This is nothing new to Bata but so soon into its recovery from crushing losses, made it a little unnerving. Recent reports have it that the company management is already having a rethink on its strategies for 1998.

As it is the stock markets have discounted the prospects of Bata quite fully for the current year, and the exceptional growth in profits shown in the last year will be difficult to repeat, though revenue growth can be maintained. For the same reason the stock was very much in demand prior to the results and not thereafter.

In 1997, the profit after taxincreased four times to Rs 16.64 crore from Rs 4.15 crore in 1996, even as revenues increased by 13 per cent from Rs 590 crore to Rs 670 crore. Though margins fell profits could be increased thanks to the company's debt repayment.

The second half of 1996, was the beginning of the period of recovery for Bata; where the company managed to increase its revenues marginally over the first half but pulled in almost that entire years profit of Rs 4 crore in those six months. The subsequent six months that is the first half of the just concluded financial year was even better where revenues were once again up marginally but profits doubled to Rs 8 crore. In comparison, during the second half of 1997 the revenues actually dipped a little bit but profits were slightly better.

But the indications for the immediate future are that while revenue growth will not be spectacular the growth in profits have already begun to slow. In the recent past the focus of the top management has been on better inventory control thusimproving availability of different designs and on volume growth (this is not a trivial matter for Bata India as it has to cover well over 11,000 retail outlets including a 1,000 odd owned by the company); in some designs, selling prices have been lowered in order to facilitate faster asset turnover. The trend in the stock price has mirrored the financial performance over the last one and a half years. Over the period of one year the stock has risen from Rs 69 to Rs 151 at present, a gain of 118 per cent.

Infact this gain emerged just before the announcement of the first half results; in which Bata India reported spectacular profits. Thereafter the stock traded in a band between Rs 122-Rs 167, just prior to the announcement of the second half performance (on March 27) when the price peaked at Rs 180, but it collapsed soon thereafter as the performance was fully discounted and more importantly the profit growth had slowed. Until the present the total fall in the stock has been about 16 per cent. In the pasttoo, the rise in the stock was constrained by the inconsistency in its ability to beat its cost of capital. Even in 1993, which was a good year for Bata India, it barely managed to meet its cost of capital; in that year too Bata India emerged from a year of losses to post spectacular growth.

Similarly, in the just concluded financial year for that matter despite the very strong growth shown by Bata there is virtually no chance that the company has been able to beat its cost of capital.

The immediate direction of the stock undoubtedly will be determined by the probability of increasing labour unrest leading to a disruption of production or sales, just as it did in the last quarter of 1997, when the stock was subject to some extreme uncertainty over a probable labour dispute. And unfortunately we have seen in the recent past that for Bata good years are invariably followed by bad ones rapidly.