Bata India’s Sep quarter result is good, but won’t boost stock1 min read . Updated: 15 Nov 2020, 09:00 PM IST
Experts believe the company could suffer due to restricted footfall in malls and expected downtrading
India’s benchmark stock market indices, the Nifty 50 and the Sensex, touched all-time highs last week. However, shares of some companies lie far behind their pre-covid peaks as the health crisis has wreaked havoc on the demand for their products.
One of these is Bata India Ltd. The shoemaker’s stock is nearly 28% lower than its pre-covid highs in February.
The June quarter was sharply hit by the covid-19 lockdown, which resulted in a whopping 85% year-on-year (y-o-y) drop in Bata India’s revenues. As the economy gradually unlocked, the company reopened its stores, leading to a sequential recovery. As such, the revenue drop was contained to 49% y-o-y in the September quarter.
The pandemic has meant the portfolio mix evolved from formals and fashion categories to casuals, fitness and essential categories covering comfortable sneakers, open and sandals styles.
Earnings before interest, tax, depreciation and amortization (Ebitda) swung to a profit of ₹18 crore in the September quarter from a loss of ₹86 crore in the June quarter.
The recovery is striking and the festival season could well help the trend of sequential improvement continue. However, that may not be enough as the Bata India stock is trading at about 48 times estimated FY22 earnings, according to Bloomberg data.
“We believe the company would suffer because of restricted footfalls in malls, unfavourable base, expected downtrading, and less scope for growth in ASP’s in the near term, given the unfavourable economic environment," said analysts from Dolat Capital Market Pvt. Ltd in their September quarter results review report. ASP is short for average selling price. “With anticipated downtrading, Bata would take longer to restore margins registered in pre-covid period," the analysts said.
Unless demand recovery is far ahead of expectations, scope for the stock’s valuations to expand seems limited. There are some mitigating factors, though. “We expect the company to be a beneficiary of market share gains given store expansion in lower-tier cities as most players in the unorganized segment mainly dominant in these regions would face liquidity constraints," wrote analysts from Axis Securities Ltd in a report on 11 November.