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Bata steps up on cost control, as India steps back on shoe purchases – Mint

Bata India Ltd is putting its best foot forward during the pandemic. Its performance for the March ended quarter (Q4) shows that the company has been effectively able to control costs despite a tepid sales growth. This has impressed the Street, with the stock gaining over 5% on Thursday.

Bata’s Q4 revenues were marginally behind the Street’s estimates, falling about 5% year-on-year. Sales were also lower sequentially as the second wave of the coronavirus pandemic played spoilsport. But note Q3 sales were buoyed by festival season sales. In that context, Bata India’s Q4 sales weren’t all that bad.

Also, it more than made up for the slack in sales with some sharp cost controls. Savings in rentals and discretionary spending helped reduce other expenses by 18% y-o-y. A lot of this may be sustainable and could play a huge factor when recovery kicks in over the coming quarters.

“While both revenue/ EBITDA was 6%/ 15% below our estimate, we wouldn’t read too much into the % miss given high volatility in underlying retail demand in the current environment and consequent operational impact given high fixed cost nature of Bata’s business,” pointed out analysts at Axis Capital in a client note.

Bata India has also continued to expanding its branch network and brand building by appointing new distributors. Last quarter’s addition of 10 new franchise partners in smaller towns is a good step forward despite the lockdowns. Besides, the firm plans to scale up its online presence through its own channels, as well as other online marketplaces. A new CEO has been appointed in the fast-moving consumer goods space.

While the stock has done well over the recent past, it’s still about 13% away from last year’s pre-covid highs. The second wave could impact revenues in FY21, but driven by some of its premium products and new launches, the Street is pencilling in a good recovery in FY23. Investors, however, are likely paying a high price for now. The stock trades at 65 times FY20 earnings, which reflects the steady state performance before the pandemic hit.

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