Bata India Ltd

Good afternoon, everyone. Revenue from operations stood at Rs. 918.5 crores, which represents 1.7% value growth. Gross margin at Rs. 515.6 crores, which is improvement by 17 bps over the last year gross margin. EBITDA margin at 22.7%, which also expanded by 141 bps, and while the reported PAT is about Rs. 582 million, which is flat.

Before exceptional, I forgot to mention, we did incorporate in the quarter that went by one-time exceptional item, which was on VRS related to one of our south factories. So, while I think four quarters back, if I remember right, we had taken in the closure of the Bangalore factory. This one was, partial VRS for a certain section of workers, which was amounting to about roughly Rs. 11 crores, yes. So, that we had taken incorporated. So, the PAT obviously is after that. Thank you. Shall we open the line for questions? Yes.

Thank you. We will now begin the question-and-answer session. (Operator Instructions) The first question comes from the line of Ankit Kedia with Philip Capital. Please go ahead.

Sir, my first question is on zero-based merchandising. Last quarter, we had given a target of 100 stores by December and 250 stores by March '25. We are still at around 17 stores in the presentation for December. So, we are behind that target. So, any challenges in executing zero- based merchandising?

Page 7 of 15 Okay. Hi, Ankit. Thanks for that. Yes. You are right. And that's what we had set out ourselves. I think, unlike the other initiative as I mentioned even in my call or presentation that this one requires a lot. And what we have realized, as we mature this entire thing and understood consumer feedback, the store understanding of what's happening, why are they doing better, etc., we realize that three, four things go together. So, it's not just initially, it started off and which is like the project is called zero-based merchandising, but it's much broader than just merchandising.

So, now we are not only making sure that the range is curated, the voice of the store is brought out and therefore the relevant consumer cohort. But then making sure that simplicity comes through all across, right? So, the communication cues, how do you say the visual merchandising that we put, the number of fixtures, so for example, at least the first set of stores that I remember clearly, there were the gondolas, etc., were to an extent of about eight gondolas. After the entire exercise went through, the gondolas were reduced to four, but simultaneously the seatings went up and we had basically about eight seatings and that went up to about 13 or 14. So, all of these were physical changes.

So, I think a combination of the physicality of the change and simultaneously the question of training the trainers, because now we are spreading across, it was earlier limited to one city, I think is what took time. Now as I mentioned, I think the progress that we have seen between Jan and Feb also, I am pretty confident we should get back to the earlier plan, albeit with a lag of a quarter or a few months.

One other piece, Ankit, just to let you know, this also is teaching us new muscles, which we hitherto were not doing, and which is a relevantly best practice, which is making sure that we are able to suck out stocks out of stores on change of season, right?

And I think that also leads to the other piece that I talked about, which is decluttering. So, all of these combined together, Ankit, yes, so you are accurate in your comment.

Sir, so, in the overall, say, by end of FY '26, will we be able to implement zero-based merchandising across the COCO stores first?

It will be focused on COCO stores primarily, Ankit. So, the '25-'26 year will be fully focused on that. I don't have a number to give you right now, but the objective and endeavor would be to cover Pareto turnover contribution stores within such a long time period, right? We are right now focused towards making sure that the top 50% turnover, and which is what the 250 stores, 300 stores ballpark gets us there, is where we want to first ramp it up.

Sure. Sir, my second question is, on the whole, the value proposition. At least in the example you have shared, we have, exited the Rs. 499, Rs. 599, Rs. 699, the entry-level price points. Is that the right way to look at it? While from 11 price points, we have moved to 3 price points in the women's closed footwear, but a big chunk of the entry-level footwear we have exited, right?

So, how does the customer behave in that? If a customer wants Rs. 599-Rs. 699 price point, it's not there in the store, so they move out to competition. How does that play out?

Page 8 of 15 Okay. No, Ankit, very perceptive question. This was an example to just highlight the piece that I wanted to message out of this was, clear out price points. As you can see, the pairage is faster than turnover. So, obviously, people are getting much better value proposition, right? Now the example out here, I have given it to make it simpler, but it will be depending on consumer cohort.

So, if, for example, I am in a relatively premium mall in, let's say, Mumbai, right, I will want to make sure I curate the price points accordingly, but tomorrow for a store that I have, let's say in a Meerut, I will have a very different, but they will still have three price points, right, across the three silhouettes, and that's where maybe the Rs. 599 becomes now the critical price point, and all products within the flat ballerinas now congregate towards that. So, I hope I have been able to answer you. But yes, right now, optically, your comment is right, but that's not how it's panning out. It will depend on the consumer cohort.

Understood. And my last question is on the volume growth. So, till the first half, our volumes were negative for YTD. You made a comment that for nine months, we have become positive on volume growth. So, what changed in this quarter in terms of MBO traction, in terms of entry- level price points, the value proposition? Where is the volume growth coming from?

Okay. So, three things, and some of these are, as I mentioned that, we want to reinforce these, etc., but three things that would have driven. One is that it's the volume growth is across channels of us, right? So, whether it's franchise, even the MBO, right? We saw volume growth better than the value growth.

The second piece is that we have also leveraged, and obviously set up the entire execution calendar for EOSS much better. So, that did help it along also. And the third piece is obviously some of these areas, which I have given you some example of value proposition. We will want to make sure it comes across several core categories, where you feel that consumers are looking for value, and as I mentioned, they're pinched for inflation.

Understood. Thank you so much, sir, all the best. Thank you, Ankit.

Thank you. Next question comes from the line of Videesha Sheth with Ambit Capital. Please go ahead.

Hi. Good evening. I hope I am audible. Just one question from my side is, you have not added any stores this quarter. So, anything that you'd like to call out over here on the store addition momentum going forward?

Yes. No, Videesha, you are right. The net additions have been flattish. That does not mean that we have not added. Gross additions have been there, I think, in normative numbers. But what we have aggressively also done, and I think a lot of work that was being put in by the team for the last about six-nine months, is that finally they come home to roost, so that we have also closed unprofitable stores, right, stores, which were diluting from, let's say, like-for-like growth within the town, etc., etc. So, combination of non-profitable stores, as well as taking away or

Page 9 of 15 splitting out the like-for-like, a lot of that has happened. I think that's a progress that we will keep doing. There's also a framework that we have put in place for tightening it. So, my sense is it will be there for another quarter or so, but then the gross additions will keep happening. Eventually, net will start taking over.

Okay. And the net addition, once the momentum improves, should it return to the earlier run rate of 30-40 stores per quarter?

Yes, yes, absolutely. On the EBO front, including franchise, for sure.

Understood, understood. And just one clarification on the earlier conversation around zero-based merchandising. These Pareto-based stores, they would be contributing to what percentage of overall revenue that you are looking to roll out zero-based merchandising?

Okay. I don't have ready numbers, Videesha. I am sure the team can share it with you. I can get that. I can get that.

But the Top 100 stores that we will want to first attack should be contributing to about 25% of our turnover.

Understood. Thank you. I will get back in the queue. Thank you, Videesha.

Thank you. Next question comes from the line of Gaurav Jogani with JM Financial. Please go ahead.

Thank you for taking my question, sir. And also, congratulations on finally, the cost leverage is starting to work out and good work on that. So, my question is again with regards to the gross margins here. While we have seen that there are higher sales on the USS bid and also volume growing faster, so, what really has helped the margin expansion on a Y-o-Y basis? I will ask Amit to answer that.

Hi, Gaurav. So, in terms of the margin, the overall gross margin has expanded by 17 bps. This has come on account of a couple of things. One is tightening of the way we source the product as well as in-house manufacturing. Both of them have been more efficient, plus, the second aspect is in terms of overall the sales from discounted products have been slightly on the lower side.

Versus year-on-year, the other piece, Gaurav, is that some of this, at a gross margin level, the fixed cost of IHM that has been worked upon for the last now almost two-three years is finally getting to count, right? So, the factory that we took closure about a year, year and a half back that I mentioned in my opening call in Bangalore, etc. So, finally, all of that is obviously

Page 10 of 15 benefiting also in addition to some good work in terms of utilization and fixed cost in factories that Amit mentioned.

Yes. Sir, just one follow-up here. As the proportion of the franchise stores are increasing and mathematically, the gross margins for the franchise stores should be lower. So, going ahead, what kind of margin expansion thought process should be there in the gross level? Because ideally, as the network of the franchise stores would increase, the gross margin should be lower. Am I right in my thinking?

No, you are right in your thinking. Mathematically, that is how it works. So, you are right and I have commented on this in the past, right? We actually hold the business lines and the business units, which is SBUs for franchise, COCO, etc., to their sequential gross margins. When we are looking at combined together, right, we look at it basically at an EBITDA level, right? So, at that level, basically both of these get neutralized, and their franchise is significantly more accretive.

Sure. And, sir, on the Power part, now we have seven stores odd that we have Athleisure as these are kind of model stores. So, any further updates you can give how the performance has been for these seven stores and how do you plan to take these ahead?

So, Gaurav, there is a lot of feedback that's there, right? I mean, it's not as if I have just put in the summary output of it. Obviously, the numbers show that there is progress happening. Are we satisfied with where we are? No. And which is why the task with the team right now is to still, I need more improvement on trading density, which is the productivity of these stores. Because now we have got a critical mass from our ability to drive a network, drive some merchandise, etc. There are many learnings. Like, for example, how much do we give space as well as highlight NFT, including apparel? I think there is some way to go on that, right?

Also, the fact that what is the way in which we can get in, let's say, much easier, price point as well as clarity to consumers, the store offers us much better things. We can also, because the store is dedicated only for Power, the kind of merchandise, the kind of options that I need to show, which is differentiated from otherwise the rest of the network of mine, is also something that there is way to go. So, there are enough levers to push this further, but the prime driver will be trading density.

Sir, just a follow-up to this is, because of the learning that you have in Power, are you also contemplating to take other brands also to this route? Like how you have done also for Hush Puppies, driving separate EBOs for them, and then the overall performance kind of picks up and also drives premiumization for you. So, are there any other brands that you think you can take out and expand on this EBO basis?

So, Gaurav, I have spoken about this. We have got to be choiceful in doing this, right, because it can very easily start detracting efforts from the core, and the core will be to make sure that 1,250 store Bata banner keeps growing, right? But yes, for future, we are, and that's the whole objective of why we are doing this in Power. The other one that I have talked about is Floatz. So, there also we have got almost about 15 to 20 doors, and there, again, we have reached critical mass.

Page 11 of 15 We need to make sure there we are also getting them to a certain level of trading density and profitability before we start expanding it further. They are also tests of creating a separate consumer cohort for these brands by themselves standalone. So, yes, that's where we stand right now. Thank you, sir. That's all for me. Thank you, Gaurav.

Thank you. The next question comes from the line of Sameer Gupta with India Infoline. Please go ahead.

Hi. Good evening, everyone, and thanks for taking my question. Sir, wanted to understand Bata as a brand. What is the contribution currently and how it has trended over time, let's say, pre- COVID versus current? Now, why this question is because there is a belief that the contribution has decreased significantly, and if that is so, what are the reasons? Is it specific to certain categories like formals or women's? Some color on this aspect will be helpful, sir.

Okay. And I am assuming you are asking from a much longer horizon, Sameer. Yes, right.

So, I might not have the numbers handy, but, Sameer, we can definitely see how I can share it.

So, there are two-three phenomena that are there, right? There is a sneaker as well as the Hush Puppies on the premium, which has outpaced overall, right? So, that has gone up in contribution.

From a Bata EBO perspective, right, and including within that, there has been a migration towards the more relevant variants of Bata, which is Bata Comfit, right, Bata Red Label, as well as Floatz by Bata, right? Now, obviously, are on the slightly more premium side, and premium has been doing better, and which is why we are now wanting to strengthen the core, and I think the consumer is ripe right now to offer the kind of action that we are talking about, right? Give clear choices, but give solid value to them, and hopefully get that traction converted in an absolute manner in terms of better trading volumes.

The other piece that is separate outside the EBO, which has also unfortunately gone through some of it, and I have commented on it, is the price point that was 500 and below, especially post-GST and the inflation, etc., in the NBO business. Now, we are hoping that that also turns around at some point in time. Last quarter, saw some early signs, but we will have to wait and see whether it's secular. So, that's where the broad trends are. So, I think the Bata core broadly stands where it is. The premium as well as the sneaker part has outgrown, and the massy piece, which was the 500 and thereabouts, is what has de-grown contribution-wise.

Got it, sir. Secondly, sir, the top-line growth of 1.7%, and what I have noticed is that you typically have a COCO and then a franchisee NBO, where you typically sell, you know, outright at a margin. So, if, let's say, the proportion of franchisee increases, this kind of also depresses the top line. So, can you give a number on a consistent basis, and for this quarter, adjusted for franchisee

Page 12 of 15 or, let's say, consumer level, what kind of growth is happening in the turnover? That would be very helpful, sir.

Okay. I get what you are saying, Sameer. I don't have an answer right now. We will try and get back to you. What you are basically saying is that at a consumer price level, right, what would be the right apple-to-apple comparison on turnover, right, rather than the, you know, the wholesale price or the outright price at which franchise or e-commerce guys are buying it. Yes?

Yes, that is true. I mean, just the no effect from the mix of channels changing, that would be great, sir. Yes, and thirdly, sir, this employee cost, what would be the impact of VRS? Let's say VRS wasn't there this quarter. How much this number would be on employee cost?

It is not at the employee cost. It has been brought out separately at Rs. 11 crores in exceptional items in the P&L.

No, no. So, what I mean is that you would have given a VRS to your employees. Otherwise, you would have given them salaries, right? So, if this VRS was not there, typically just trying to model this over the next few quarters. Okay. Amit?

So, it would be about Rs. 2.5 crores per annum.

Got it. That's all from me. I will come back in the queue. Thank you, Sameer.

Thank you. Next question comes from the line of Tejas Shah with Avendus Spark Institutional Equities. Please go ahead.

Hi, Gunjan. Thanks for the opportunity. And first of all, thanks for sharing more insights and improving transparency quarter after quarter. So, first question is the 17 stores that we have migrated to zero-based merchandising. Apart from the NPS improving, which you spoke about, which is a subjective outcome, revenue per square feet has just improved by 7%. Seven is now a good number looking at macro construct. But the kind of base that we have in some of those stores, I am assuming, with the kind of servicing that we are improving, would you have a higher goal seek in such effort?

No, we would, we would for sure, Tejas. And the piece that we are looking at also, and this is one of the reasons that I responded to one of the earlier questions on why we got delayed, was to make sure that we capture all the learning, because we cannot do one such a large network rollouts again and again. So, we wanted to take a few more weeks and maybe actually a month and more to make sure we capture the full learning on this and therefore making sure that our ability to get the transition going.

So, just to give you one example of it, right? One of the stores that we expanded from 9 to 17 or whatever, right, we actually sucked out the stocks, but we have not put in the fresh stocks sufficiently. And we actually lost sale for a week, and which is criminal, right? A week out of 52 days, the store's profitability get impacted. Now, those are the kind of things that we are wanting to make sure that we fine-tune and tighten, and which should basically give us multifarious impact. Similarly, the visual merchandise piece, the number of communication messages that you are giving, the fixtures that you are putting on the floor and cluttering the floor, etc. So, all of that has gone through an overhaul, and which is what we will hope will get us even better than 7%.

Got it. And then zero-based merchandising, is it similar to theory of constraint, or is it different from that?

No, theory of constraint is a supply chain item, in my mind, Tejas. The zero-based merchandising is working from a consumer experience perspective. It makes the consumers' choices easier, bring out the story that you want to bring out to consumers much better, reduce the clutter, and simultaneously, as I said, bring the voice of the store into the whole system of Bata.

Sure. And now second is, Floatz seems to be delivering an outlier performance. Something is clearly working there. Can you share more insights? And can we kind of extrapolate that learning or experience, whatever we are doing there, to other brands or other formats?

Our endeavor is in that direction. On the slightly more elaborated discussion seems like an open- ended question, but your question is right. Tejas, we can do that offline.

Sure. And lastly, see, in the last three years of your tenure, you have addressed multiple gaps in products, service, supply chain, but the brand gap remains. So, in one of the earlier questions, I think, it was also alluded in this direction, but aside from Hush Puppies, which of the brands truly resonate with the urban premium consumer, like, whoever is on the call. For Athleisure brand, do you think there is enough brand gap that you have bridged in terms of what urban premium urban consumer wants?

Okay. No, so there are different, I mean, basically the point is that we have to focus on our core consumers, and therefore different brands have to play that role. And which is where we are seriously focused on, right? Can we do better? For sure, right? Can we bring in more sharper choices? For sure, right? Can we become more trendy? For sure, right? But we will want to stay focused to the core consumers and the core brand. And therefore, the proposition that we want for those consumers. Now, can the Bata brand straddle all consumers together? I don't think so.

And we will have to figure out and you rightly said Hush Puppies targets a different clientele and a cohort and you want to keep enriching and focusing on that and I talked about a couple of initiatives on that front, on the brand front, but simultaneously, the reason that even in the previous discussion, we are talking about seeding and putting a lot of effort behind seeding, let's say, a Power as well as the Floatz, is towards trying to see whether we can straddle and use different brands in our portfolio to straddle different sets of consumers. Similarly, Nine West is

Page 14 of 15 an area in that direction. You will have to be also mindful, Tejas, on how much do we want at any point in time. Because as I said, the core is to make sure that Bata keeps growing.

Perfect. And just last one on that. Has Power been an aspirational brand in any of your other countries? Sorry?

Has Power, as a part of Bata portfolio, has it been a very successful brand in any of the other countries?

I cannot comment on that, but India is one of the largest markets for Power.

Okay, okay. That's all from my side, and all the best for coming quarters. Thank you, Tejas.

Thank you. Next question comes from the line of Awais with Sundaram. Please go ahead.

Hi, sir. Thank you for the opportunity. Am I audible? Yes, Awais.

Sir, one quick question. When I look at our current performance and compare it with the pre- COVID, which is June '19 to December '19, on an absolute basis, we have seen 11% kind of revenue growth. Also, if I look at the gross margin, while it has come down on a percentage terms, absolute basis, we have again seen growth here. But when I look at the PBT, or for that matter, PBT margin, there is a sharp deterioration from 17% in the pre-COVID quarters, nine months, to now around 9% run rate.

So, firstly, I just wanted to get some sense that am I correct in my understanding that whatever incremental CapEx, which we have done during this period, in terms of adding stores, etc., we have not seen that contributing materially to the bottom line as of now. And if that understanding is correct, can you help me understand how long you see the gestation period is before that start giving us incremental benefit?

And can we reach that pre-COVID pivot margin given whatever business structure we have changed? Your sense on these things would be helpful. Thanks.

Okay. Awais, it's a very large question that you have. And obviously, we have got to go back data points and things that we will have to also look at where the comparative is apple to apple in terms of exceptional items, etc., because we have been also taking a lot of long-term structural calls, which are good for the business and we are pretty confident and we keep tracking the business cases whether it's ERP implementation, whether it's the high performance

Page 15 of 15 merchandising or the kind of ERS on IHM, etc., which is obviously going to give us multi-year benefits on operating costs.

But either ways, I think your broad commentary whether the numbers might, we will have to check for, but the commentary is to do with how much have we managed to leverage in terms of cost structures versus the top line, and the answer lies on two phases, right? One is that I think we would like to see much more top line leverage. So, a lot of the focus of the organization is to get the top line going further.

I am pretty confident with the cost structure that I see underlying, right, once we are able to get like for like growth and therefore overall top line leveraged, we should be able to see significant leverage coming through in the direction that you have looked at in terms of PBT margins.

Sure. I would want little bit sense on the numbers, but maybe we can take this offline if that is okay, yes. Okay, Awais. Thank you.

Thank you. Ladies and gentlemen, due to time constraints, we have reached the end of question- and-answer session. I would now like to hand the conference over to Nitin Bagaria for closing comments.

Thank you, everyone, for joining once again. It was lovely interacting with you all as always.

We look forward to connect again. Thanks.

Thank you. On behalf of Bata India Limited, that concludes this conference. Thank you for joining us. You may now disconnect your lines.