GST cut, new launches, revamped products to fuel Bata's revenue growth

A slash in goods and services tax (GST) rate in July last year, besides a robust performance in the April-September 2018 (H1FY19), has helped Bata India (Bata) India stock gain about 24 per cent since August. The stock has outperformed the BSE Fast Moving Consumer Goods index, which fell over 2 per cent during this period. However, the rally is not yet over for Bata. Some analysts foresee 12-13 further upside in the stock.

The gains will not only come from the GST cut but also from the company’s efforts to add new and revamped products, which would aid overall top line growth. 

Report by Prabhudas Lilladher revealed the new and revamped portfolio was receiving good consumer response. Also, the company plans to open 90 new owned stores by the end of the ongoing financial year (of these, 45 stores already added during H1FY19). 

Bata’s net sales that grew just around 6 per cent in FY18, is expected to rise at a compounded annual growth rate of over 12 per cent from FY18 to FY21. All this (including lower GST) should also help protect its margin profile, emanating from a likely increase in sale of premium products, despite expected investments for marketing and advertising of new launches, and additional cost of new store opening. According to a Sharekhan report, from 30 per cent during H1FY19, revenue contribution of premium products moved up to 32 per cent currently, which is further likely to rise to 35 per cent by the end of FY19.

Profitability would also get a boost out of lower inflation. Prices of rubber, one of the key inputs for Bata, have fallen 3 per cent so far from September-end. Lower crude oil prices, and curb in the weakening rupee against the dollar would lower its packaging and logistic costs. Thus the performance in the first half of FY19, with net sales growth of 11 per cent, margin improvement by 281 basis points, and net profit growth by 34 per cent, is expected to continue in future quarters.