Bata India: Investor confidence rises after better-than-expected Q3 numbers

The stock of footwear major Bata India surged about 27 per cent in the past three months and hit its 52-week high on Wednesday, before closing at Rs 1,271.4 apiece, up 6.9 per cent. 
 

The stock also outperformed the BSE FMCG index that has risen a meagre 0.9 per cent in the past three months. Factors such as improving earnings visibility have turned investors bullish.

Better-than-expected December quarter (Q3) numbers, announced on Tuesday, reinforced investor confidence about the company’s prospects. Thus, the stock — trading at 47 times its FY20 estimated earnings — should see good upsides from current levels, say analysts.

In Q3, net revenues grew 15.5 per cent year-on-year (YoY) to Rs 778.7 crore, against expectations of Rs 743 crore. Importantly, Bata’s net profit surged 51.4 per cent YoY to Rs 103.2 crore on the back of impressive margins. The reported net profit was around 35 per cent higher than estimates. 

Bata witnessed its highest ever Ebidta (earnings before interest, tax, depreciation and amortisation) margin of 21 per cent in Q3 — an expansion of 447 basis points (bps) YoY. 
 

Apart from benign raw material prices (which fell 350 bps as a percentage of revenues, YoY) and lower rent (84 bps down), a higher share of premium products in overall sales contributed to Bata’s profitability in Q3. 

According to Sharekhan’s report in December, revenue contribution of premium products went up to 32 per cent just before the end of Q3, from 30 per cent during the April-September period. 
 

Bata’s efforts to improve premium product sales include expansion of 50 new red-concept stores, and launch of new collections in Hush Puppies, among others. 

In addition, the festive season, consumer campaigns, and a reduction in the goods and services tax (GST) on shoes priced in the Rs 500-1,000 per pair range in July last year, would have helped push premium products. 

Analysts say that around 50 per cent of Bata’s volumes come from this segment. Overall, growth in same-store-sales is likely to be around 12 per cent in Q3, they expect. 

Growth in volumes, on account of the push to premium products, will continue ahead. This will be supported by the roll-out of omni channel consumer technology in Q3, apart from the factors mentioned above. 

Omni channel is a strategy to improve user experience across multiple retail formats. For instance, if the products are not available in stores, customers can pay at the store and get a home delivery within 48 hours.