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Bata India: Labour ‘pangs’

Sep 22, 2000

Bata India, one of India’s largest shoemakers is in trouble again. The company’s fortunes seem to be up one year and down the very next. After almost being wiped out, Bata turned the corner in FY97 thanks to a new management, aggressive product launches and a shift towards its traditional mass market offering high value affordable products. At present, it derives over 70% of its revenues from retail outlets while the balance comes from the wholesale segment. The company had earlier tried to enter the high end market with brands like Hush Puppies, but could not make a mark. Its also used its retail network to market high end apparel products such as ties, T-shirts, Jackets etc. with little success.

(Rs m) 1HFY00 1HFY01 Change
Sales 4,061 3,900 -4.0%
Other Income 5 4 -13.3%
Expenditure 3,690 3,632 -1.6%
Operating Profit (EBDIT) 371 268 -27.8%
Operating Profit Margin (%) 9.1% 6.9%  
Interest 35 41 16.6%
Depreciation 64 67 5.2%
Profit before Tax 277 164 -40.7%
Tax 104 63 -39.4%
Profit after Tax/(Loss) 174 102 -41.5%
Net profit margin (%) 4.3% 2.6%  
Earnings per share* 6.74 3.96  
* (annualised)      
The current year has given Bata nothing to cheer about. During the first of the current financial year (1HFY01) the company’s turnover recorded a marginal decline of 4%, but higher interest and depreciation provisions pruned the company’s bottomline by 42%.

As if these problems were not enough, its traditional problems with the workforce erupted again, this time in its Calcutta unit. While Bata is struggling to cope with its high debt burden and nagging employee disruptions, international entrants like Reebok, Nike and Tuffs along with Indian brands like Action are eating into Bata’s market with aggressive new launches and sleek positioning at retail outlets.

The stock currently trades at a P/e multiple of 13 times its estimated FY2001 earnings. Historically, the stock has traded at a P/e ratio of 45 to 50 times.

Bata is trying hard to prune its workforce through a VRS. It is also retiring high cost debts to improve the profitability of the company. But until it settles issues with its workforce it may find it hard to sustain its growth.


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