After a subdued Q4FY20, Bata India set to crawl through FY211 min read . Updated: 31 May 2020, 09:40 PM IST
The second half of this fiscal year remains crucial as demand recovery is expected to show a decent improvement
Footwear company Bata India Ltd was having a reasonable run in January and February, posting about 8% growth. However, sales plunged in March, as covid-19 forced stores to close. This led to about 9% decline in the overall March quarter revenue to ₹620 crore. Bata’s revenues had increased by 8% year-on-year for the nine months ended December.
These results are reflective of the impact the covid-19 pandemic has had on the retail sector, with some shopping malls and stores suspending operations even before the nationwide lockdown was imposed on 25 March.
The June quarter can be expected to be a washout, with stores being closed for a good part of this period. Moreover, recovery ahead is likely to take time.
“Though significant negative impact is expected on sales, costs like rent, other operation related costs would not decline in the same proportion," analysts from Dolat Capital Market Pvt. Ltd pointed out in a report on 25 May. “Hence, Bata would take abnormally longer to restore margins posted in pre-Covid period," said the brokerage firm. Analysts estimate Bata’s earnings before interest, tax, depreciation and amortization (Ebitda) margin for the March quarter to have declined by more than 300 basis points. This is on a comparable basis, adjusting for Indian Accounting Standard 116 changes. One basis point is one-hundredth of a percentage point.
Meanwhile, down-trading is also a concern as consumer confidence has taken a beating during this crisis with income levels dropping. Investors seem to be cognizant of the damage to demand, especially for non-essential items. This is reflected in the substantial correction in Bata’s share price in recent months. The stock has fallen about 30% compared to its 52-week high of ₹1,895.
Bata’s cash-rich balance sheet is a comforting factor. At March-end, cash and equivalents stood at ₹960 crore. The second half of this financial year remains crucial as demand recovery is expected to show a decent improvement led by the festive season. However, delays in demand recovery would weigh on investor sentiment for the Bata stock.