Bata India

Bata India reported a muted revenue growth of 2.2% for Q2 FY25, showing sequential improvement from July to September. The company achieved an EBITDA margin of 22.9% and a PBT margin of 8.4% as a percentage of turnover. Gross margin experienced a dip of approximately 140 basis points, which management attributed to a changing channel mix and efforts to clear inventory, expressing comfort with the medium-term gross margin outlook.

The company is actively implementing strategic initiatives to enhance efficiency. Sourcing partner consolidation has reduced the base by 39%, with a target to achieve 45% reduction by year-end and an additional 20% next year, aiming for 50-60 partners. A pilot of zero-based merchandising in eight stores demonstrated significant improvements, including a 60% reduction in store lines and a 20% increase in sales per square foot, with plans to roll out to 20% of the network (250 top stores) in the coming quarters.

Specific brands showed strong performance, with Floatz continuing its robust growth trajectory, achieving weekly sales of 25,000-27,000 pairs and expected to exit the next quarter with over 25% growth. Power outpaced overall business growth with slightly higher single-digit growth, contributing mid-double digits to turnover. The Hush Puppies contract was renewed for 10 years, and its store count expanded to 136, while Bata Comfit also recorded strong double-digit growth.

Bata India expanded its distribution footprint, reaching a landmark of 600 franchise stores, which are crucial for accessing unique towns and market share. The company's owned and operated (COCO) stores now total 1,355. Digital commerce remains the fastest-growing channel, with Omuni contributing 5% to the total turnover. Additionally, the company launched the Nine West brand exclusively on a marketplace and expanded Power EBOs to four locations.

The contribution of price points below INR1,000 has seen a notable decline from approximately 40% to 30% over the last four quarters, primarily due to GST changes and raw material inflation. Management is focusing on enhancing affordability and value propositions through collections like Easyslide and Energy series to attract consumers, while simultaneously observing continued strong performance in higher price point segments (above INR1,000).

Bata's sourcing strategy involves 25% in-house manufacturing and 75% from partners. The company is investing in advanced, automated manufacturing technologies, including an injected molded Eva plant operating at full capacity. A new polyurethane direct ingestion (PUDIP) plant, representing a higher investment, is expected to be installed by the March quarter, aiming to improve quality, service levels, and cost efficiency.

The overall consumption environment is characterized by mixed trends, with premium segments showing better performance and lower-tier towns exhibiting a slightly stronger response compared to larger towns. Management is optimistic about continued recovery driven by the upcoming wedding season and festive occasions. However, they acknowledge the difficulty in predicting a broader market turnaround, emphasizing a focus on value proposition and consumer engagement.