Shares of Bata India, a well-known shoemaker company, have been on a downward trajectory since August last year. The stock has corrected by 29.15% during this period, sliding from its high of Rs. 2,004 to the current price of Rs. 1,421. The stock also hit a new 52-week low of ₹1,402 during Wednesday's trading.
The stock has fallen 6.12% since its Q2 FY23 results came in on February 14, which missed analyst estimates. In the December quarter, the company reported a 15.27% rise in its consolidated net profit to ₹83 crore as compared to ₹72 crore. The net profit during the quarter was impacted by lower other income, higher interest expenses, and increased depreciation.
In Q3FY23, the finance cost came in at ₹29 crore, a jump of 26% YoY, while the other income dropped to ₹8 crore from ₹14 crore in the year-ago quarter. Other expenses stood higher compared to pre-COVID levels due to expenses towards digitization and higher investments in brands.
Bata witnessed YoY revenue growth of 7% at ₹900.2 crore, impacted by weak demand in the mass-end footwear category, which led to a 6% decline in volume during the quarter. Despite this, there was an improvement in gross margins of 211 basis points YoY to 54.8%, aided by a better revenue mix and lower raw material costs.
The mass categories below Rs. 500 per pair, which contribute 22% of sales, witnessed demand pressure due to high inflation and GST on lower-priced footwear. However, with the GST increase in the base and raw-material prices stabilizing, Bata expects sales volume in the mass end of the category to gradually improve, according to brokerage firm Sharekhan.
In Q3 FY23, the average selling price stood at ₹772, registering a growth of 13% on both a QoQ and YoY basis. The ASP for sneakers stood at Rs. 2,000 in Q3, while Floatz's ASP came in at Rs. 1,400, Hush Puppies' ASP was at Rs. 4,000, and Comfit had an ASP of Rs. 2,100.
Floatz, launched 18 months ago, is growing strongly and is currently generating revenue at an annual run rate of Rs. 60 crore, said the brokerage.
Sharekhan has maintained a "buy" rating on the stock, citing long-term growth prospects and limited downside risk. The brokerage has a target price of ₹1,775 apiece implying a 25% upside from the stock's current market price.
The stock has corrected by 24% in the past year, in line with muted operating performance for the past three quarters, it said.
The company’s strategy of premiumisation, casualization, and expansion through the franchisee route is working well and will help the company achieve consistent growth in the long run. This will also lead to a consistent improvement in margins on account of premiumisation and better operating leverage, according to the brokerage.
However, Sharekhan lowered its earnings estimates for FY2023, FY2024, and FY2025 to factor in lower-than-earlier-expected revenue growth and higher interest costs.
Besides, "a slowdown in sales due to a change in consumer sentiments or increased competition from large players will affect recovery momentum and act as a key risk to our earnings estimates," said the brokerage.
On similar lines, global brokerage firm Phillip Capital also maintained a "buy" rating on the stock with a revised target price of ₹1,852 apiece from ₹2,212 earlier.
16 analysts polled by MintGenie on average have a 'buy' call on the stock.
Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of MintGenie.