Bata India’s focus on sneakers to offer some comfort to investors

For instance, in April-September FY23, Bata’s three-year compound annual growth rate (CAGR) for revenue was a mere 3.4%, compared to competitor Metro Brands Ltd, which clocked 18.4%. Besides, margins have taken a hit due to rising raw material costs.

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The stock’s performance reflects investors disappointment. In 2022, shares of the footwear maker fell by almost 12%, lagging the Nifty 500 index, which rose 3%.

Nonetheless, expectations are that with the wedding season and a likely improvement in rural demand, the footwear sector should do well. Also, Bata’s increased focus on the sneakers category should provide some relief to its investors.

According to a dealers’ channel check by Centrum Broking, sneakers is the fastest growing category for Bata. “Sneakers used to be 15-16% of total sales in the past. With renewed focus on sneakers, the category is now making up 1/4th the total sales,” said the Centrum report dated 21 December.

The company’s move to capitalize on sneakerization is welcome. That said, for sustained earnings growth, depending only on sneakers won’t help. “In an environment of intense competition, it is crucial that all segments of Bata perform well. While its premium brands are on a strong footing, Bata’s kids’ category which contributes 15-20% of overall revenue is yet to pick up pace,” said an analyst requesting anonymity.

Note that Bata is seeing demand stress in product categories in lower price points as elevated inflation levels are weighing on the purchasing power of consumers.

On a year-to-date basis, volumes have reached 88-90% of the pre-pandemic levels, Centrum said in the report. “(Bata’s) sales in Q3FY23 is expected to grow at 10-15% of Q3FY20 (pre-covid). Demand pickup, though improving sequentially, continues to remain moderate,” it added. Apart from volumes, trends in price hikes and store additions will be among crucial monitorables for Bata investors in Q3FY23 results. Bata aims to cater to a potential rise in demand by increasing its footprint through franchise stores. It targets to raise the store count to 500 by FY24 from 353 at September-end.

The stock trades at FY24 price-to-earnings estimate of 41 times, showed Bloomberg data. Given the aforementioned factors, its valuation multiple is expensive, said analysts.