Bata India Ltd’s shares gained 7% at the close of the day’s trade on Monday buoyed by strong quarterly earnings, and the recent cut in goods and services tax (GST) rates on footwear. The stock also touched its new 52-week high during the day.
For the June quarter, the company’s revenue rose 8.3% to ₹797.28 crore and net profit increased 37% year-on-year to ₹82.55 crore. The launch of the new Red Label collection helped it boost sales.
Bata India posted an Ebitda (earnings before interest, tax, depreciation and amortization) margin of 16.5%, compared to the 13.5% clocked through FY18. Its rental costs and other expenses declined during the quarter.
The good earnings performance, coupled with a massive rate cut in GST on footwear helped the scrip. The GST rate on footwear priced at ₹500-1,000 per pair was lowered from 18% to 5%. Earlier, the 5% rate was applicable only for products up to ₹500.
Analysts say when the company passes on the benefit of the lower GST rate, it will boost its sales volume. Bata India sold 47 million pairs of footwear during FY18 as well as in FY17, according to the company’s annual reports. This, despite a net store addition of 82 stores in FY18.
However, the company’s focus on premium products boosted overall realizations, with 7% growth in revenue in the year ended 31 March from the previous year.
Bata India shares have gained 23% so far in this fiscal year, with the stock trading at nearly 43 times its estimated earnings for FY19.
However, despite the cheer, the company will have to deal with headwinds.
One of the key concerns for Bata India has been its stodgy image, especially among the youth.
Analysts from Dolat Capital Market Pvt. Ltd believe that the company’s sales growth would remain lower compared to its peers, primarily due to increased competition, and better and more economic offerings by other footwear makers.
Investors must take cognizance of these factors before being swept off their feet.