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Result Synopsis

Bata India Ltd (BATA) reported another muted quarter on the back of sluggish demand environment & subdued consumption. Consequently, topline stood at Rs8.37Bn (largely in-line with est), a marginal growth of 2%YoY (2-Year CAGR remained flat). Gross margins declined by 143bps YoY & improved by 176bps sequentially to 56.6% & similarly EBITDA margins declined by 133bps YoY & expanded by 127bps QoQ to 20.9% (above est of 20%). Hence, Absolute EBITDA stood at Rs1.75Bn, a decline of 4%YoY & 6%QoQ. For H1FY25, revenue remained flattish YoY at Rs17.82Bn with an operating margin of 20.2% Vs 23.7% in H1FY24.

Bata’s COCO + Franchise store count as on Q2FY25 stood at 1,955 as compared to 1,916 stores in Q1FY25. Company now operates 4 EBOs of Power, 136 EBOs of Hush Puppies, and 14 Kiosks for Floatz. On its drive to enhance customer experience, company renovated 48 stores in Q2FY25. Also, to accelerate casualization strategy, Bata implemented Sneaker Studio in 756 stores.

Management Guidance

Management maintained their near-term guidance of double digit growth and mentioned that GP margins will remain at similar levels and operating margins will improve depending on cost optimization. Company expects recovery in demand from coming quarters on the back of festive season momentum and Bata’s market positioning.

Our View

We maintain our NEUTRAL rating on BATA as demand scenario remains weak and multiple initiatives taken by BATA for their premiumization growth plan are yet to yield results. Owing to weak H1FY25 on topline and margin front, we have revised our FY25E/FY26E EPS downwards by 12%/13% respectively. We now factor-in Revenue/EBITDA/PAT growth of 4%/5.4%/5.6% respectively over FY24-FY27E. At CMP, the stock trades at P/E(x) of 53x/48x on FY26E/FY27E EPS of Rs25/Rs28. We continue to value BATA at P/E(x) of 50x (avg 1-year forward P/E) on FY27E EPS, arriving at a target price of Rs1,388.

Result Highlights

* Sales grew marginally by 2%YoY & declined by 11%QoQ to Rs8.37Bn (broadly inline with our and consensus est).

* EBITDA margins came in at 20.9% (Vs est of 20% and below consensus est of 21.4%). Margins declined by 133bps YoY & improved by 127bps QoQ. Absolute EBITDA, declined by 4%YoY & 6%QoQ to Rs1.75Bn.

* Net profit stood at Rs520Mn, a degrowth of 31%YoY (excl exceptional loss of VRS) & 16%QoQ (excl exceptional gain on sale of land) owing to lower margins and higher finance & depreciation cost.

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