Bata Pakistan Limited (PSX: BATA) was established in 1951 as Bata Shoe Company (Pakistan) Limited. In 1979 it went public and was renamed to what it is today. The company manufactures and sells all kinds of footwear in addition to other accessories and hosiery items. Its parent company is Bafin B. V. (Netherlands) while the ultimate parent company is Compass Limited, Bermuda.
Shareholding pattern
As at December 31, 2021, over 75 percent shares are held under the associated companies, undertakings and related parties. This category solely includes the parent company Bafin (Netherlands) B.V. About 15 percent shares are held under NIT & ICP followed by close to 5 percent shares owned by the local general public. The remaining roughly 5 percent shares are with the rest of the shareholder categories.
Historical operational performance
Bata Pakistan Limited has consistently seen a growing topline throughout the years with the exception of CY20 when it contracted by almost 33 percent. While gross margin has followed an upward trajectory, net margin has been declining, particularly in the last six years, with some recovery seen in CY21.
In CY18, revenue was higher by over 8 percent to cross Rs 16 billion in value terms. This was primarily contributed by local sales of shoes and accessories, while export sales continued to decline. While production cost reduced to 55 percent from over 57 percent of revenue seen in the previous year that allowed gross margin to improve to 44.8 percent, net margin fell to 8.9 percent from last year’s 9.8 percent. This was attributed to an increase in distribution expense that consumed more than 23 percent of revenue. The increase was a result of rent expense and trademark license fee; the latter refers to “royalty fee of Bata Brands S.A.R.L., Switzerland an associated company”.
Topline registered a growth of close to 4 percent to cross Rs 17 billion in value terms during CY19. While local sales continued to dominate the total revenue pie, export sales also increased after contracting consecutively for the last four years. With continuous decline in production cost as a share in revenue, gross margin increased to over 45 percent. However, net margin declined to 6.25 percent as distribution expense continued to consume a higher share in revenue due to abnormally high depreciation expense of over Rs 1 billion. Coupled with this was the rise in finance expense that made up 4.5 percent of revenue due to interest/mark-up on lease liability.
After rising consistently throughout the decade, topline in CY20 contracted by almost 33 percent to fall to Rs 11.7 billion in value terms. This was largely due to the impact of Covid-19 that led to strict lockdowns, and reduced in-store purchasing. Additionally, the purchasing power was also impacted that led to reduced spending. This is evident from reduced turnover from retail and non-retail divisions by 24 percent and 56 percent, respectively. This reflected in reduced profitability as the company incurred a loss of for the first time of Rs 627 million, despite relatively higher support from other income that stood at Rs 473 million.
Topline recovered somewhat in CY21 as it posted a growth of 19.4 percent to reach close to Rs 14 billion. The retail division witnessed a growth of 21 percent, while the company spent Rs 38 million to open new stores and renovate existing ones to sustain growth levels. As production cost fell to an all-time low of 53.7 percent of revenue, gross margin reached a peak of 46.3 percent, while net margin stood at 3.9 percent as finance cost and distribution expense made a smaller share in revenue. Although it was the lowest positive net margin, it was improved relative to the previous year that saw a negative net margin of over 5 percent.
Quarterly results and future outlook
Revenue in the first quarter of CY22 was higher by nearly 22 percent year on year. While both the retail and non-retail divisions saw a challenging period as the effect of Covid-19 continued to linger, the retail division saw a higher turnover by 29 percent year on year. This can be attributed to demand recovery after Covid-19 pandemic. On the other hand, there was only a marginal decrease in production cost to 49 percent of revenue from 51 percent in the same period last year as the cost of doing business increased due to rising commodity prices in the global market, currency devaluation and political uncertainty.Thus, net margin was slightly better at 2.5 percent versus 1.2 percent.
The company claims to be continuously improving and investing in new moulds while its production facilities are also remaining operational to cater to the market demand. Bata Pakistan is a well-established name in the footwear market in the local arena, particularly with school shoes category.Therefore, while demand may exist, the rising cost of doing business may hinder profitability.