Bata India margins improve as product revamp awaits stronger sales traction

Investment View and Valuation

Motilal Oswal Financial Services’ August 13, 2026 results update indicates that an earnings recovery is under way at Bata India, although a sustained acceleration in topline growth remains essential. The broker reiterates its Neutral rating as operating initiatives gain traction, while revenue growth and margin recovery are expected to be gradual.

Motilal Oswal expects profitability to remain below pre-COVID levels even by FY28E. However, a demand recovery in organised value footwear following GST rationalisation could provide downside support. The broker’s Rs 645 target price is based on 30 times September 2028E EPS of Rs 22, implying 12 per cent downside from the report CMP of Rs 729.

1QFY27 Financial Performance

Bata India reported 1QFY27 revenue of Rs 9,789 million, up 4 per cent year on year and broadly in line with Motilal Oswal’s estimate. Growth reflected premiumisation, volume growth and consumer engagement across channels.

Gross-margin expansion was supported by higher full-price sales and lower markdowns despite continued raw-material pressure. On an underlying basis, after adjusting for channel mix, gross-margin improvement was about 230 basis points.

Employee costs declined 2 per cent year on year, while selling, general and administrative expenses rose 16 per cent, mainly due to a roughly 25 per cent increase in advertising expenditure. Higher brand investment offset gross-margin gains, resulting in a decline in EBITDA margin. Lower depreciation and finance costs supported adjusted PAT growth. Reported one-offs of Rs 51 million included foreign-exchange and ERP implementation costs, while underlying PBT increased 23 per cent year on year.

Product Revamp and Store Productivity

Management indicated that redesigned products are entering stores and will see a broader rollout over the next few quarters. The product proposition focuses on design authority, comfort, technology and premiumisation, with the potential to increase average selling prices and gross margins.

ZBM has reached 775 COCO stores, representing about 80 per cent of retail revenue. These stores are delivering mid-single-digit higher growth than the remainder of the network. ZBM 2.0, or Project Elevate, is intended to generate further gains in assortment and merchandising productivity.

Franchise Expansion and Inventory Improvement

Franchise expansion remains a key growth lever. Bata India has 750 franchise stores, sustained high-single-digit like-for-like growth and partner return on investment of about 18–24 per cent. Management has identified more than 600 potential new trade areas. Motilal Oswal considers the franchise format more EBIT-accretive than COCO stores.

Inventory availability has improved about 12 per cent, while store lines have reduced to 68 per cent of the level two years earlier. Further assortment rationalisation towards about 60 per cent should reduce markdowns and improve full-price sell-through.

Manufacturing Consolidation and Cost Efficiency

Manufacturing consolidation has reduced Bata India’s vendor base to about 70 from 100–120, with a target of about 30 vendors over the next three to five years. Management targets about 200 basis points of savings through lower kit, mould and material complexity.

Voluntary retirement schemes and technology-led organisation redesign are also improving employee-cost efficiency. Marketing spend has increased to about 3–3.5 per cent of sales from about 2.5 per cent earlier and is expected to remain elevated for several quarters to support the new product cycle.

Forecasts and Key Risks

Motilal Oswal forecasts FY26–28E revenue, pre-IND AS EBITDA and adjusted PAT CAGR of 6 per cent, 13 per cent and 21 per cent, respectively, from a low base.

Key thesis risks include:

• Weak consumer response to the new product cycle.
• Continued slow revenue growth.
• Persistent input-cost pressures.
• Elevated marketing expenditure delaying margin recovery.