Bata India shares: What JM Financial, MOFSL say after weak Q4 results

Bata India faced a challenging fourth quarter as reflected in the recent financial results, prompting varied assessments from brokerages. Motilal Oswal Financial Services Limited (MOFSL) described the Q4 outcomes as weak, noting a 5% miss on EBITDA, attributed to lower gross margins. Concurrently, JM Financial observed a miss across various parameters, maintaining a 'Hold' rating on the stock,  ahead of the company's concall, which is scheduled on June 2 at 11.00 am IST.

Bata India's revenue for the quarter stood at INR7.9 billion, which represents a 5% miss and a decline of approximately 1% year-over-year (YoY). According to MOFSL, these figures were influenced by store additions that failed to offset declines in same-store sales (SSS). The company added a net nine stores in Q4, resulting in a total of 1,962 stores, marking a 5% year-over-year increase.

Gross margins contracted by 229 basis points YoY to 57.9%, although they improved by 165 basis points quarter-on-quarter. Gross profit fell by 5% YoY to Rs 460 crore, a 9% miss against expectations. EBITDA also saw a 2% decline YoY to Rs 176 crore, missing predictions by 5% due to increased employee costs and weak gross margins, offset partially by reduced selling, general, and administrative expenses.

Bata's management acknowledged market headwinds but expressed commitment to driving volume-led growth. The company successfully reduced its gross inventory by 15% to optimise stock turns and enhance forecast accuracy. Management emphasised deploying fresh merchandise in anticipation of demand revival and increased consumption.

JM Financial highlighted the company's focus on inventory management, noting substantial efforts to improve stock turns and forecast accuracy. This focus resulted in scaling the Zero Base Merchandising Project to 146 stores, aiming to achieve optimal inventory levels.

Additionally, Bata India saw a reduction in core working capital days by 15 in FY25, driven by a 12-day reduction in inventory days and a 6-day increase in creditor days. This was partially offset by a 3-day increase in debtor days, indicating enhanced working capital efficiency.

Despite these operational improvements, Bata India reported a 28% decline in adjusted PAT to Rs 45.90 crore, missing expectations by 26%. The decline was due to weaker EBITDA and higher depreciation and finance costs, underscoring the financial pressures facing the company.

While Bata India continues to navigate market challenges, its strategic initiatives on inventory and store management are intended to support future growth. The upcoming company conference call scheduled for June 2 will likely provide further insights into its plans and expectations.