Bata India: it’s a long walk
Bata India's double-digit revenue growth in the September quarter after three quarters of single-digit growth has done precious little to boost investor sentiment
Slower sales growth has been a weak spot with Bata India Ltd for a while now. Still, Bata India’s double-digit revenue growth in the September quarter after three quarters of single-digit growth has done precious little to boost investor sentiment.
One reason is the fact that net profit growth was relatively slower. Bata India’s net profit in the September quarter increased by 3.8% over the same period last year to ₹ 39 crore whereas revenue increased by 13% to ₹ 548 crore. While net profit performance was better than that seen in the June quarter, shareholders seem to want more. Bata India’s reported net profit had decreased by 4% in the June quarter.
Blame higher operating costs and the resultant drop in operating profit margins for the September quarter profit disappointment. Bata India’s operating margin dropped 145 basis points versus last year to 11.6% in the September quarter. One basis point is one-hundredth of a percentage point.
Operating profit performance was adversely affected by faster pace of growth in employee costs, rent (due to store additions) and other expenses. Operating profit, therefore, remained more or less the same compared with the year-ago period. Higher other income growth and a slight decline in depreciation costs supported net profit growth to some extent.
Nevertheless, analysts remain optimistic about the company’s prospects. Nirmal Bang Institutional Equities in a 7 November note said it remained positive on Bata India as it is addressing core issues like a weak supply chain, higher product complaints and less aggressive sales staff in a structural way by appointing Accenture as its business consultant, modernising its plants and setting up sales training centres. It added that with high operating leverage, the company is likely to post a healthy net profit growth once the problems are resolved, which will also coincide with urban recovery.
In any case, from a longer-term perspective, shareholders are sitting on a decent gain. Bata India’s shares have risen by 18.34% since 1 January. Sure, that lags the rise in the BSE 200 index of BSE, but better sales growth in the coming days could go a long way in narrowing that gap.
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