Hi, good evening everyone, and on behalf of Ambit Capital, I thank the management of Bata India for the opportunity to host their 1Q FY27 earnings conference call. Joining us from the management today, we have Mr.

Gunjan Shah, MD and CEO, Mr. Amit Aggarwal, CFO, and Mr.

Nitin Bagaria, AVP and Company Secretary. I would like to hand over the call to Nitin for the opening remarks, post which the forum will be open for the question-and-answer session.

Thank you, and over to you, Nitin.

Thank you, and good evening, everyone. Welcome to the Q1 FY27 earnings conference call of Bata India Limited.

We have shared the presentation as a pre-read to the stock exchanges. I hope you had time to go through the same.

We have also shared the disclaimer, which is part of the presentation. I now request Gunjan to take you through the performance summary.

Thanks a lot.

Thank you, Nitin. Hi, everyone.

Welcome to our quarter one conference call. We have already uploaded the presentation a while back, and therefore, I hope you all have had a chance to glance through it.

I will limit my comments to the first slide, which is the key highlights. We recorded obviously 979 crores, right, of turnover, which was about a 4% growth, and backed by volume growth, which was also, both volume and value, equally split, price growth.

The underlying PBT growth, as we have mentioned in the press release, hovered about 22%, as well as substantiated by a table in the presentation. We also crossed the landmark of 2,000 EBO stores, the first obviously brand or a banner in the country to cross 2,000.

We now obviously have a desire to move towards 3,000 in the coming future. The ad spend was up by about 25%.

We did see broad-based growth across channels. ZBM expanded to almost now 80% business-contributing stores, close to 800.

Franchise expanded to 750. We saw healthy growth in all channels of e-commerce, as well as our multi-brand distribution outlets.

Inventory progress continued year-on-year, now for two years running. Stock turns are at industry-best at about 2.5 plus.

In fact, now edging towards 2.7. Despite that, our availability is at ever-highest levels.

Our full-price sales were at very close to 90% and continues uptick for the last almost four or five quarters. This entire product funnel reimagined has started now flowing into the stores.

We should see more and more impact of it, backed by marketing campaigns. We did invest behind a couple of key campaigns.

This was also backed by a very strong upshift in the Google My Business scores of our stores, which is like an external, outside-in NPS, which is now standing at almost 4.9 for the quarter. With that, I'll end my comments, and I'll hand it back open for questions.

Thank you.

Thank you for the opportunity. Just wanted to understand the cost inflation that you faced in this quarter, and how are you mitigating the same?

Okay. We did mention that even last time, right?

There is obviously elevated raw material prices that we see largely for synthetics that are getting imported, which are crude oil derivatives. We have also taken commensurate price increases to make sure that that is mitigated both on new products as well as existing products.

We are reasonably confident that we should be able to neutralize it, but I'll let Amit expand a little more on it. Yeah.

Yeah.

Hi. Good afternoon.

Broadly, the cost push what we have witnessed is in the range of about 5% to 6%. As Gunjan mentioned, that we have taken a similar price increase to ensure our margins are protected.

In the existing quarter, the cost push was not witnessed, given that we hold inventory greater than, let's say, about 140, 150 days. That impact of cost push would be more visible from the current quarter.

As I said, that with the cost push, we have also corrected the pricing. Largely, we expect, even in the quarter, subsequent quarter, we should not have a margin dilution on account of cost push.

I also wanted to understand the competitive intensity in the market, whether unorganized players not being able to handle this kind of cost push or labor unavailability, how have we benefited, if at all we have, from that phenomena, especially in the lower price products? Has there been any major change in the contribution from those price point products?

Okay. That's two different questions, Prerna, that you have, right?

One is that how are the price points behaving, the second one is on competitive intensity. The latter question is easier to answer, right?

We did say even last quarter that there is some signs, and I think it was also a impact of one is some of the initiatives that the company has taken, but also I think the GST rationalization, etc., about three quarters back, which has shown up in terms of the lower price points showing some resurgence. However, we still see higher growth on the premium side of our products, right?

ASP has gone up, right? I think while the drag has come down on the lower price points, premium and premiumization will continue as an agenda for us.

The second piece on competitive intensity at the lower price points, I think it's too early to comment on it. As Amit mentioned, I think this whole piece, just like us, many others have still not got the full brunt of the raw material price increase, therefore, the pressure on basically realized price from consumers, etc.

I think we'll have to wait and watch. We are also watching it very critically, and we'll let you know maybe down the line.

Okay. Last question is on the brand-wise performance.

Could you please highlight on how Hush Puppies and Power and other brands, how the growth has been, and any change in sneakers' contribution that you would like to highlight?

Okay. Hush Puppies obviously led the charge, along with Floatz that continues to do extremely strong sequential as well as year-on-year growth rates.

Surprisingly, even Bata grew well, right? Against the trends that were there.

That is led by basically the ladies' category that has done extremely well, backed by the campaign that we ran with Taapsee Pannu, as well as the whole everyday essential range that we launched. I think these are standout performers.

Sneakers, Power did well, but North Star was a drag. Some of it was also consciously so, because we are rationalizing our current lines in North Star to come back with a much stronger collection that you will see coming through in the next couple of quarters.

How should we see the revenue growth for the year for Bata as a company? Any guidance that you would like to give to help us understand the growth that can be achieved with these many efforts that you've taken, whether it is brand ambassadors or ZBM and others, volume and [guidance?]

—

Okay. Yeah.

Prerna, we don't give forward-looking guidance, right? I'll not be able to give what you're asking for.

We are reasonably optimistic. In the short term, we did see last quarter some deferment of revenues because of the delayed monsoon.

That we can obviously see coming through in the months of July, etc., and early August. I think back of all these initiatives, etc., we do remain reasonably optimistic going forward.

We'll have to obviously wait and watch the inflation and the price increase impact that I think the whole market will have to undergo. We'll have to wait and watch on that.

Understood. Thank you,

and all the best.

Thanks, Prerna.

I wasn't able to understand in between when you said, because of the RM prices, you have implemented the pricing strategy, right? Taken a price hike in the market.

Is that understanding correct?

Yes.

How was the response to that?

It's

been one or two months, right?

The stocks are yet to hit the markets. As I mentioned, no?

See, we hold anyways between 140 to 150 days of inventory. By the time the new price stock will start hitting the market at a large scale, that would be sometime towards, let's say, September.

Still, there is time.

Okay. Understood.

Got it, sir. Second thing is that I can see the company implementing a lot of changes even at a store level.

I was able to notice those changes. Things are working out in a right direction for us.

If you say suppose, I'm not looking from the guidance perspective, if you want to target a 10% kind of revenue growth for Bata, what are the three things that you need to set in place?

Okay. Avinash, the answer to that would be the presentation itself, right?

There are six things or five things that I have put out really clearly, which are, one is consumer-facing, as well as enablement for consumer-facing, right? How do we make sure that the retail experience goes up, and combined with accessibility, that is expansion, right?

How do this whole piece of online as well as offline multi-brand penetration, which is e-commerce business, as well as basically the entire multi-brand outlet business. The biggest piece in this is going to be the product funnel reimagined, which is where as I have mentioned now for almost three quarters, that work is aggressively on, and I think that piece is now started showing into the stores.

Most probably some of you will notice that as you visit. You will see a lot more of it coming in in the next, let's say, in the H2 of this year, as well as basically the H1 of next year.

By March '27, you should see a significant change in terms of the portfolio of products that we are offering to consumers, right, with, as I mentioned, basically a significant amount of authority from Bata on design as well as comfort, backed by technology. Last but not the least, we will want to make sure that basically this whole work that has happened on ZBM as well as inventory declutter, etc., comes across to consumers in a certain manifested form.

I think a combination of these levers is what we are hopeful is showing us early signs, and we are hopeful of impact going forward.

Sir. Understood.

Coming to this ZBM question only. If I look at it the full-price sales, I'm looking two years past data, they have gone up by 5 percentage points, but gross margins haven't improved in a similar manner.

Ideally, when your full-price sales goes up even by 1% to 2%, that should actually reflect in a better gross margins. I'm speaking 1Q FY25 data versus 1Q FY27.

Okay. I don't know the data that you are referring to, but at about 89%, 90% full-price sales, we would be at significant high, and that is also showing up in terms of our markdowns or discounting coming down.

What does that impacted, Avinash, on gross margin is also the mix, right? Because, as I mentioned it, that if, let's say, a channel like franchise, etc., grows much faster, that does come at a lower gross margin.

While at an EBITDA level, it is obviously neutralized, and it's much more accretive. At a gross margin level, it is dilutive.

It's not apple-to-apple comparison that you might be looking at.

Just to add on what Gunjan mentioned, for the current quarter, the channel mix dilution is close to 100 basis points. If assuming the same channel mix would have been there, the gross margin per se would have seen a improvement of 230 basis points versus 130 what you see.

Ultimately, like Gunjan mentioned, EBIT per pair what we look at as a benchmark, right? That is where we are.

Does that answer your question, Avinash?

Yes. Then how should I see this gross margin going forward?

Say, suppose, not for the quarter's perspective, but, say, suppose, for full year and next year, because of the improving inventory and inventory is actually getting decluttered, right?

Yeah. No, absolutely.

I think, see, rather than giving a forecast, which we will not, but what I can tell you is the kind of levers and the impact that they might have, right? One is this whole piece that is there on product getting reimagined, therefore, the ASP that it will drive.

We want to basically push towards the premium side of the range, and that should have its own commensurate impact on gross margin. The second piece that is there is this whole piece of if full-price sales contribution keeps going up, right, from 89% right now, it was 86%, 87% last quarter, so that keeps going up, that has its commensurate impact on gross margins.

Last but not the least is obviously might get mitigated a little by the channel mix, which we are assuming that the franchise channel will keep growing faster, the e-commerce channel, which keep growing faster, where the cost lines are very different from COCO. Therefore, that might have some kind of an attenuation impact, but I think the first two factors will drive gross margins for us going forward.

Okay. Got it, sir.

One last question if I may squeeze in. I was not able to comprehend this.

You said that there are 775 stores in which ZBM has been included, and these contribute 80% of the retail revenues. Are you trying to say out of the 2,000 stores, this 30% of the stores, they contribute 80% of the revenues?

Should I read it in that way, or how should I read?

No. Out of the 2,000 EBO stores, ballpark, we've got about 750 franchise stores, we've got about 1,250 which are COCO stores, which are direct operating stores.

Out of that 1,250, about 125 are Hush Puppies COCO stores, and about 1,025 or whatever the balance number 1,100 is the Bata COCO stores. In that Bata COCO, 80% of the revenue is getting covered by these 775 stores.

Does that answer clearly the break-up?

Yes. Understood.

This is only for the COCO stores that you are referring to.

Yeah. This is a Pareto that is there, and while, I think we will make some more progress in the coming quarter, but I think we are very close to saturation on that front, right?

Obviously, there's a further project which is on Project Elevate, which is ZBM 2.0 that's being worked upon, which I'll share results in the next quarter.

Thank you, sir. Thank you for answering all my questions.

I'll join the queue.

Thank you, Avinash.

Thank you.

Hi. Good evening, everyone, and thanks for taking my question.

I joined a little late, pardon me if the question is repetitive and you can just point it out, I'll refer to the transcript. Firstly, our employee costs have been flat for over past five quarters.

I'm just looking at the absolute amount here. Is this just a function of store rationalization efforts and VRS in factories?

Related question is how much is the COCO store network now? I believe you have not given that number in the presentation, but you did mention 1,250 in response to earlier question.

Sorry. Can you just repeat the second question, Sameer?

How much is the COCO store network? The non-franchised retail network.

Because you used to give this number separately in presentation, but now you haven't. I believe you just said 1,250 to Avinash's question.

Yeah. Second question much easier to answer.

1,250 COCO stores, ballpark. We can obviously share with you offline the accurate trend line.

About 750 franchise stores. The total is at about 2,000

plus, right?

That's the 2,000. Yeah.

Your first question on the employee cost. See, it's a combination of I think the comments that you made.

Not so much on stores. Store manpower has actually not changed much.

The VRS did have an impact on employee cost, and that's one of the objectives and the business case for the VRS. The second piece that is also important, and that I think the company has been going through that for the last almost 24 months, you can now see in the last three, four quarters the trend lines on it, which is on basically a significant organization restructuring that we did in terms of productivity-driving agenda.

One was rationalization, backed by implementation of technology platform that we have implemented for the last three, four, five years, right? The merchandising platform, for example, right, Blue Yonder package got implemented almost about two years back.

Now, that finally made us relook at where the manpower is allocated and where it can be reallocated. The second piece is, let's say, the franchise channel, which has grown so fast, needed more manpower to keep fueling that engine much faster.

There we got invested in. I think the net-net result of that plus the VRS has been obviously what you're saying in terms of the employee cost.

Got it, sir. That's very helpful.

Second, I'm just referring to one of your slides, which is reimagining the product creation funnel. Lesser number of kits, lesser number of styles and colorways.

While it does reduce complexity, just trying to understand what is the end goal here? Is it just to reduce the time taken from conceptualization to the shelf?

Because at the end of the day, lesser variety can also impact store conversions, right?

Yeah. No, absolutely.

There is a right balance. I think we are not too far away.

If you look at the chart which is, I think, just preceding that, right? The chart which is on slide number nine, right, which is reduce clutter at store, which actually gives you index number of lines.

We are now at 68% of average lines per store compared to what we were two years back, right, as the graph shows. Are you with me on that?

Yeah. I'm with you.

68%, yeah.

We are at 68% of that. Now, the question is how bad was X, right?

Therefore, how good is 68? My sense is that this will settle somewhere around 60%.

Obviously, for a larger store, it's more; for a smaller store, it's less, etc. On average, at about 60 68X will come down to about 60X, and that I think would be the right balance.

The other part of this is that what benefit that does is many things, right? One is that reducing the kits as well as the uppers brings a significant economies of scale, one is in not only in terms of cost, but more importantly in terms of quality as well as experience delivery.

Right? If number of producing centers, the number of articles and molds that they have, as well as the number of materials that they use, if you're able to decomplexify that, right, you will be able to demand, and therefore, assure much better quality delivery to consumers.

Simultaneously, the other big benefit is that once you have lesser clutter in stores, and we have seen that now over obviously the whole ZBM journey for almost six quarters, your stories and communications to consumers come out much better. Whether it be the Easy Slide campaign, now you're able to show the full collection at full splendor because the distraction from all the other lines has come down, or Floatz campaign, or something that we ran on the ballerinas, etc.

I think it's both a back-end as well as a consumer front-end benefit. Huh.

I was just trying to understand how do you define clutter. The other way to measure would be how our store conversions have tracked.

If there is no real impact on store conversion with this strategy, maybe then you are on the right track. Let's say there is, because the other outcome is revenue growth, which clearly is telling us that there is some underperformance somewhere.

Yeah. It's a delicate balance, and we keep measuring for it.

As I said, we are very close to the right balance.

Got it, sir. Last question if I may squeeze in.

ZBM now 80% of the COCO retail revenue. Would you say here that this initiative in terms of picking the low-hanging fruits, we are almost at the end of the journey here?

Or you think that there are multiple layers or levers which can drive growth for future years as well?

There are. While you did acknowledge that you joined late, but I just listed upon it broadly following the presentation that I have been talking about.

A couple of more which we are still in the works will be shared with you as we go along the journey, right? The fact is that this entire piece on the product funnel is going to be a very large piece that you will see.

We have now started seeing some of it come through. A large part of this is, I think, will be manifested over the next couple of quarters.

You will see in the quarter of, let's say, somewhere around March, Jan-March '27, a lot of that into the stores coming backed by a certain authority from Bata from a design perspective as well as from a technology perspective, and coming on the premium end of the range. We do see already some signs of it already coming through into the stores with some reasonably good success, early signs of success on it.

That's going to be a very large lever which will pan out in many ways. As I said, I think this whole piece on digital as well as franchise expansion has got many, many more legs.

We right now have potential trade areas just for franchise which are in excess of almost 600 right now. There's a huge, how do you say, valley to fill on that front also.

When you say a large number of this premium products will hit in, let's say, fourth quarter of FY27, would it also imply that our marketing spends would have to go up in sync to leverage the whatever advantage we want to take out of this?

Absolutely. That's we have already started doing.

As you can see for the last three quarters, our spends have been double-digit growth over last year. Last quarter was 25% more.

I don't see a reason why the next period that is coming ahead, I wouldn't say only the quarters, but even the next couple of years, you will see elevated marketing spends to back up the product range that is coming.

Got it, sir. Thanks, and I'll just take this opportunity to wish you all the best, Gunjan, for the future endeavors.

Thank you. Thank you, Sameer.

All the best.

Hi, sir. I hope I am audible.

My first question is with respect to the franchisee store now reaching 750 count. Could you share the comparative store economics specific like the SSG and the revenue per square feet between the COCO stores and the franchisee stores?

Okay.

I don't have answers immediately on the revenue per square foot, but I'm sure we can share that with you. The like-for-like growth rates have been good.

The way we measure it actually is partner attractiveness on this, Aaryam, right? What we look at is basically if the partner sees growth, because the partner sees only like-for-like growth, we see both like-for-like as well as expansion growth, right, he will not expand with us further.

Now we have more and more partners who are expanding with multiple stores with us. Now, it does come with like-for-like growth.

We are, I would say, basically in the range of ballpark about close to high single digits like-for-like growth for an extended period of time for the last, let's say, four quarters. I would say that's where that stands.

That reflects in revenue per square foot, but I don't have a number handy right now. Does that answer your question?

Yes, sir. Sir, any like the store economics, what is the margins that the franchisee partner is making?

Some color on that.

Broadly, a franchisee partner gets in the range of about 18% to 24% ROI. Some are smarter and more efficient, they get a little better.

If they get a good deal in terms of the real estate piece. But 18% to 24% is almost like an underlying floor for a successful partner.

Understood, sir. Sir, my second question is with respect to gross margin expansion of 130 bps in 1Q FY27.

Could you break down how much was driven by your ongoing vendor consolidation program versus the product mix premiumization? Additionally, as you approach a target of 15 core manufacturing partners, how much additional margin expansion do you expect from supply chain efficiencies going ahead?

I will request Amit to respond to it.

Broadly, it will be very difficult to put a number given the sensitivity, but as you rightly said, for the current quarter, one of the largest lever of the margin expansion would be quality of inventory what we are holding on. As Gunjan mentioned previously also, our share of fresh sales, right, that has gone significantly up.

Which has resulted in a significant lower markdowns which we are running. Although gross margin got diluted because of the channel mix, otherwise, we should have seen a uplift of about 230, 240 bps versus the 130 what you see right now.

In terms of efforts on consolidation, I think right now, we are slightly away from the roadmap what we have, right, and it will take some time. Typically what we have witnessed over a longer period of time, we should have got a delta savings from consolidation at a overall level of about 0.2% to 0.3% at a year-on-year basis, right?

Last question in terms of premiumization and all, that is something which we keep doing. Again, intent is always to expand the margin, right?

Does it answer, or anything specific further you want to be there?

Sir, going ahead, as you said, so as of now, there are how many contract manufacturing associated and some color on that? Okay.

Basically, yeah, yeah. Let me give you a slightly more longer-term perspective.

Let's say, about 2.5, 3 years back, we had almost 100 plus, I think 120 partners, right? Now, we are down to below 70, I think close to 60 or so.

We should foresee, as we had shared, that we should have 15 core as well as a satellite set of another 15, about 30 broadly in the next about 5-year journey, 3 years to 5 years journey. Now, ideally, over this period of time, this is not the only rationalization.

As I have also responded to another person earlier, right, we are also rationalizing the kits and the molds and the uppers and the materials getting used. That has its own economies of scale impact.

All this clubbed together over this journey period, right, which is spanning across multiple years, should give us about 200 basis points thereabouts.

Understood. Understood.

Sir, last question is more like a bookkeeping question. Like earlier participants have also asked, the top line has grew by 3%, 4% odd percentage, advertisement spend has increased by 25%.

Given this pull-through investment to marketing campaigns, what is the expected timeline for this expenditure to translate into kind of double-digit kind of a top-line growth? How should we model the advertisement and promotional expense as a percentage of sales going ahead?

As early as possible is our expectation.

Okay. How should we model the A&P expense as a percentage of sales?

Right now, you can look at whatever is the current trend line, which would be about between 3%, 3.5% versus about 2.5% a year back. It's not that we want to immediately shift to 7%, 8%, but you can always look at from a 3% to 3.5% kind of a model.

Understood. Okay.

That's all from my side. Thank you for taking my question.

Thank you.

Thank you, Aaryam.

Thank you, everyone, for joining. Lovely interacting with you all.

Thanks.

Thanks, Ambit guys.

Thank you. On behalf of Ambit Capital Private Limited, that concludes this conference.

Thank you for joining us, and you may now disconnect your lines.