Bata India Ltd has been finding it challenging to boost its sales for a while now, and that has continued in the December quarter (Q3FY25). Revenue growth was lacklustre at about 1.7%, hardly much of an improvement from the 0.3% and 0.8% growth seen in H1FY25 and FY24, respectively. Sure, Bata’s Q2FY25 growth was slightly better at 2.2%, but that’s not exciting either.
Still, efficient cost management held the company in good stead in Q3FY25 as Ebitda growth came in at 9% year-on-year to almost ₹200 crore with margin rising 152 basis points to 21.7%. A relatively slower pace of growth in raw material costs and employee costs, along with a drop in other expenses did the trick on the operating profit front.
The management said in the Q3 earnings call that the quarter saw volume growth, which was across channels. Better execution during the discount sale period aided volume growth. “Volume growth during the quarter and 9MFY25, coupled with early signs of a turnaround in the MBO (multi-brand outlet) channel, are key positives,” said IIFL Securities.
Bata’s Floatz and Power portfolios saw 25% and 9% volume growth in Q3, respectively. The company has undertaken various initiatives to fuel volumes. Its zero base merchandising (ZBM) project aims to declutter store merchandise and reduce complexity, thus enhancing consumer experience. The initiative has been expanded to 17 stores by Q3-end, but execution has lagged the initial target of reaching 100 stores by December.
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Investors will watch for sustained volume growth ahead, though the path to recovery is rocky. “A broad pickup still remains contingent on overall demand recovery, especially in the value segment,” according to IIFL.
Bata has been highlighting that it aims to improve brand experience in the near-term, although gaining mind/market share will be an uphill task given the dull historical brand experience compared to peers.
“Bata has been also lagging peers on other facets, including low pace of innovation and dis-incentivized store staff,” said analysts from Ambit Capital. “While company seems to be taking some corrective measures (innovation, variabalisation of store staff incentive, etc.), we will monitor for consistency before turning constructive on the name,” they added.
As things stand, Bata’s shares are down 42% after hitting an all-time high of ₹2,229.6 apiece on 15 November 2021. The stock trades at 51x FY26 estimated earnings, according to Bloomberg. Valuations are pricey given muted growth prospects at least in the foreseeable future.
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