Photo: Sanjay K Sharma
Bata’s September 2019 quarter (Q2) numbers underline the listed footwear
major’s earnings prospects in the medium-to-long term, even though they have indicated some growth moderation.
Many analysts believe that a year-on-year (YoY) revenue growth of just 7.3 per cent to Rs 722 crore in the quarter was decent, given the ongoing consumption slowdown.
However, a key factor adding to their confidence was Bata’s aggressive focus on premium products. These now constitute 50 per cent of its retail sales, which account for 85 per cent of overall revenues. Campaigns such as ‘New Arrivals Every Friday’ and new store formats like the Experience Centre (offering customised foot care) are helping Bata garner good demand for its premium footwear.
It aims to increase the revenue share of its premium products by around 500 basis points (bps) over the medium term, a move that could propel profitability.
Further, in Q2, Bata’s gross profit margin expanded by 72 bps YoY to 56.4 per cent despite higher promotional offers, owing to good growth in premium products.
This led to the Ebitda (earnings before interest, tax, depreciation, and amortisation) margin, adjusted for new lease accounting norms (INDAS-116), improving 66 bps YoY to 13.5 per cent.
Reported Ebitda margin in Q2 stood at 25.7 per cent. Profit before tax grew 14.6 per cent YoY to Rs 97.4 crore.
Net profit grew at a brisk pace of 28 per cent, driven by a lower corporation tax rate. Therefore, the numbers are not comparable.
Besides margin improvement, the sales promotion campaigns — along with new launches and innovation — are helping increase footfall in stores and on its e-commerce platform, says Bata.
Store expansion plans in tier-2 and tier-3 cities will aid the top line and margins. Bata aims to open 500 franchise stores over the next five years to garner more market share in smaller towns.
Analysts, thus, foresee higher annual growth of 11 per cent in the top line over FY19-FY21, versus 8-9 per cent in the previous two years. However, much of this has been priced in for the stock, which is trading at close to 49x its FY21 estimated earnings — a 49 per cent premium to its 5-year historical average valuation.
Yet, Amarjeet Maurya, AVP at Angel Broking believes that given the high growth potential and expected margin improvement, the higher valuation is justified. Analysts at Dolat Capital echo similar views.