Bata India Limited’s recovery in the September quarter (Q2FY23) has been disappointing. Company’s revenue approx. 830 crore up 35% year-on-year (yoy) and 15% over Q2 levels of FY20, which was a pre-Covid quarter. This translates to a three-year compound annual growth rate (CAGR) of only 4.7%.
“Bata has underperformed on the net sales and margin front as compared to its peers in the branded footwear segment in Q2 FY2023,” said Archana Gude, analyst at IDBI Capital Markets & Securities. Revenue in Q2
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Bata’s profit in the second quarter was also not encouraging. Gross margin expanded by 210 basis points (bps) to 55%. One basis point is 0.01%. However, it was lower by about 140 bps compared to Q2FY20. Higher other operating expenses in Q2 weighed on the earnings before interest, tax, depreciation and amortization (EBITDA) margin, which stood at 19.4%, much below Q2FY20 levels.
Unsurprisingly, after the Q2 results, many analysts have cut FY23 and FY24 earnings estimates. Bata’s sneaker segment is expected to be a key driver of growth, whose progress is worth monitoring for investors. The company has increased the number of its sneaker studios to 250 across India and maintained that the continued growth of the category led to the improvement in growth in the second quarter. Online sneaker sales grew 126% last quarter.
Overall, the premium category is witnessing better traction and is in a strong position. Bata intends to increase its franchise store count to 500 by FY24 from 353 at the end of September. It also aims to boost sales through its online and multi-brand outlet network. Investors will closely watch the performance on various fronts.
The outlook is not good and recovery is expected to be slow given the increasing competition and changing consumer preferences. “The growth-margin equation has not been a walk in the park when it comes to different growth channels (wholesale, franchise) and realigning classification,” said analysts at HDFC Securities Ltd.
Investors have taken note of the concerns. Bata India shares have declined over 20% in the last one year. It is also not that valuations provide comfort. Data from Bloomberg shows that Bata shares are trading at around 42 times FY24 estimated earnings. The market expects the weakness in the numbers to continue given the cost inflation scenario. While we like Bata among branded footwear companies, we expect a slow earnings recovery and pressure on the share price in the near term.”
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