Omni channel expansion to support Bata India's growth recovery

Well placed vis-a-vis competition given healthy balance sheet

Despite the muted show in the March quarter, the Bata India stock gained about 5 per cent in trade on growth expectations led by distribution expansion, omnichannel strategy and new launches. 

This could mark a reversal for the stock which has been lagging its peers since the start of the year on the back of weaker revenue growth and sub-par cost reduction efforts for 9MFY21. 

Further, the street was skeptical about its pricing-led revenue growth strategy over the medium term and its ability to maintain margins. In this context, premium valuations too were difficult to justify which led to the underperformance. 

The expansion of its distribution channel beyond the company-owned, company-operated (COCO) model could provide the revenue impetus going ahead. 

Analysts at Nirmal Bang Research believe that wholesale business through the multi-brand outlet route, franchising and e-commerce could potentially grow at 20-30 per cent annually while the brick-and-mortar COCO channel will likely grow in the mid-to-high single digits. In the March quarter, the company opened 10 franchise stores in smaller towns and cities taking the total to 228 franchise stores; it also launched a new collection in the quarter. 

While the March quarter performance has missed expectations on the revenue and operating profit levels, the company indicated that it has been a steady and consistent growth in line with the quarter’s seasonality. The company’s revenues have recovered to 95 per cent levels, in line with the sector. 

Given the second wave and expectations of muted sales in the near term, analysts have reduced their growth estimates for FY22 while highlighting strong recovery in FY23. 

Analysts at Axis Capital have upgraded the stock on potential gains from high pent up demand, sustained store expansion and stronger management bandwidth with Gunjan Shah who was earlier in Britannia expected to join as CEO at the end of the month. Moreover with cash of Rs 1,000 crore, the company is better placed than competition to gain from demand recovery. 

At the current price, the stock is trading at 46 times its consensus FY23 earnings estimates; investors can consider it on dips.