Why Investors Love Bata

Till about a decade ago, Bata shoes were considered old-fashioned with little style to draw younger customers. Not anymore.

The maker and retailer of namesake footwear brand slowly worked to shed that image, with new designs targeting women and the young. More so in the last three years. The turnaround reflects in the company's financials with premium footwear now accounting for nearly a third of its sales, improving margins. That helped win investor faith.

Shares of Bata India surged 80 percent in the last 12 months compared with the 4 percent decline in the NSE Nifty 500 Index. It has returned nearly 180 percent gains in the last three years and more than 3,000 percent in the past decade, making it a mega wealth creator.

“We introduced new designs and styles in line with market trends, which were well accepted by our customers,” Ram Kumar Gupta, chief financial officer at Bata India, said in a chat with BloombergQuint. He said brand endorsement by younger film actors like Sushant Singh and Kriti Sanon has only added to its appeal.

Canada-based Bata, which traces its origins to 1897 in the erstwhile Czechoslovakia, saw Alexis Nassard take over as its new global chief executive officer in August 2016. Nassard, who considers India as one of the groups most important markets, has been driving change. Sandeep Kataria took over as India CEO in November 2017. RK Gupta had joined Bata in 1986 and has worked in different positions.

The three were instrumental in driving the change at the company, according to a report by Edelweiss Securities. Over the last two to three years, Bata India has made its shoes more palatable to the young as well expanded women's line.

The company sells products across categories through 1,400 stores in 550 cities.

Bata India's product mix also changed with mid-premium and premium contributing about 30 percent of its revenue.

Improving Margins

That, along with lower input costs, helped Bata India improve its margins and boost gross profit. That was aided by a cut in goods and services tax from 18 percent to 5 percent on footwear priced below Rs 1,000.

Spark Capital said controlled rental costs and better operating leverage also aided margin.

Not Cheap

The stock's stellar run has made it expensive. Shares of Bata India trade at 57 times the estimated earnings in FY19, not only higher than its five-year average but also costlier than peers.

Eight out of the thirteen analysts who tracked the stock have a ‘Buy' rating, according to Bloomberg data. It's expected to decline 2.8 percent, according to the average of 12-month price targets.