The stock of footwear major Bata India has been the highest gainer among larger listed footwear companies since the start of the month on expectations of a recovery in the value segment, new launches and measures by the new government to boost consumption.
The third largest footwear maker by market capitalisation has been trailing its peers over the past few quarters due to the slowdown in the mass segment market which accounts for a significant chunk of its revenues.
The stock is up eight per cent this month outperforming its peers as well as the benchmarks.
Though the company’s March quarter result was impacted by the distribution business and products in the lower value bracket, the management highlighted that there have been signs of improvement in the mass market.
Government policies to improve consumption especially in tier 2 and tier 3 centres could help improve demand for footwear majors such as Bata.
Footwear priced lower than Rs 1,000 a pair accounts for about 30 per cent of the company’s revenues.
The other trigger for the footwear company is the uptick from demand for its premium range of products.
Even as overall revenue growth was limited to 2.5 per cent due to the weak mass market segment, premium brands such as Red Label, Comfit, Power, HP and Floatz continued to outperform.
The company’s MD and CEO Gunjan Shah indicated that the expansion of its premium offering with international tie-ups such as Hush Puppies and fashion retailer Nine West are driving premiumisation given significantly higher average selling prices. The company, which launched Nine West in the March quarter, is now present in 40 stores and the management has a target of scaling this to 70 stores by December this year.
In addition to overall growth, a higher proportion of premium products has also aided its profitability in the quarter.
Aided by a better mix, the company improved its gross margins by 160 basis points over the year ago quarter and by 405 basis points sequentially to 60 per cent.
Even as gross margins saw an improvement, the gains could not be sustained at the operating level as margins contracted by 54 basis points to 22.5 per cent.
Higher advertising spends, increased IT cost and lack of operating leverage dented operating profit margins.
Near-term prospects have been hit due to weak discretionary demand while increased competition is putting stress on margins, highlights Sharekhan Research.
The company is eyeing a double-digit growth in the long run, driven by premiumisation, casualisation (casual wear trend), and expansion through the franchisee route.
A robust scale up of the apparel segment and a positive response for the Nine West brand, according to the brokerage, would aid the company’s growth in the long run.
Sharekhan Research has a hold rating with a price target of Rs 1,470 a share.
ICICI Securities, too, has a hold rating with a target price of Rs 1,350.
Analysts led by Varun Singh at the brokerage believe that Bata’s focus on premiumisation, improving brand perception and expanding distribution are steps in the right direction though there will be challenges along the way.
Further implementations of ERP in the system is a key positive, they add.
What Star Rating Does Your AC Have?
Would You Buy A CNG Car?
Can Modi 3.0 Keep Inflation In Check?
Railways To Begin Hiring Again