Q1FY21: Covid-19 cuts the ground beneath Bata India’s feet2 min read . Updated: 10 Aug 2020, 11:24 AM IST
- The company's June quarter results were severely affected by the pandemic, with a net loss of ₹100 crore from ₹100 crore profit for the same period last year
Mumbai: Shares of shoemaker Bata India Ltd were trading lower in early morning deals on NSE on Monday. The company’s June quarter (Q1FY21) results announced on Friday post market hours were severely hit owing to the covid-19 led disruptions. Bata swung to a net loss of ₹100 crore during Q1FY21 from ₹100 crore profit for the same period last year.
Note that Q1FY21 losses were contained due to the ₹50 crore rent concessions (including ₹16 crore unconditional rent concessions pertaining to subsequent quarters). Bata has accounted ₹20 crore under rent expenses and ₹30 crore in other income.
The problem started with revenue growth itself as many of the company’s stores were shut during the quarter due to the covid-19-induced lockdown. Revenues fell by a whopping 85% to ₹135 crore, coming in below analysts’ estimates. “Higher than estimated drop can possibly be because more stores than our expectations would have remained shut during the quarter," wrote Akhil Parekh of Elara Securities (India) Pvt. Ltd in a report. “The company has about 300-350 stores inside the mall as per our channel checks. These stores would have remained closed for the most part of the quarter," added Parekh.
Overall, the company has about 1,550 stores.
In these trying pandemic times, firms have resorted to cost cutting. Bata did well on the cost management front, with overall operating expenses falling by 65%. Even so, since the fall in revenues was much deeper, the operating leverage deteriorated. As such, loss at the earnings before interest, tax, depreciation and amortisation (Ebitda) level stood at ₹86 crore.
Going ahead, the journey is rocky for Bata as analysts expect sales revival to take a while. “Given that 25-30% of Bata’s stores are in malls, the company would take longer to witness revamp in footfalls, which would severely impact profitability," wrote analysts from Dolat Capital Market Pvt. Ltd in a report on 8 August. Footfall in shopping malls are expected to be lower as fear of contracting the virus is likely to keep consumers away.
Additionally, Bata’s higher average selling price may weigh on demand, as consumers keep a tight grip on their purses in these uncertain times.
“Though significant negative impact is expected on sales; costs like rent, other operation related costs would not decline in the same proportion," pointed out Dolat Capital. The broking firm added, “Hence, Bata would take abnormally longer time to restore margins registered in pre-covid period."
Unsurprisingly, shares of Bata have declined by a meaningful 33% from its pre-covid high in February.