Bata India Limited analyst Q&A

Thank you very much. We will now begin the question -and-answer session. Our first question comes from Nihal Mahesh Jham with Nuvama. Please proceed.

Good evening, Gunjan. Three questions from my side if I could take it. On the growth part of it, you did allude to that there was a shift in the festive feeling. Would it be possible to get more sense on that from the perspective of what was the for the q uarter ballpark and what, in your opinion, was the impact in the shift in the festive one-year performance?

Nihal, you said SSG, what? Can you just repeat that question, please?

I'm so sorry. I was saying that I was looking for what was the ballpark SSG for this quarter, given that we've done quite an aggressive store addition versus last year. Also, excluding the impact of the shift in the festive, what would our growth have look ed or SSG either way you want to comment on it?

I think, basically, the piece that is there is on store additions. I have mentioned this because a large number of them come from a franchise, so it cannot be numerically added in terms of weightage. However, on SSG, we were at basically in no single digits negative for the quarter.

What would have been if the festive would have not shifted? What, in your opinion, would have been the growth like if you could just give a sense of that?

Should have been positive in our estimation. However, we will have to wait and see how the entire follow-through happens. There is some early signs of impact of the festive season coming through as well as obviously the campaign and initiatives, etcetera. But we'll have to wait and watch on that.

Thanks, Gunjan. Gunjan, the second question was on the 9West app that you announced a few days back. If you could just give a colour in terms of, I think Nine West doesn't have its own EBO network, so is it going to be rolled out across our 1700 stores? An d what is the kind of revenue potential we are looking at, including margins, manufacturing for that also?

I've understood it while I think the voice got a little muffled. But basically, what you're saying is that what does this entire piece on Nine West entail? So Nine West is roughly about a billion- dollar-plus retail sales brand globally, with obviously a si gnificant part of it coming from the Americas. It stands for fashion as well as youth and a combination of that and therefore bringing in on - trend styles. And that's the leverage that we are looking for at the premium end and at the youthful end. It is a manufacturing as well as a licensing arrangement . It's the full license arrangement, exclusive for the market of India and therefore will be applicable across our business channels. So whether it's the COCO, whether it is our franchise, whether it is e - commerce or whether it is the multi -brand outlets also, potentially. We will fructify this entire piece in terms of actual rollouts, over a period of time. But basically, the point is that we will want to expand this across the network as applicable. And by far, the first and foremost will be making sure that it starts rolling out in our top stores, etcetera. But over a period of time, we will see what's the appropriate level of penetration, as well as eventually even bringing in EVOs, etcetera., which is also part of the licensing arrangement.

Do we have online sites also for this?

This is one last question from our side. And Anil, this will be referred to you that if I look at our annual report, I do notice that our rental expenses have increased significantly versus last year. And I don't think, we've added that many EBOs, both from the reported and a cash basis. So any specific aspects there to be add about?

Nihal, if you can just be a little slow on your question, there is some muffling noise coming, so that we can understand the question.

So your question was in the last annual report. Can you repeat, Nihal, please?

I was asking that, when I was looking at a rent cost for this year, both on a cash and a reported basis, I see quite a significant increase on a per square feet basis. Just wanted to check , what is the reason for that, if you could highlight the same.

You're assuming when you say annual report, you're talking about FY '23 versus FY '22, is that right?

Absolutely, yes.

Okay, so there are obviously one reason, and I will be able to provide more details. But in that year, it was a non-comparable period. In the previous period, many of the retailers, including us, got the benefit of the COVID impact. And as a result of it, the numbers are not comparable.

So maybe I'll connect offline to get more details on that.

Sure.

Thank you so much.

Thank you.

Thank you. Our next question comes from Girish Pai with Nirmal Ban g Equities. Please go ahead.

Yes, thanks a lot for the opportunity. Gunjan, we have been speaking about Bata India becoming a sourcing point for Bata Global for its footwear needs. Where are we in that journey? Can you just give some update on that?

Yes. So the journey continues, Girish. Actually, now we have most probably done this year a significant start to it by exporting to almost something like about, half a dozen countries of the Bata footprint. The piece is progressing as per plan. It is also now working on basically also ensuring that whatever was getting connected, there were separate teams that were also sourcing for Bata. That is also getting merged and therefore getting supervised in. And I would say that, this is working pretty aggressively. And we will keep updating you on that front on how we progress on that. We should be looking at most probably this year under our supervision, we should be looking at about a lakh pairs going out of from India. And even more ramping up next year.

My second question is on Nine West. From a brand perspective, do you think it could become as big as HP or Hush Puppies say over the next five years to 10 years?

That's exactly the kind of ambition that we have. We do see potential in it. We do see exclusive, how do you say, understanding on styles and therefore style quotient coming through. And obviously, some amount of heritage, as I mentioned, of the global parentage coming through on that front. And that's the whole objective of what Hush Puppies has done largely on the men's side, while Hush Puppies now has almost 30% ladies contribution. But on the fashion side, etcetera, that's what we are expecting Nine West to deliver to us.

And what has been the recovery on the mass segment side, sub INR1,000 price point, a sub INR500 price point? Those were like weak areas of our business. Has that recovered?

I would say that there is still a mixed bag on that front. We have still not seen a secular recovery on that front. I think also we have tried to, we have also consciously tightened up our purse strings, both in terms of, outstanding as so credit periods, as well as in terms of discounts. And I think that might have delayed it a little. But my sense is , we are hopeful that I think it is sooner-rather than later actually start converging now in terms of premium versus mass. So that should, as I have been mentioning several quarters now, that these are cycles and we are hopeful that the cycle is showing signs of balancing out.

My last question is on the COCO part of the business, which is still a fairly substantial part. What do you think should be the growth rate one should be pencilling in and how much of that would be ASP driven, in your opinion over the next three years, four years?

So on the COCO part, we see basically the point is that , we would like to see high single digit safe store growth. And half of it should be coming from, premiumization, I would say, not price increase. Price increase we have largely saved up from for almost now four quarters to five quarters and half of it coming from bearish growth.

Okay. Thanks a lot.

Our next question comes from Varun Singh with ICICI Securities. Please go ahead.

Yes, thanks for the opportunity. Sir, my first question is on the premiumization bit. So where do we currently stand in our overall sneakerisation and premiumization journey? Because ever since we started setting up sneaker studios in our stores, it has been more than seven quarters, eight quarters. At the same time, our pace of, adding sneaker studios in stores, that has also fallen down significantly since last two quarters. I mean, hardly 30 or 35 to 45 stores is what we are adding up. So can you please give some understanding over there?

Yes. So, Varun, basically the entire piece, there were multiple legs to this entire sneakerization story. So if I dial back a little, almost about 18 months to 20 months back is when we started this entire sneaker studio concept, which was bringing across the entire offering of sneakers under the Bata banners together and make sure that it impacts the consumers. That was the first leg that fired off. The next piece, I think very closely, but I think came with a slight lag of about, let's say, a quarter or two quarter was basically entire merchandise and bringing in basically fresher styles, etc etera. Largely driven through North Star, and which is what basically is what I highlighted is driving it. I think the piece that we are now wanting to basically drive this even further is going to be making sure that Power comes alive. And therefore, as I talked about, I think bringing in not only the Power products through, I think some of the work that we have been talking about in terms of technology, etcetera and bringing in unique propositions, which is that we want Power to stand as the, how do you say, democratizing fitness and technology is something that you will see fructifying over the next few months. And that's where the next leg that we see on this front, what will also happen along with this is that we will want to make sure that Power also is going to be the anchor of our proposition to consumers from a brand perspective. And we will see significant investments coming through on that front also. So we had sneakers studios, we had unlimited sneakers as a campaign, which was bringing a life to consumers and registering it. That gave us a big shift in terms of almost 400 to 500 basis points in terms of contribution of sneakers, making sure that we bring in lifestyle and therefore much better styles and colors under North Star. And I think the next journey or leg of the journey will be Power. So that's how I see this journey on sneakerisation. It will continue. I don't see any reason why we should not be participating because this is the fastest growing. And I think there is still a lot of backlog that we need to clear on this front.

Understood. Sir, actually my question was that in how many more stores we want to implement this program or are we largely done with regards to how many stores we would have aspired?

No, I got that. I missed answering on that front. So the initial piece when we did the sneaker studios was basically driving this across obviously our source. What we are now doing is that we are now doing it along with the entire innovation so that it becomes more efficiently. So yes, you are right in terms of seeing that the pace of the sneaker studios is going to now come at a slightly lower level. But I think the Pareto contribution stores, etcetera, have been activated. So now the next fever is basically in terms of merchandise as well as brand proposition, etcetera, to consumers, which is what I commented on. But you are right in your observation.

Got it, sir. Very clear. And sir, a follow up on this is what would be our revenue contribution from sneakers as on today and compared to maybe like a year back?

So from two years back, we would be about 500 basis points higher. From a year back, it would be slightly muted. And that is largely because the piece that was there in terms of Power is still to be completely slipped. I think in September onwards, once the S tep&Go, etc etera. so the merchandise started filtering in, we have started seeing that coming back. So about 500 basis points over two years.

Understood. And sir, my last question is like on the premiumization slide, we see a strong growth in almost all the brands, excluding Hush Puppies compared to last quarter, 5% growth. So like what explains this relative underperformance in this brand?

I think it's also that Hush Puppies saw extremely high growth last year. Varun, basically saw extremely high growth. I think there was some amount of COVID and maybe post COVID bounce that I think might have resulted in some mutedness. But our ambition on Hush Puppies, in fact, I think this year, we are likely to exit December with about 120 plus stores of Hush Puppies and next year is going to be even stronger addition. So a large part of this addition that we are talking will start also now Hush Puppies will have a significant contribution. The other big piece that we are also going to invest in Hush Puppies is renovation of stores. A large part of the renovation that we have done have been in Bata stores. Hush Puppies has not been invested in as much from a store experience point of view and that will undergo a big change. The first new concept has been opened in Southern India , in Kerala and there will be a whole bunch of work that's lined up for the next two quarters. So Hush Puppies will continue. This quarter might be an aberration.

Thank you. We now are going to have a question with Mr. Gaurav Jogani. Please proceed.

So my question is with regards to, if we see that while the premium part of the portfolio is seeing good growth rates, both Floats, Hush Puppies, even if I consider the base, and the North Star piece as well, which means that the value end of the segment, is it declining in high double digits or maybe mid teens kind of a number? Would that understanding be right?

And especially when you look at the one that is below INR500, yes, you are right. But as I mentioned to someone else just a few minutes back, we are slowly seeing that now narrowing down the gap that we had, let's say about three quarters, four quarters back of premium significantly outstripping the mass. I think that the trends are now slowly converging. And that I mentioned it, that these go through cycles, and we are hopeful that they will, how do you say the mass market should also start bouncing back. I think consumers have seen a lot of inflation, we have taken up prices, let's say two years back or so, one and a half years back. We have very consciously stayed away at a very broad level of any price increases for almost now four quarters, five quarters. And we see raw materials stabilizing. And therefore, I don't foresee that consumers will get a little more comfortable in terms of the decrease in expense coming over, provided the overall macros work well.

So, sir, my follow up question to this is, given the fact that in the morning on the TV interaction, also, you mentioned that you will be targeting double digit growth rates. And if I have to bifurcate the growth rates between, the premium portfolio, and t he mass end of the portfolio, how would you'll be looking at, be the mass portfolio now given a low base to grow a bit higher, and the premium portfolio, maybe take a little backseat, or both will continue to grow at the same pace?

No, both will continue to grow. I would say ye s, there might be a quarter or so , where there might be some rebalancing, but at a slightly more medium term, which is where my commentary was, I would say that our premiumization journey will continue. And therefore, I don't see why premiumization, a premium part of our portfolio should be at least 1.5x of our overall growth.

Sir, on answer the second and the last question, is with regards to the growth rates, again, I mean, I understand, that the addition largely has been on the franchisee part of the business, which is again, a lower contributing in terms of the reported numbers. So if you can bifurcate for us, what kind of growth rate drag you see from the franchisee piece of the business in the overall numbers?

Okay, so I think while there, while even at the end, so we track growth rates of franchisees at multiple levels. And now the network is large. However, as you rightly said, and as I mentioned it, the reported turnover that comes through comes to a discount ed level, right. And these are smaller consumer cohorts, which I thought we could not access to through a COCO format. So all of this I've spoken about. Notwithstanding that it's now becoming reasonably sizable, it is now close to double digit in terms of contribution to our sales. And we are looking for basically this continuing to expand significantly going forward. It is, inorganic and organic combined, it is growing in very high double digits for the last several quarters now. It's also, as I mentioned, significantly upgraded from a capital as well as fixed cost perspective. And therefore, from our EBITDA level.

Sure. So just one clarification, when you say double digits, you mean the SSG growth rates or the overall growth rates?

Both. Last quarter, though the SSG would have been still positive, better, but it would have been a little more muted, considering the overall discretionary demand. But let's say over four quarters, it has been in double digits on SSG also.

Sure. Thank you. And that's all from me, sir.

Thank you.

Thank you. Our next question comes from Abhishek Getam with Alpha Invesco. Please proceed.

Thank you for the opportunity, sir. So my question is, I wanted to understand our strategy and initiatives on Tier 2s and beyond. So I do understand our renovations and sneaker studio launches and pre-management for Tier 1. But how are we looking to grow in Tier 2s and beyond?

Okay. Can you just, Abhishek, repeat that question? It was a little muffled.

Okay. So multiple legs, Abhishek, on that front. So first and foremost is what I was just talking to the previous caller, which was on the franchise expansion, a large part of the franchise expansion. So let's say, for example, over the last four quarters, we wo uld have added almost about 120-odd stores in franchise alone. I think of almost 90% of those have come in Tier 3 and below towns. Right. And that's where in many of these towns, we are the first branded store of footwear that's opening up, etcetera. And that does give us inorganic first mover advantage on that front. The ASP at a retail price level of these stores also is not very different from our COCO ASPs, but at about 20% lower than our Metro ASPs. So it's not so low. At a margin level, in terms of profile of products, etcetera, it is reasonably at par, leaving aside obviously the fixed costs and the capital costs leverage that I get on the franchise model. So that's on one side, which is expansion, sustainable, profitable side. The second piece is basically that we want to also make sure while we are now devised mechanisms of trying to track, and there's been a lot of effort, especially post-COVID of driving newness and freshness into our stores on regular season and within season drops. We are now wanting to percolate it down the top strata, down to the last, even the COCO store as well as which go down the tier. Therefore, making sure that e very season, at least 20% of the portfolio across each category minimum is refreshed and therefore consumers see freshness. The last piece that is there in this is this entire Omni piece, which opens up the entire portfolio of Bata without me having to necessarily invest in inventory all across all styles and all sizes. And which, as I mentioned in my presentation, that we are not only now successfully penetrated across the entire COCO network to a significant level, but also now opened up the entire franchise network to it, which allows the franchisee to also access the entire portfolio of ours without having to take the risk o n some slow moving or high premium articles. So premiumization will also be driven down top strata, leveraged by obviously, as I said, freshness, etcetera.

That's very heartening to hear. I just wanted to understand that just to get the number right, in Tier 2 and beyond or Tier 3 and beyond, our A SPs would be roughly, or most of the products would be open footwear? Or how would that mix be?

I don't have it handy in terms of, did I hear you right? Open footwear?

Yea, I mean, I was thinking that more towards open footwear sales in those areas , in Tier 2 region?

I don't have it handy. My gut feel would be yes, it might be a few percentage points higher, but not significantly. Yes, to the premium Top 100 stores, my open footwear would be significantly lower. But overall, let's say metro and Tier 1 towns, and let's say, Tier 3 and below, the ratio will not be significantly different. But AS Ps would be obviously the merchandise mix, etc etera. would be a little more different. And that's what I mentioned. That's about 20% ASP lower.

Right. And assuming that ASPs in this town or cities would be around 5 00, 600 for us, is it? I mean, you did say that it is almost at same profitable level for COCO and franchisee, but could you give some light on the numbers on the margin side?

Okay. So one is, let me correct it. Our overall ASP of the retail network is in the range of about INR1,000 now. Right. So it's been a premiumization journey that continues. Within that, I think the Tier 3 and below would be in the range of about, some rule about INR800. So it's not, you know, the INR500 or INR600 that you mentioned. The margin profile is similar. Maybe it's about 20 basis points lower. So it's to do with, the product profile is different, right? So I'm saying the amount of value addition that I do in the product, and therefore the price that I charge from the consumer is the equation both and therefore the margin is still reasonably stable.

Understood. So thank you for the detail ed answer. The last question, to grow more or to grow more on the touch points side, in the, all over India. So do you think opening and franchising would be the way ahead or going via MBOs or partnering more with distributors is the way to go ahead? I'm going on a large, larger base.

Yea. Yea. No. So, see, I think there is opportunities, both ways or actually three ways, right? Two, you have mentioned, which is franchise and MBOs. There is this entire piece of online, that is a third channel and that's very important. And I think overall is also a very large focus. And I think that will especially some of these muted times will help us is focused on same store growth. So all three or four of them will be worked upon and are part of the priority that I just mentioned when I showed the top levers in my presentation.

Right. Sorry. Additional question to that is, j ust for the next one or two years, growing on individual store basis, I mean, growing on Bata stores, it is still be a profitable business for our franchise, right, in Tier 3 or beyond? Even our growth goes [inaudible]. Understood. Thanks.

Thank you. Our next question comes from Ankit Babel with Subhkam Ventures.

Good evening, sir. So my first question is just a clarification. You did mention in your TV interview today that y ou are targeting a double digit growth. So, are you targeting this group even in this year, FY '24?

No. So my comment was on what's the medium term vision that we carry. And that is obviously that we want to make sure that we have a double digit growth, a profitable growth is what I mentioned. Right. So, we will stay with it. That's the vision and the levers and the plans that we carry. As I mentioned, like last two quarters, we've seen obviously some up and downs, so those will correct for themselves, but we will stay with that vision.

Okay. And second is the INR5,000 crore revenue target for 2025. Just a clarification, this is a calendar year target or, I mean, like FY ‘26 target?

Okay. And last question is, sir, once you achieve this double digit revenue growth in the medium term, can our margins be back to the pre-COVID levels?

We don't give forward-looking forecast. The reason that I mentioned also on this commentary that I made on the revenue growth perspective is to just say that these are all the various levers that we'll work on, which should show us, basically impact in that form. We always, as I mentioned, we would like to have sustainable, profitable growth. So our desire is to make sure that we maintain margins as well as be prudent about it, even more so in these tough times that we have seen recently. All the more reason, as I mentioned in my presentation at the start, that we would like to be very conscious of various fast lines, both fixed as well as variable.

Okay. Thank you, sir.

Thank you. Our next question comes from Sanjeev Pandiya. We apologize. We didn't receive his audio. As there are no further questions, I would now like to hand the conference over to the management for its closing comments.

So thank you everyone for joining us. Looking forward to interacting with you again. Thank you everyone. Thanks forum.

Thank you. On behalf of Axis Capital Limited, that does conclude this conference. Thank you for joining us and you may now disconnect your lines.

While we have made our best attempt to prepare a verbatim transcript of the proceedings of the Earnings’ Call, however, this may not be a word-to-word reproduction.