BATAINDIA - Bata India Limited Share Price

The management of Bata India outlined the following outlook and key initiatives during the Q3 FY25 earnings call:

Growth Levers:

1. Zero-Based Merchandising (ZBM): Accelerating rollout to 250+ stores (focusing on top 25% turnover contributors) to enhance consumer experience, reduce SKUs by ~60%, and improve sales/sq. ft. and ROIC. Early results show 38% inventory reduction, 45-second retrieval time (vs. 2-minute network avg.), and higher NPS.
2. Value Proposition: Simplifying price points in core categories (e.g., women's footwear from 11 to 3 price points), driving volume growth (+30% pairs in pilots) while sustaining margins. Expansion to other categories planned.

Portfolio Expansion:

• Floatz: Fastest-growing brand (8"“10% store contribution) with new tech-driven collections (Dual Density) and Marvel/Disney collaborations. Supply disruptions resolved; scaling expected in summer/monsoon.
• Power (Athleisure): Double-digit volume growth via launches (Easy Slide, Stamina). Testing EBO viability (7 stores) for higher trading density.

Operational Efficiency:

• Inventory Management: Lowest inventory in 8 quarters despite improved availability (+20 pts). Reduced complexity (-33% store lines) and agent inventory.
• Store Optimization: Closed unprofitable stores; franchise network crossed 600. Gross additions to resume after rationalization.

Financials & Margins:

• Revenue growth (+1.7% YoY) driven by volume recovery, EOSS execution, and value strategies.
• Gross margin expanded 17 bps (sourcing efficiency, in-house manufacturing); EBITDA margin +141 bps. PAT flat due to one-time VRS cost (Rs.11 cr).

Digital & Marketing:

• E-commerce expanded via quick commerce (Zepto). Campaigns with Kartik Aaryan (festive), Vir Das (Hush Puppies), and Disney collaborations.

Outlook: Focus on volume-driven growth, ZBM scale-up, premiumization (Floatz, Hush Puppies), and cost efficiencies to leverage operating margins. Store additions (COCO/franchise) to resume net growth post-rationalization.

Question 1: Ankit Kedia (Philip Capital)
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?
Answer: Execution delays arose due to the complexity of integrating physical store changes (e.g., reducing gondolas, increasing seating), training trainers, and refining processes. The initiative now focuses on Pareto stores (top 50% turnover contributors) and aims to scale faster with improved playbooks, targeting significant progress by FY26.

Question 2: Ankit Kedia (Philip Capital)
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. How does the customer behave in that?
Answer: Collapsing price points (e.g., from 11 to 3 in women's closed footwear) aims to simplify consumer choices, improve value perception, and boost volumes. Pilots showed higher pair growth and turnover. Price points are tailored to store locations (premium vs. mass markets) to retain relevance.

Question 3: Videesha Sheth (Ambit Capital)
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?
Answer: Net store additions were flat due to aggressive closure of unprofitable stores. Gross additions continued normatively. Focus remains on improving store viability; net additions will resume as unviable stores are phased out and franchise/EBO expansion accelerates.

Question 4: Gaurav Jogani (JM Financial)
While we have seen higher sales on the USS bid and volume growing faster, what has helped gross margin expansion YoY?
Answer: Gross margin improved due to sourcing efficiency, reduced discounting, and fixed-cost absorption from factory rationalization (e.g., Bangalore closure). In-house manufacturing productivity and lower agent inventory also contributed.

Question 5: Sameer Gupta (India Infoline)
What is Bata's brand contribution trend pre-COVID vs. now? Why has it decreased?
Answer: Bata's core contribution has been impacted by faster growth in premium brands (Hush Puppies, sneakers) and challenges in entry-level price segments. Focus remains on strengthening core categories (e.g., women's footwear) through value proposition and simplicity.

Question 6: Tejas Shah (Avendus Spark)
Can zero-based merchandising deliver higher revenue/sq ft beyond the 7% improvement observed?
Answer: The 7% improvement is preliminary. Delays ensured thorough refinement of processes (e.g., stock replenishment, visual merchandising). Future rollouts aim for higher efficiency, targeting Pareto stores (25% turnover) and improved scalability.

Question 7: Awais Bakshi (Sundaram)
Why has PBT margin deteriorated vs. pre-COVID despite revenue growth?
Answer: Margin pressure stems from inflationary costs, strategic investments (ERP, supply chain), and store restructuring. Focus on top-line growth (volume, like-for-like sales) and cost leverage from past initiatives (factory closures) is expected to restore margins.