BATAINDIA - Bata India Limited Share Price

In the Q2 FY26 earnings call, management delivered a positive outlook, focusing on various transformation initiatives and growth strategies. Gunjan Shah, the MD and CEO, emphasized that the company is nearing the end of an extensive inventory declutter process, which has resulted in improved product availability, up by about 14%. The total inventory is reported to have declined by double digits year-on-year, with inventory turns reaching 2.2, aiming for a target of 2.5.

The management highlighted their commitment to enhancing customer experiences through zero-based merchandising (ZBM), which has now been implemented in approximately 90% of stores in major markets like Mumbai and Gurgaon. With ongoing investments in marketing, the company aims to lift brand awareness and consumer engagement, evidenced by successful campaigns such as the Victoria Ballerina.

Forward-looking points include ambitious network expansion plans with the franchise story evolving from less than 100 to nearly 700 franchise locations in four years, aimed at tapping into unique towns. Management also outlined plans for accelerated store openings, setting a goal to achieve 50% store turnover by the next quarter.

Financially, despite experiencing a 4% decline in revenue to INR 8,000 million compared to last year, management underscored that the disruptions from the GST transition impacted their results, suggesting that without them, revenue would have been flat. Gross margins took a hit but improved 190 basis points sequentially from Q1. For the upcoming quarter, the company expects lower markdowns due to improved inventory practices and enhances profitability.

Overall, the strategic initiatives are projected to yield benefits in the medium term, with an optimistic outlook for recovery and growth moving forward.

Q&A Section Summary from Bata India Limited Q2 FY26 Earnings Call

Question 1: Can you quantify the impact of GST-related disruption affecting channel partners and consumers?

Answer: We estimate that had the GST disruptions not occurred, we would have reported flat revenue instead of the observed 4% decline. This indicates a roughly 400 basis point impact due to these issues.

Question 2: What factors are pressuring EBITDA margins below historical levels?

Answer: The primary factors affecting margins this quarter include gross margin erosion due to pre-GST price reduction incentives and ongoing efforts to enhance freshness in our inventory. Our investments in marketing also played a role in the margin decline, although we aim to sustain these marketing efforts in the future.

Question 3: What are your targets for EBITDA margins moving forward?

Answer: While we don't provide specific forecasts, we believe that the one-off impacts seen this quarter shouldn't recur. We expect improvements through better inventory management, enhanced freshness, and the efficiencies we've implemented recently.

Question 4: Could you share same-store sales growth data for Navratri?

Answer: We don't disclose exact figures, but our overall growth post-GST transition shows positive signs. Despite some backlog due to earlier disruptions, we are optimistic about structural benefits in the coming quarters.

Question 5: How is the health of your distribution channels after the transition?

Answer: Following the GST rate changes, channel partner activities slowed temporarily due to purchasing deferrals, but buying has resumed post-September 22. Current conditions are stable, and we've mitigated prior disruptions effectively.

Question 6: How do you assess consumer sentiment during this festival season?

Answer: While East India showed potential due to local festivals, the overall disruption affected sales recovery. However, we expect ongoing consumer experience improvements and pricing strategies to better position us moving forward.

Question 7: What specific strategies are in place for balancing value and premium offerings?

Answer: Our brand strategies include a mix of lower price volumes and premium offerings, especially under Hush Puppies. We aim for a blend of growth strategies that include expanding lower-priced options while enhancing value in our premium segments.

Question 8: What volume and ASP trends are you noticing?

Answer: We're observing flat ASPs this quarter, despite premium product performance. Volumes are primarily affected by inventory clearance efforts. We intend to better assess consumer behavior as backlog demands unfold.

Question 9: Is there an impact on margins as you pursue these mixed strategies?

Answer: Yes, we anticipate a shift to lower markdowns based on improved inventory clearance strategies, potentially enhancing margins in future quarters.

Question 10: Can you quantify your product portfolio distribution by price point?

Answer: Approximately 40% of our offerings are below Rs.1000, another 40% between Rs.1000-2500, and 20% above Rs.2500. This diversification helps us capture varying consumer segments and price sensitivities.

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