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There was a time when the first choice of every middleclass Indian household would be – Bata. If you had a Bata shoe, sandal or a chappal, then you could rest assured that it would last for years. It was a status symbol. A symbol of quality.
Has Bata lost that aura? Let us go through the numbers in detail and try to find the answer.
Bata India is a subsidiary of Bata (BN)B V or Bata Corporation aka Bata Company which is headquartered in Lausanne, Switzerland. Most of the parent company’s revenue comes from its operations in India, Pakistan, Bangladesh, Malaysia and Thailand.
Bata (BN)B V holds 50.16% shares in Bata India as promoter. Domestic Institutional Investors own 28.32% of the company and the Foreign Institutional Investors hold 8.24% of the outstanding shares. Residential individual investors hold about 11.43% of the shares.
Bata is working on a seven-pronged strategy:
- making its portfolio better
- wants to increase its retail footprint through offline channels
- putting more focus on marketing
- substantially increase its digital footprint
- making its supply chain robust
- work on operational margins
- focus on process and technology
The company had 1,862 stores by the end of Q4FY24, out of these 58% were Company-Owned-Company-Operated (COCO). In FY24, the company added 161 net new stores to its network. The company is also focusing on its apparel offerings under the Power brand. The company has also tied up with the American fashion retailer, Nine West. The company had 40 Nine West stores in its network by the end of Q4FY24.
Bata has been working on improving its Gross and EBITDA margins. It ended Q4FY24 by achieving EBITDA margin of 25.6%. The gross margin also touched 60.1%.
A snapshot of Bata’s financials
- The company is struggling to grow its revenue. The first quarterly revenue milestone would be to cross the ₹1,000 crore mark and to keep it consistently above it quarter after quarter.
- The March-June quarter is usually better than the other quarters as the schools reopen and new session starts during this quarter.
- The company has zero debt, which means that it has absolutely no issues with working capital.
- The stock is trading at a PE multiple of 71.11 and Price to Book Value ratio of 12.23. Both these numbers are quite high. Even Nike trades at a PE multiple of 27.
- The company had Cash and cash equivalent of ₹49.08 crore and Bank balance of ₹353.86 crore at the end of Q4FY24.
- The ROE was 17.19%. PAT for FY24 was 18.6% lower than that of FY23.
- The finance cost due to lease liabilities was about 15% of EBITDA for FY24. Depreciation and Amortization was about 42% of EBITDA.
- The company’s net margin was 7.41% in FY23-24.
- Relaxo has beaten Bata in terms of market capitalization.
The stock has given negative returns in the last 1, 2 and 3 years. This means that the market is finding it difficult to understand the direction in which the company is moving. In simple words, it means that according to the market, the company is directionless.
Course correction by the Company
The company is working on resolving the issues it is facing. It is introducing new products that may attract the young customers. For this, the company is having tie-ups with other companies and marketing their products in India. One such example is Nine West.
Bata is working on reducing excess workforce by offering VRS to its employees. The company is moving towards a model which was adopted by the giants of the footwear industry. It has started sourcing its products from third-party manufacturing facilities in India and China. A few of its Power and Weinbrenner products are sourced from China. Even a few models of its leather shoes are being manufactured by third-party facilities in India.
Even though Power has existed since ages, it has failed to capture the imagination of the Indian youth. Earlier when the disposable income was less, Power shoes looked expensive. Now, there are Nikes, Reeboks, Adidas’ and Pumas in the market. Bata is working on a strategy to promote Power as a BRAND. So, the company is setting up exclusive Power stores. This may take years to fructify.
Where is the company headed?
It is difficult to tell at this moment where the company is headed. But one thing is for sure is that innovation is not going to originate from its global headquarters. Innovations and course corrections have to originate from Bata’s India offices. The stock looks very pricey in the short term.
Bata will have to tread carefully so that it does not lose out on its existing strongholds while trying to chase faster growth.
