Bata shows strong footing in Q4. Is the stock still a buy?

Footwear major Bata India, the local arm of Czech firm Bata Shoes, came up with a solid earnings report for the fourth quarter ended March 31, with profit more than doubling over the year-ago period and revenue growing in double digits.

Net profit shot up to Rs 63 crore from Rs 29.5 crore in the fourth quarter the previous year. Revenue in the same period rose 12.7% to Rs 665.2 crore compared with the corresponding period in the previous fiscal year.

We pieced together viewpoints of various analysts to bring a consolidated picture for traders as well as long-term investors who are eyeing the stock.

Buy

The margin improvement of the company is the key attraction for some analysts, who have a buy call on the company even as the firm’s top line growth was muted due to lower footfalls in the January-February period.

On the flip side, the strong growth in the sneakers’ portfolio, revival of formal and fashion footwear, and price hikes executed by the company worked to its advantage.

The sneakers business for Bata accelerated and contributed around a fifth of its revenue. The kids’ footwear segment has seen lower traction but this is expected to perk up herewith as almost all schools have reopened after a gap of two years and this would push up demand for its traditional school shoes.

Bata’s e-commerce average selling price rose a robust 42% quarter over quarter and witnessed 14% quarter-on-quarter growth on B2C marketplaces.

Overall, the company has given guidance for improved consumer sentiment.

Hold/Sell

However, the company has been facing competition from smaller firms that have gained traction over the last few years. These include the likes of Relaxo, Metro Brands and Campus, among others.

Also, Bata’s revenue and more so the volume growth during the quarter clearly missed what analysts had projected.

This was due to the third wave of the pandemic induced by the Omicron variant that affected business. Indeed, volumes and revenue are yet to match its pre-Covid level.

This is a worrying aspect as the firm has been facing demand pressure even as most other discretionary spends categories have seen a revival and its close peers have performed much better.

Buy or Sell?

If we look at analysts after the Q4 results, there are more buy calls than sell or hold calls on the stock from brokerage houses. The company’s share price is trading at a 17% discount to its 52-week high clocked last November. In contrast, the BSE 200 index, of which Bata is a constituent, is just 10% below the one-year high.