Bata India Ltd’s 8.7% revenue growth from the year earlier in the March quarter is comforting. Contrast that with the fact that, for the nine-month period ended December 2016, revenue had increased by a mere 0.8%. Blame that on muted consumer sentiments and the impact of demonetisation. The shoe maker says the March quarter saw the introduction of a new range in men’s and women’s footwear, along with a colourful range for teenagers.

But a faster rate of growth in raw material costs weighed on operating profit performance. Operating margin narrowed 76 basis points in the March quarter, compared with the same period last year, to 9.6%. One basis point is one-hundredth of a percentage point. Gross margin declined, too.

Analysts at Nomura believe the pressure on margins will remain. Bata India continues to face a few issues, which result in near-term risks to earnings, according to Nomura. “These include continued rising competition from regional players and online retailing," it said in a report on 16 May.

Nonetheless, despite a more or less flat operating profit, net profit growth was relatively faster in the March quarter. Net profit increased 27% last quarter to Rs36 crore, helped by a 21% growth in other income, a decline in depreciation costs and tax outgo.

After touching a closing low of Rs402.55 on 24 November, Bata India shares have since appreciated about 36%. That’s good; but then, the Bata India stock has declined 4% in the past year, compared with a 21% increase in the Nifty 50 index. Currently, the stock discounts financial year 2017 consolidated earnings per share of Rs12.37 per share by about 44 times.

Muted revenue growth in the first three quarters translated into just 2% revenue growth for financial year 2017. That may lead to better growth rates this financial year, considering the base is favourable. With a gradual recovery in consumer sentiments, ICICI Securities Ltd expects Bata India to register a revenue compounded annual growth rate of 12.4% in FY17-19E.

The company said this year it will be following its strategy of driving store growth in both urban and tier-II markets. It will also be launching new collections in the women and youth categories. While these efforts should bear some fruit, the stock’s appreciation in the past few months suggests investors are capturing much of the optimism. Better profit margins could make room for further expansion in valuation from these levels.