Neutral Bata India Ltd for the Target Rs. 1,200 by Motilal Oswal Financial Services Ltd
Steady volume growth recovery is vital
* Bata India (BATA) delivered yet another weak quarter with 1% YoY revenue decline (5% miss) and ~230bp YoY gross margin contraction. The weak performance was attributed to the company’s deliberate shift toward valuedriven offerings to boost volume amid subdued demand.
* Adj. EBITDA margin at 20.7% contracted by ~180bp, impacted by weak GMs and a one-off impact (~100bp) of employee expenses. EBITDA at INR1.6b fell 11% YoY. Reported EBITDA was boosted by a change in licensing terms.
* Despite muted demand, BATA is seeing early traction in value segment (sub INR1k). Strategic inventory cleanup, curated product refreshes, and franchiseled expansion should help the company improve efficiency and drive margin recovery, though near-term pressures persist.
* Our FY26-27E estimates are broadly unchanged. We expect FY25-27 CAGR of 8%/12%/22% in revenue/EBITDA/adj. PAT CAGR (albeit on a low base in FY25, -23% vs. FY23 levels). We maintain a Neutral rating with a TP of INR1,200
Weak results; 5% miss on reported EBITDA led by lower gross margin
* Revenue at INR7.9b (5% miss) declined ~1% YoY (vs. 2% YoY growth in 3Q) as ~5% YoY store addition was likely offset by a decline in same-store sales.
* BATA added 9 net stores in 4Q, taking the total store count to 1,962 (+5% YoY).
* It added gross 19 franchised stores and likely closed 10 COCO stores.
* Gross margins contracted 229bp YoY to 57.9% (though up 165bp QoQ), ~245bp below our estimate.
* Gross profit declined 5% YoY to INR4.6b (9% miss).
* Adj. EBITDA margin at 20.7% contracted ~180bp, impacted by weak GMs and a one-off impact (~100bp) of employee expenses. EBITDA at INR1.6b fell 11% YoY.
* Reported EBITDA declined 2% YoY to INR1.76b (5% miss) due to accounting change in royalty (now moved to depreciation vs. other expenses earlier).
* Margins contracted ~22bp YoY to 22.3% (in line).
* Adj PAT declined 28% YoY to INR459m (26% miss) due to weaker EBITDA, higher D&A (+15% YoY) and high finance costs (+12% YoY).
FY25 review: Subdued performance continues
* Revenue at INR35b was flat YoY, with <1% CAGR over FY23-25.
* Gross profit remained flat (-1% YoY) at INR19.6b as gross margin declined 80bp YoY to 56.3%.
* EBITDA declined ~6% YoY to INR7.3b and EBITDA margin contracted ~150bp YoY to 21.1%.
* Adjusted PAT at INR2.5b declined 15% YoY (23% below FY23 levels).
* Net working capital days improved sharply to 116 (from 137 in 1HFY25 and 161 FY24), led by healthy reduction in inventory days to 195 (vs 227 YoY).
* FY25 FCF (post leases) improved to INR2.9b (from outflow of INR226m YoY), led by health OCF of INR3.6b and lower capex due to franchisee-led expansion.
Key takeaways from the management interaction
* Muted Demand: Despite a weak demand environment weighing on overall revenue, BATA is witnessing selective volume-led growth in both value and premium segments—particularly in sub INR1k products and the Floatz portfolio. Internal initiatives such as zero-based merchandising are improving store-level efficiency and driving better conversions, partly offsetting broader market softness.
* Margin pressure amid value focus: BATA’s sharper value-for-money portfolio has supported consumer retention but compressed gross margins by 230bp, due to an adverse channel mix and lower ASPs. An additional 100bp impact on operating margins stemmed from one-off employee costs. However, cost resets and product portfolio rationalization are underway to rebuild operating leverage.
* Brand and channel mix: BATA continues to evolve its multi-channel approach, with ~80% of new store additions from the franchise network and renewed focus on modern trade. Brand-wise, Floatz has emerged as a premium growth driver (40%+ growth, nearing INR2b), while Power and Hush Puppies (~20% contribution each) support the dual strategy of value and premiumization.
* Inventory-led efficiency gains: The company reduced inventory by 16% YoY, with aged stock now at a low level of 2-3% of total. ZBM implementation across 146 stores led to 40% SKU reduction and 25% inventory decline. This enhanced agility enables more curated, innovation-led product replenishment, supporting margin recovery through lower markdown intensity.
Valuation and view
* Over the last couple of years, following the change in management, a renewed focus on growth has been evident, characterized by a brand refresh, the introduction of new product lines (such as Sneakers), and enhancements in the backend supply chain infrastructure.
* Despite muted demand, BATA is seeing early traction in value segment (sub INR1k). Strategic inventory cleanup, curated product refreshes, and franchiseled expansion are positioning the company for improved efficiency and gradual margin recovery, though near-term pressures persist.
* Our FY26-27 estimates are broadly unchanged. We expect FY25-27 CAGR of 8%/12%/22% in revenue/EBITDA/Adj. PAT CAGR (albeit on a low base in FY25, - 23% vs. FY23 levels). We maintain a Neutral rating with a TP of INR1,200.
* Sustained volume recovery remains the key trigger for the stock.
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