Bata India sees improving demand as inventory reset boosts network productivity
Bata India Ltd.
Neutral
₹666
₹618.75
₹600
9.91%
Investment View and Valuation
Motilal Oswal Financial Services retained its Neutral rating on Bata India in its June 3, 2026 results update. The broker sees early benefits from the company’s operational reset, including product refreshes, inventory simplification and better channel execution. However, it believes sustained growth acceleration will require further improvement in product relevance and execution. Profitability is expected to remain below pre-COVID levels even by FY28E.
The broker has set a revised target price of Rs 600, based on 25 times FY28E earnings per share of about Rs 24. This implies around 10 per cent downside from the CMP of Rs 666.
4QFY26 Financial Performance
Bata India reported 4QFY26 revenue of Rs 8,276 million, up 5 per cent year on year and around 3 per cent ahead of Motilal Oswal’s estimate. Demand improved for the second consecutive quarter, with broad-based growth across channels and categories and sequential strengthening through March.
| 4QFY26 metric | Reported performance | Year-on-year change / estimate comparison |
|---|---|---|
| Revenue | Rs 8,276 million | Up 5 per cent; around 3 per cent ahead of estimate |
| Gross margin | 56.4 per cent | Down 240 basis points; 95 basis points below estimate |
| Reported EBITDA | Rs 1,732 million | Down 1 per cent; margin down 133 basis points to 20.9 per cent |
| Adjusted EBITDA margin | 18.2 per cent | 120 basis points below estimate |
| Adjusted profit after tax | Rs 525 million | Up 21 per cent |
| Reported profit after tax | Rs 21 million | Down from Rs 432 million in 4QFY25 |
Gross margin declined mainly because franchisees accounted for a higher share of contribution. Employee cost fell 9 per cent year on year, but other expenses rose 24 per cent. Excluding a Rs 224 million non-cash foreign-exchange loss from restating royalty liabilities after currency devaluation, underlying operating-expense growth was around 10 per cent, largely reflecting a roughly 1.5 times year-on-year increase in advertising and promotion investment.
Adjusted EBITDA margin was affected by gross-margin dilution and higher marketing spending, despite operating cost control. Adjusted profit after tax excludes a Rs 281 million voluntary retirement scheme charge and the Rs 224 million foreign-exchange loss. Reported profit after tax was sharply lower because of these one-offs.
FY26 Performance and Inventory Reset
FY26 revenue remained broadly flat at about Rs 35 billion. Gross margin contracted 145 basis points to 55.3 per cent, while pre-Ind AS EBITDA declined 4 per cent to Rs 3.6 billion. Pre-Ind AS EBITDA margin declined 40 basis points to 10.4 per cent. Adjusted profit after tax rose 10 per cent to Rs 2.3 billion, whereas reported profit after tax was Rs 1.6 billion and was affected by multiple one-offs.
Inventory days improved to 73 from 85 in FY25. Absolute inventory declined 13 per cent year on year and 28 per cent over two years. Management stated that its inventory transformation is 70-75 per cent complete, has reduced assortment complexity by 30 per cent and is targeting inventory turns of about 3 times, compared with about 2.7 times currently.
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Operational Reset and Channel Progress
Management highlighted stabilisation in the sub-Rs 1,000 value segment, which contributes around 35-40 per cent of revenue. Hush Puppies, contributing around 18-20 per cent of revenue, and Power continued to outperform.
- ZBM stores: The network expanded to 550 stores, generating mid-single-digit higher sales than the rest of the network. These stores represent around half of company-operated stores but contribute more than 70 per cent of company-operated-store revenue. ZBM coverage is expected to reach 75-80 per cent of the network by the end of 1QFY27.
- Franchisees: Contributing around 10 per cent of revenue, franchisees delivered double-digit growth. The network exceeded 700 stores and is targeted to reach 1,000 within 12 months.
- E-commerce: Contributing around 12-13 per cent of revenue, e-commerce is the fastest-growing channel. It has become profitable after four to five years of investment and is fulfilled by more than 700 stores.
Forecasts and Earnings Outlook
Motilal Oswal forecasts FY26-28E revenue, EBITDA and adjusted profit after tax compound annual growth of 4 per cent, 7 per cent and 7 per cent, respectively.
| Metric | FY27E | FY28E |
|---|---|---|
| Revenue | Rs 37.2 billion | Rs 39.1 billion |
| EBITDA margin | 22.3 per cent | 23.3 per cent |
| Adjusted earnings per share | Rs 18.1 | Rs 23.7 |
Key Risks and Potential Support
Key risks to the recovery include the need for stronger product relevance and execution, franchise-mix-led gross-margin pressure, elevated brand spending, raw-material inflation of around 5-6 per cent, and commodity and crude-linked volatility.
Potential support could come from a recovery in organised value footwear demand following GST rationalisation.
Disclaimer: This is a summary of a research report published by the broker/research house identified above. The views, recommendations, target prices and estimates are those of the respective broker and do not represent DSIJ investment advice. The summary may be AI-assisted, hence please refer to the original report for complete details, disclosures and risks.
