Bata India Q4 net profit knocked down by pandemic

Bata India’s share price slumped on Tuesday after the shoe maker reported 57% drop in net profit to Rs Rs 38.40 crore for the fourth quarter ended March 2020 due to COVID-19 induced lockdown. The company had posted a net profit of Rs 88.66 crore in January-March quarter a year ago.
Revenue from operations declined 8.77% to Rs 620.57 crore during the quarter under review as against Rs 680.23 crore in the corresponding quarter of last fiscal.

Total expenses declined 3.81% to Rs 579.46 crore as against Rs 602.46 crore a year ago.
For fiscal year 2019-20, Bata India’s net profit was almost flat at Rs 328.95 crore. It stood at Rs 328.99 crore in the previous year.
Revenue from operation rose 4.26% to Rs 3,056.11 crore in 2019-20 as against Rs 2,931.10 crore in 2018-19.
Meanwhile, the company remains cautiously optimistic about its future growth.

In order to overcome current scenarios, the company is expanding its e-commerce footprint and ramping its presence in online marketplaces, allowing delivery in over 1,300 cities, rolling out home delivery across over 900 stores.
Bata India is also giving its customers an option to shop from homes via WhatsApp chat with neighbourhood stores of the company, Kataria said.

The company is closely working with the Council for Footware, Leather and Accessories (CFLA) and Retailers Association of India (RAI) to take up industry-relevant issues like rentals, safety of customers and retailers’ needs.
Bata has a debt free balance sheet with surplus cash at Rs 800 crs and a capital efficient business model with a negative working capital cycle. The company is focusing on maintaining a balance between volume growth and premiumisation.

Hoiwever looking at the current lock down scenatio, we expect 65-70% of the company’s costs fixed in nature and expect that it will save on rentals during the lockdown as their rental agreements have a forced majeure clause.
However, the outcome is still uncertain at present. The company was earlier focused on increasing its marketing spend but going forward it is likely to cut down its marketing and advertisement budget. Employee costs will likely reduce to the extent of variable pay.

The expansion plans are expected to get delayed due to the current situation. In the given scenario, we believe that demand has not been lost but has been postponed to a later date. We believe that in the upcoming months, consumers will prefer to shop online rather than visiting malls/stores and bata’s presence online will help the company gain market share in the long run.

With 50-60% of sales coming from the top 10 cities and the latter being the hotspots for Covid-19 outbreak in India we think the lifting of lockdown will take a while.
Even post the lock down lifting, we think consumers could take time to get back to their normal shopping behavior,

which could mean that FY21 could potentially be a washout year.
Also it is pertinent to note that Q4FY20 performance has been weak when the lockdown effect was seen for only a week in these numbers. Q1FY21 is further expected to remain more weak as the larger effect of an extended ;lockdown for 2 months will get reflected in quarterly numbers ahead
Net net the business outlook for FY21 looiks tough and any meaningful normal recovery can be expected only from FY22 onwards only.

Disclaimer –
This document is meant for the recipient only for use as intended and not for circulation. This document should not be reproduced or copied or made available to others. The information contained herein is from the public domain or sources believed to be reliable. While reasonable care has been taken to ensure that information given is at the time believed to be fair and correct and opinions based thereupon are reasonable, due to the very nature of research it cannot be warranted or represented that it is accurate or complete and it should not be relied upon as such. Also above note is not a recommendation to Buy or SELL and is only a view based on facts and figures and we will be in no way responsible for any losses incurred by anyone who uses this information to either trade or invests securities mentioned herein.