Footwear Stocks Slump: Bata India, Metro Brands, and 5 others plunge up to 20% in a month; what’s causing the fall?

Footwear stocks have been struggling to gain momentum on Dalal Street despite front-line indices reaching record highs. Many stocks in the sector have experienced sharp declines as investors reacted to disappointing June quarter results, which missed analysts' expectations. Various factors, including elections, fewer weddings, heatwaves, and a shift in consumer spending, have influenced this downturn.

In response to the weak performance, analysts have downgraded their earnings forecasts, further exacerbating the sell-off. Additionally, high valuations have led some investors to take profits, contributing to the further slump in stock values.

Leading the downturn, Khadim India saw a 20 per cent drop over the past month, followed by Liberty Shoes with a 17.3 per cent slump. Shares of Campus Activewear, Metro Brands and also fell by 14 per cent, 13 per cent, 12 per cent respectively, while Relaxo Footwear and Bata India experienced corrections of approximately 8 per cent each. 

Analysts indicate there are no clear signs of a pickup in the footwear sector for Q2. However, a stronger performance is anticipated in the second half of FY25, driven by increased spending related to weddings. Companies remain optimistic about growth, expecting demand to rise in the coming quarters and a reduction in low-cost footwear imports from China.

Meanwhile, companies have largely completed their transition to meet BIS (Bureau of Indian Standards) requirements, though a few minor adjustments are still pending. The new standards have been fully effective since August 1, 2024, with the deadline for liquidating existing inventory set for the end of June 2025.

Footwear companies anticipate challenges in India’s ability to produce high-end technical footwear due to the lack of advanced manufacturing capabilities. They are optimistic about receiving government support to address these challenges and enhance local production.

Companies uphold expansion goals

Despite a weak performance in the June quarter, companies have maintained their growth and expansion targets. Metro Brands has maintained its target of opening 100 new stores this year and 225 new stores (excluding Fila) for FY2025/26. During the June quarter, Metro added 17 new stores—7 under the Metro brand, 3 under Mochi, 3 under Crocs, and 1 each under Walkway and Fitflop. The company also expanded its presence by entering two new cities, bringing its total coverage to 195 cities.

Bata has set a goal to add 40-50 exclusive brand outlets (EBOs) each quarter, emphasising the franchisee model, which will drive most of this expansion. Nearly half of the new franchisees are from existing partners.

Bata is focusing on emerging trends such as sneakerization, casualization, and fashion. Currently, casualization and sneakerization contribute 50-55 per cent to Bata’s sales, aiming to increase this to 60-65 per cent over the next three years.

Campus anticipates a resurgence in demand following the monsoon season, noting a decent recovery in July. This recovery is expected to gain additional momentum from the upcoming festive season. The company expects the domestic industry to benefit once inventory not meeting BIS standards is cleared, with the deadline for this clearance set for June 2025.

The management projects that Campus will either match or exceed the growth rate of the S&A footwear category, which is expected to grow in the low double digits for FY2025. The company has also maintained its margin target of 17-18 per cent.

Long-term outlook remains positive

Despite recent challenges, analysts continue to hold a positive long-term outlook on the footwear sector. While recognizing the short-term difficulties following the June quarter results, they have largely upheld their stock ratings.

Kotak Institutional Equities highlights Metro's execution and market potential but finds the stock expensive, especially considering the potential earnings risk if demand does not recover in Q2 or H2. The brokerage has reduced its FY2025 EPS estimate by 5 per cent and revised the fair value to ₹1,150 (from ₹1,100), based on a 57x multiple of the September 2026 EPS forecast. The rating remains at 'reduce'.

The brokerage anticipates improved performance for Campus Activewear starting in Q2, citing recovery observed in July, normalized channel inventory, and a base effect from e-B2B declines. It said the company is expected to benefit from the BIS standards due to reduced low-cost imports and a narrowed cost gap compared to unorganized players. Estimates have been trimmed, with the fair value revised to ₹300 from the earlier target price of ₹285. The rating remains at 'add'.

Motilal Oswal reiterates its 'buy' rating on Campus Activewear with a target price of ₹335 following its June quarter earnings.

The brokerage has also maintained its 'buy' rating on Metro Brands with a target price of ₹1,460. Despite challenges such as soft demand, delayed BIS implementation affecting FILA’s repositioning, and margin contraction, long-term prospects remain positive. Healthy store economics, steady store additions, and growth opportunities in Fila/Foot Locker are expected to drive a 16 per cent CAGR in revenue and a 19 per cent CAGR in PAT over FY24-26.

For Bata India, the brokerage has reduced revenue estimates, resulting in a 7 per cent cut in PAT estimates for FY25 and a 14 per cent cut for FY26. A CAGR of 8 per cent in revenue and 24 per cent in PAT is expected over FY24-26. The rating is maintained at 'neutral' with a target price of ₹1,400, based on a 40x multiple of the FY26 EPS forecast.

Disclaimer: The views and recommendations given in this article are those of individual analysts. These do not represent the views of Mint. We advise investors to check with certified experts before taking any investment decisions.