in proportion of premium products is expected is support operating profit margin. In keeping with that, the brokerage has revised its estimates upwards for financial year 2018 and financial year 2019 and expects revenue and earnings to grow at a compound annual growth rate (CAGR) of 13.1% and 33%, respectively, in FY17-19E.
However, much of the optimism looks already factored into the price. Currently, one Bata India share trades at about 29.4 times ICICI Securities’ estimated earnings per share for financial year 2019. These valuations leave little room for meaningful upside in the near term.