Markets
For Bata India, chasing growth continues after a lacklustre FY24
Summary
- Despite Bata's efforts to propel sales, a subdued demand environment is hurting growth, especially impacting mass market products that have comparatively lower average selling prices.
Shares of Bata India Ltd have tumbled 17% so far in 2024, underperforming the broader market indices. Amid soft demand conditions, the footwear maker has been struggling to boost sales. Growth was forgettable in each quarter of FY24.
In the March quarter (Q4FY24), revenue grew 2.5% year-on-year to ₹798 crore. Last quarter, it added three company owned, company operated (COCO) stores taking the total count to 1,329. It also closed some unprofitable or non-brand value-adding COCO outlets.
Bata added 24 franchise stores, primarily in tier-three to tier-five towns, to cater to branded product demand and achieve better returns on capital, taking the overall count to 533. The franchise store addition was lower than the management’s expectations as they would like to maintain a run rate of almost 40 stores each quarter, akin to that seen in the previous two to three quarters.
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In Q4, Bata launched the Nine West brand, while the Power brand apparel regained its momentum.
Despite efforts to propel sales, a subdued demand environment is hurting growth, especially impacting mass market products that have comparatively lower average selling prices. In the earnings call, the management said it is seeing initial signs of recovery in demand, but there isn’t complete clarity on how the underlying conditions have changed. Q4’s Ebitda (earnings before interest, tax, depreciation and amortization) growth was flat at ₹182 crore with higher spend on advertising eating into profit margin. The upshot: Ebitda margin contracted by about 50 basis points (bps) even though gross margin expanded.
Overall, after two years of solid growth, Bata’s FY24’s year-on-year revenue growth is far from impressive at just 0.8%. As such, the premium segments are performing well, led by strong growth in Red Label, Comfit and Power. Going ahead, Bata is looking to reduce contribution from COCO stores and will make new store additions in the ratio of 80:20 for franchise and COCO. The company will continue to expand sneaker studios, which are now present in 698 stores.
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However, the path ahead may be dreary. “Retail expansion through franchise and SIS route (capital light) is positive, but yet to yield results (with doubling of franchise and SIS stores)," said an ICICI Securities report dated 2 June. SIS is short for shop-in-shops.
To be sure, while a favourable base for FY25 helps, much would depend on the extent of demand recovery and how growth shapes up. Notably, despite the recent underperformance, it is not as if the stock’s valuations are appealing. Bata India’s shares trade at about 48 times FY25 estimated earnings, according to Bloomberg.
