One of the country’s leading shoemakers continues its steady rhythm forward. The Lahore-based Bata Pakistan Limited (PSX: BATA) has closed 1HCY17 with a double-digit growth in its bottom-line. The top-line growth remained steady at 5 percent, but that, along with managed growth in manufacturing overheads, was enough to see through amelioration in all three profit margins down the line.
Incorporated in Pakistan back in 1951, BATA has three main divisions: retail, wholesale, and export. The retail portfolio includes school shoes, dress shoes, sandals, slippers, athletic shoes, casual shoes, etc which are marketed to different age-cohorts and genders. Popular brands include Bata Shoes, Marie Claire, Bubblegummers, Weinbrenner, Power, and North Star.
Besides shoes, BATA also makes and markets accessories and hosiery items. It also sells both domestically-produced and imported footwear products to the wholesale market. As for exports, they have brought in less than one percent of the firm’s gross sales in recent years.
With healthy results in the half-year period, BATA – whose three-quarter shareholding rests with its parent company, Bafin B.V. (Nederland) – has extended the good run seen this decade. Top-line has regularly grown, albeit at a decelerating pace. However, manufacturing efficiencies and controlled administrative expense have led to significant bottom-line expansion in recent years. The script is the same in the half-year period under review.
Faced with growing demand, BATA has undergone capacity expansion in recent years. By 2016 close, the firm had accumulated a capacity to manufacture 19.4 million pairs of shoes, up from 12.9 million pairs in 2011. The capacity utilization has also remained high, averaging 90 percent between CY11 and CY16. Shoe-production in 2016, 16.5 million pairs, was below the peak of 17.1 million pairs produced in 2014.
A slowdown in sales growth since CY15 is a concern. The management attributes top-line weakness to unsatisfactory performance of its non-retail business division. It is apparent that Bata faces growing competition from various new footwear brands that have emerged in recent years.
The new entrants seem to have a selective focus: they are tailoring footwear products towards individual segments and trendy fashion. That’s where the bulk of the discretionary spending is. In contrast, BATA, and peer firms like Service Shoes, mass market a variety of shoes to different age groups and genders. Perhaps a repositioning towards a more fashion-oriented brand persona may do the trick.
Going forward, BATA will continue to hold a significant competitive advantage thanks to its heritage and an established footprint of over 400 retail outlets across Pakistan. The shoemaker will do well to expand its retail stores, especially in rural areas, besides making its urban retail footprint more customer-friendly.
It must be noted that while BATA marches on, the same cannot be said of the stock market’s appetite for the scrip. BATA has been down on the PSX roughly 32 percent in the year-to-date period. But it’s a very thinly-traded stock. So perhaps there is not much to read into the stock hitting a new 52-week low of Rs2800 earlier this week.
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