Bata India on a strong footing. Q2 results show good signs of recovery

The investors of Bata India are sitting on handsome gains as the stock has appreciated by nearly 30 percent so far in 2021. And now they have more reasons to cheer.

The company reported better-than-expected September quarter results (Q2FY22) with revenues increasing by 67 percent year-on-year to Rs 614 crore. A favourable base also helped growth look sharper given that revenues had decreased by 49 percent in last year’s September quarter.

Even so, Bata India’s Q2FY22 recovery was supported by a steady rise in footfalls across its retail outlets, along with growth seen via e-commerce platforms and expansion drive in smaller towns in Tier 3-5. At the time of declaring the results on November 3, the company said, “Bata continued with its retail expansion drive in tier 3-5 cities through franchise route, taking the overall tally to 270+ as on date.” Additionally, sales through digitally enabled services contributed about 14 percent of overall sales in Q2FY22.

Strong revenue growth meant that the company was able to swing to profit at the EBITDA level, from a loss in the June quarter (Q1FY22), which was adversely impacted by the second covid wave’s restrictions. EBITDA is earnings before interest, tax, depreciation and amortization; a key measure of profitability for companies. Bata India’s EBITDA in Q2FY22 stood at Rs 119 crore versus a loss of Rs 34 crore in Q1FY22. Note that while EBITDA has substantially improved year-on-year, it is nearly 36 percent lower than Q2FY20, which was a pre-pandemic quarter.

Dolat Capital Market Pvt. Ltd has maintained its FY22E/FY23E earnings per share (EPS) estimates for Bata India at Rs 11.3 and Rs 28.1, respectively, to factor in 1) re-opening of malls, schools, offices in FY23E; 2) favorable base; 3) new advertising campaigns; 4) continued E-com traction; and 5) ramp-up of store additions. “We have introduced FY24E EPS at Rs 33.7. Valuing at 65 times FY24E EPS to arrive at a target price of Rs 2,188 (10% discount to Relaxo),” said Dolat Capital’s analysts in a report on November 3. For perspective: Bata India’s shares are currently trading at Rs 2043 apiece.

To be sure, the company’s recovery journey is expected to continue, unless a third covid wave hits the country. "Going forward we believe that Bata’s recovery too will pick up pace as footfalls (including in malls) have improved significantly," said Akhil Parekh, analyst at Elara Securities (India) Pvt. Ltd.

Meanwhile, it is worth noting that even as Bata India’s Q2FY22 revenues saw robust growth year-on-year as well as sequentially, they are still nearly 15 percent lower compared to Q2FY20. Needless to say, investors will keep a close eye on the pace of the recovery ahead.