Bata India

Bata India reported a modest 1.7% year-on-year value growth in revenue from operations, reaching ₹918.5 crores for Q3 FY25. Despite the subdued top-line growth, the company demonstrated strong margin expansion. Gross margin improved by 17 basis points to ₹515.6 crores, and EBITDA margin expanded by 141 basis points to 22.7%. Reported Profit After Tax (PAT) remained flat year-on-year at ₹582 million (₹58.2 crores), impacted by an exceptional charge^📎 of ₹11 crores related to a Voluntary Retirement Scheme (VRS) in one of its south factories.

The Zero-Based Merchandising (ZBM) initiative, aimed at enhancing consumer experience and efficiency, has been rolled out to 17 stores by December, falling short of the initial target of 100 stores by December and 250 by March '25. Management attributed the delay to the extensive physical changes, training requirements, and learning new operational muscles. However, the pilot stores show promising results, including a 60% reduction in product lines, 38% inventory reduction, and a 7% increase in sales per square foot. The company aims to cover Pareto turnover contribution stores (250-300 stores representing top 50% turnover) in FY25-26, with a goal to achieve 'even better than 7%' revenue per square foot improvement.

Floatz continues to be a significant growth driver, contributing 8-10% of turnover in many stores and being the fastest brand to cross ₹100 crores in sales in the calendar year. The brand saw new collections, including 'Dual Density,' and collaborations with Marvel and Disney, which are expected to scale up. The Power brand, Bata's second-largest, also demonstrated strong performance with volume growth close to double digits last quarter, driven by new launches like 'Easy Slide' and 'Stamina.'

Bata India has made significant progress in inventory management and complexity reduction. The planned range for stores has been reduced by 33%, and the number of lines in stores is also coming down. Despite these reductions, product availability has increased by 20 points, indicating improved efficiency in the supply chain. Management noted that inventory levels are at their lowest in eight quarters, supported by better demand planning and forecast accuracy.

The company's net store additions were flattish this quarter, as it aggressively closed unprofitable stores that were diluting like-for-like growth. Gross additions were made, but the focus was on rationalizing the existing network. Management expects net additions to return to the earlier run rate of 30-40 stores per quarter for EBOs, including franchises, once momentum improves. The company also crossed the landmark of 600 franchise stores, up from less than 100 three years ago.

Bata is refining its value proposition by collapsing price points in core categories, exemplified by reducing 11 price points to just three in the ladies closed footwear category. This strategy aims to simplify consumer decision-making and has resulted in significant pairage growth and positive gross margin indications in pilot stores. The specific price points will be curated based on consumer cohorts and store locations, with the objective of offering better value and driving higher trading volumes.

An analyst highlighted a sharp deterioration in PBT margin from 17% pre-COVID (June-Dec '19) to around 9% currently. Management acknowledged this as a 'very large question' and attributed it partly to 'long-term structural calls' and the need for 'top line leverage.' They expressed confidence in the underlying cost structure, expecting significant leverage and PBT margin improvement once like-for-like growth is achieved and top-line momentum builds further. The VRS charge of ₹11 crores in Q3 is expected to result in annual employee cost savings of approximately ₹2.5 crores.