Bata India Q2: a dreary walk
The Bata India Ltd stock has fallen 5.9% since its September quarter results were announced last week. That’s despite the fact that net profit increased by 24% last quarter over the same period last year to nearly Rs43 crore. Net profit got a boost from robust other income growth and a decline in both depreciation and finance costs on a year-on-year basis.
Operating performance improved too. The shoemaker’s Ebitda margin increased 110 basis points to 11%, helped to some extent by lower rent expenses. An increasing proportion of premium products in its portfolio in both men and women categories has helped operating performance.
Ebitda is short for earnings before interest, tax, depreciation and amortization. One basis point is one-hundredth of a percentage point.
Why, then, aren’t investors thrilled? One reason could be the muted net revenue growth of just 1.6% to Rs587 crore. For perspective: net revenue growth for the June quarter was at 11%. According to analysts from ICICIDirect.com, for the September quarter, Bata India’s wholesale business (~15% of total sales) continued to remain under pressure owing to the goods and services tax (GST) transition. Revenue from the wholesale channel declined ~10% year-on-year dragging overall revenue growth, pointed out ICICIDirect.com in a report on 16 November.
Still, despite the recent fall in share price, the stock is up by about a third so far this fiscal. ICICIDirect.com expects revenue growth to pick up from the December quarter, driven by the ensuing festive season and with things normalising at the wholesale level post GST disruptions.
Bata India has introduced a new category of footwear targeting tweens, the 10-14 year olds and curated a collection in casual, daily-wear, sports and outdoor sub-categories. This should further incrementally support revenue growth in the future. New product launches and store expansion will also assist revenue growth. The extent of improvement in revenue growth will be a key factor to watch for going ahead.
What about valuations? Currently, the stock trades at 39 times estimated earnings for the next financial year, based on Bloomberg data. That’s high. Needless to say, scope for considerable expansion in valuations from here on is not going to be a cake walk.