Market share concern weighs on Bata

Store-level inventory management issues benefiting peers but firm’s profitability expected to keep improving

In spite of a strong set of numbers for the March quarter (Q4), shares of Bata India have declined 0.4 per cent over two days. In fact, the stock has underperformed the benchmark BSE Sensex and peers in the past month (down four per cent), due to concerns over loss of market share. In a note after the results, analysts at Dolat Capital said their channel checks revealed despite no demand hiccups and Bata faced store-level inventory management issues, like unavailability of sizes for its key brand, Hush Puppies. Peers like Khadim India are benefiting from this. However, Bata is a much bigger player and some base effect would also be keeping growth numbers in check. Yet, its revenue in Q4 grew only 6.9 per cent over a year, compared to 19-31 per cent for Relaxo Footwears and Khadim. Even for all of FY18, Bata's sales grew 6.6 per cent, compared to 20-23 per cent posted by these peers. Analysts worry that this might persist in the near term. “We believe until Bata resolves its store-level product management strategy, peers would outpace it in sales. Nevertheless, its new offerings in select segments would gain traction,” Dolat Capital’s analysts said. Around March-end, to a query by Business Standard on this issue, R K Gupta, Bata's chief financial officer, had said this was being taken care of through an omni-channel delivery system — customers can pay at a store and get home delivery within 48 hours. Positively, product premiumisation, cost savings and selling expenses led to a 343 basis points expansion in operating profit margin in Q4, a trend likely to sustain. Net profit surged 45 per cent over a year to ~521 million. Its debt-free status is also keeping analysts positive on Bata. At 34 times its FY19 estimated earnings, the stock could see a 10-15 per cent rise in a year. If Bata is able to increase revenue growth, it should add wings to the stock. Analysts at ICICI Direct are hopeful. Bata has taken various efforts, such as plans to open 100 stores in FY19 and expand retail footprint in over 400 cities, they say.