Bata India stock rally has more legs; keeps analysts outlook positive

Revival in revenue growth, margin expansion keeping analysts positive

Shares of footwear major Bata India have delivered over 35 per cent returns to investors in the past one year, much ahead of the 11.3 per cent rise in the S&P BSE Sensex. But, analysts still see a 12-18 per cent upside in the next year and a half, owing to a revival in the company’s revenue growth and margin expansion.

During October-December 2017 (Q3), Bata had reported a 6.5 per cent year-on-year (y-o-y) growth in revenue and a 417-basis point (bps) expansion in its Ebitda (earnings before interest, tax, depreciation and amortisation) margin. An increase in share of premium products and operational cost savings has enabled the company to expand its margin in Q3.

Analysts expect Bata’s revenue to grow at a faster pace of 12-15 per cent and margin expansion (100 bps in each year) to continue over the next two years. While an improvement in product mix on account of the company’s focus on youth, women and kids segments and tapping of new markets are likely to propel Bata’s top line growth, a rise in share of premium products and cost-saving measures (such as rental expenses) are expected to boost margins.

“We expect Bata’s revenue growth to revive on account of an improved product mix and the company following a dual strategy of driving SSSG (same stores sales growth) and opening new stores in untapped locations via franchisee route,” analysts at ICICI Securities said.

The company intends to increase the share of women segment in its product mix. Analysts said the move would accelerate revenue growth given an increase in the number of working women and disposable income.

Additional upsides for Bata will depend on its ability to fully meet demand and expand supplies, said analysts. 

In a report last month, analysts at Dolat Capital said, “We visited multiple outlets of Bata, Khadim and Sreeleathers in the eastern region. Bata stores lacked specific-sized footwear in various designs even though the number of launches was high.” The analysts said “unavailability of products is a major issue with Bata, which will give Khadim an edge”.

However, the management said the issue was being addressed through its omni-channel delivery system. “The company has started omni-channel delivery and it is helping the company in overcoming the (unavailability of products) problem,” said R K Gupta, CFO of Bata India. Through the omni-channel delivery system, customers can make payment at a store and receive home delivery within 48 hours.