Bata India Shares Surge Most In 14 Months After Q4 Results
Shares of Bata India Ltd. gained the most in 14 months as analysts expect the footwear maker to regain lost sales momentum once schools, malls and offices reopen after the Covid-19 lockdowns lift.
The company beat analyst estimates in the quarter ended March, mainly driven by a sharp decline in raw material cost, though its profit and revenue fell fell on a sequential basis.
Consolidated net profit dropped 11.5% sequentially to Rs 29.4 crore, against the Bloomberg consensus forecast of Rs 26.8 crore.
Its revenue from operations declined 4% to Rs 589.90 crore.
Bata’s board recommended a dividend of Rs 4 per equity share.
“The Q4 results are satisfactory for us, considering Q3 sales have historically been always better because of festive season,” said Sandeep Kataria, chief executive officer at Bata India. “We continued our march towards recovery via our channel expansion efforts via franchising, distribution and marketplaces routes.”
The company also said it has adequate cash reserves and is curbing discretionary expenses to eliminate redundancies and introduce efficiencies in its value chain. “Bata India remains hopeful that with the rollout of vaccines for everyone above 18 years, business would start growing back.”
Though analysts are hopeful about Bata’s recovery in the long term, they cut their FY22 earnings estimates, citing muted discretionary demand and loss of revenue because of existing lockdowns across the country.
Shares of Bata rose as much as 6.49%, the most since April 8, 2020, to trade at Rs 1,659 apiece. Of the 15 analysts tracking the stock, eight have a ‘buy’ rating, three suggest a ‘hold’ and four recommend a ‘sell’, according to Bloomberg data. The average of 12-month consensus price targets implies a downside of 2.5%.
Here’s what analysts made of Bata India’s Q4 performance:
Maintains ‘hold’ rating, cuts target price to Rs 1,500 apiece from Rs 1,600, implying a downside of 4%.
The quarter witnessed a gradual recovery and indicated steady and consistent growth in line with the quarter’s seasonality.
Recovery was largely driven by re-opening of stores, which were shut down due to extended lockdowns in major parts of the country.
Expects the company to witness a further recovery in light of increasing traveling and further lockdown relaxations from Q2FY22.
The company continued expanding its network in lower-tier cities through the franchise model, which would further drive volumes.
Trims FY22/23 estimates given subdued discretionary demand due to extended lockdown in Q1FY22.
A strong balance sheet with healthy cash on books (around Rs 1,100 crore) and efficient working capital should help Bata to sail through the current situation smoothly.
Maintains ‘accumulate’ rating with a target price of Rs 1,697, implying an upside of 9%.
Bata’s Q4FY21 revenues came below the brokerage’s estimate as it anticipated better revenue traction due to improved business conditions.
The sales performance would remain low in the coming quarters due to nationwide lockdowns and anticipated further delays in opening of malls.
Nevertheless, over 12-18 months, the continuous store additions, new promotional activities and procuring institutional contracts would help Bata to recover from lull in sales growth.
Post re-opening of markets, most of the retail businesses have reached pre-Covid level. With gradual re-opening of schools and offices, Bata would also regain lost momentum.
Downward revision of FY22E estimates to factor loss of revenue due to nationwide lockdowns.
Maintains FY23 EPS estimates to factor in anticipated reopening of malls, schools, offices, a favourable base, new advertising campaigns and increased e-commerce contribution.
Maintains ‘reduce’ rating with a target price of Rs 1,400 apiece.
Weak performance continued in Q4. Portfolio-specific headwinds (higher formal and fashion salience) continued to hurt; some of the peers have already seen good recovery.
Several initiatives by Bata to accelerate recovery — ramping up sales from new channels, capturing semi-urban/rural demand through franchisee stores, and restarting promotional campaigns and new launches.
Bata is likely to be a key beneficiary of ‘full unlocking’. Inferior product mix, away from formals & fashion and more towards open style footwear is likely to put further pressure on profitability till then.
Management has highlighted efforts to introduce efficiencies in value chain and elimination of redundancies.