bata: Can this footwear stock deliver solid returns after 3x jump in Q1 sales?

Profit jumped 72 per cent in the June quarter on a recent three-fold jump in sales, but analysts over the counter have been quite mixed. Those who see a strong outlook are betting on the company’s sneakers segment and see a steady improvement in volumes going forward. Others that are not, pointed to volumes and margins that are still below pre-pandemic levels. He said growing the sneakers segment would be a tough task.

Ambit Capital has given ‘Sell’ rating on the stock with a target of Rs 1,312. HDFC Securities sees it at Rs 1,400.

Wealth has ‘Buy’ over the counter with a target of Rs 2,365. Dalal & Brocha Stock Broking said the downside is limited and long-term investors should maintain it, as it finds the stock worth Rs 2,001. Centrum sees it at Rs 1,944 while Nirmal Bang Institutional Equities at Rs 2,240.

On Monday, the stock closed at Rs 1,855.05, down 3.22 per cent. It has given flat returns so far this year.

In an interview to ET Now, Bata India CFO Vidya Srinivasan said that her company has seen an uptick in demand across multiple geographies. “I think it’s definitely a good indicator,” she said.

“There has been an increase in ASP as well mainly due to increase in input cost and change in GST tax rate, which has impacted us. We are also trying to see how customers react to the increase in prices. Giving and being cautious. We are trying to balance the two,” she said.

India recently reported a 71.82 per cent rise in consolidated net profit at Rs 119.37 crore for the first quarter of FY23 as the shoemaker achieved the highest ever quarterly sales. Revenue from operations stood at Rs 943.01 crore during the quarter, which was three times higher than Rs 267.04 crore in the corresponding quarter of FY22.

Sneakers now account for 19% of revenue. School shoes contributed 9 per cent of revenue in the June quarter.

Edelweiss said Bata’s volume is still slightly lower than pre-pandemic levels. This strong focus on formal, fitness and casual footwear, coupled with distribution expansion will help the company make up for lost volume in the short term.

“Similarly, Bata’s margins are at 90 per cent of pre-pandemic levels due to higher marketing spend during the quarter. We expect the company’s margins to improve gradually and reach pre-pandemic levels by FY24E ,” it said while valuing the stock. 53 times of FY24 earnings.

said on a relative basis

Securities, Bata India continues to disappoint.

Bata India’s three-year sales CAGR, at 2 per cent, is significantly lower than Tatkal peer Metro’s 18 per cent. It said that despite the fall in gross margin, EBITDA margin missed estimates as normalization in cost of retailing outweighed sales realization.

Giving a valuation of 38 times EPS for June FY24, it said, “The volume drivers of Bata are likely to make the growth-margin equation difficult to execute.”

Nirmal Bang said the emphasis on the sneaker segment is probably the first major strategic initiative under new CEO Gunjan Shah, where he believes Bata Global will take the fight mid-trend for MNC players with a portfolio of nine brands. Trying to go- from premium pricing.

“The emphasis is on avoiding competition with them by not focusing so much on high performance products, but by focusing on other aspects including comfort, lifestyle, walking/running etc. Contributing to 20 per cent of sales, The sneaker segment is expected to reach 50 per cent in the medium term without losing sight of the other products in its portfolio.”

The brokerage, however, has cut its revenue and EBITDA estimates for FY23-FY24 and pegged it at 46 times September FY24 EPS.

Centrum believes that the growth of Bata, as before, will be largely due to the increase in ASP. This brokerage believes that Bata’s position in the sneakers category is relatively weak and hence it may face adverse conditions if it goes ahead and rises.

Centrum said Bata’s sales volume grew 19 percent year-on-year to 38 million in FY22. But they were still down 23 per cent from FY20 volumes. School shoes (9 per cent of sales) and office shoes volume would not have gone back to pre-pandemic levels as per our estimates, it said.

“As highlighted by management, lower priced SKUs are still under pressure. Also, since the growth is led by franchise stores, there will be a gap between volume and price growth. We estimate FY20 -24E will see volume growth at a CAGR of 2 per cent,” it said.

An average target on the stock suggests a potential gain of 12 percent on the footwear maker, according to Trendline.

(Disclaimer: Recommendations, suggestions, views and opinions given by experts are their own. They do not represent the views of The Economic Times)


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