Bata India Limited (BATAINDIA.NS) Q1 FY2026 Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Bata India Limited Q1 FY '26 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Gaurav Jogani from JM Financial. Thank you, and over to you, sir.

Hello, everyone. On behalf of JM Financial, it's my pleasure to welcome you all to Bata's Q1 FY '26 earnings conference call. Today, we have with us Mr. Gunjan Shah, Managing Director and Chief Executive Officer; Mr. Amit Aggarwal, CFO; and Mr. Nitin Bagaria, EVP and Company Secretary. Thank you, and over to you, Nitin.

[Audio Gap] to all of you. We have Gunjan Shah, MD and CEO. We also have Amit Aggarwal, Director, Finance and CFO, joining us. We have shared the presentation with the stock exchanges earlier today. We will be taking you through the same. We'll navigate the slides as well as the page numbers. On Page #2, we have the disclaimer. I'm sure you have gone through the same. I'll now request Gunjan to take over, and thank you once again for joining.

Hi, everyone. Pleasure to be back on this call for this quarter. While overarching, the quarter was a relatively tough one, it seemed a little better than what we had seen in the previous quarter of Jan to March. But still, it resulted in only flattish kind of a growth, while we managed to have the operational efficiencies reasonably working for us. And it just goes on to show that the backbone of the P&L is strong enough. And hopefully, once we start seeing growth, led by the initiatives that we have talked about and hopefully pushing ahead, we should see this translating to much better profit growth also. Moving forward, I will try and keep consistency with what I have shared with you. On Slide #3, I'm going to talk about 3 large initiatives. I've talked about them in the past, and I will give you progress updates on all 3 of them going forward also. And some of them, I will hint towards the kind of plans that we have for the balance of the year in the next few quarters. So store growth, same-store store growth, portfolio evolution from a product portfolio and inventory agility. These are the 3 things. Moving forward, Slide #5, talking about -- Slide #4, sorry, talking about store growth, there will be 2 large initiatives, the ZBM project, Zero Base Merchandising that we are now scaling up pretty large and the Value Proposition project for driving same-store store growth. In Zero Base Merchandising for enhancing customer experience, the key metrics are -- now we are at close to 200 stores end June 2025, plus 50 stores in the quarter gone by. So the pace is picking up. We would like to have it much larger provided we are able to make sure that the inputs that go into making a successful transition to a ZBM and the kind of output metrics that you see on the chart on the right side, they fall into place. We hope to maintain this progress of about 50 stores a quarter. And if things work out well, then maybe a little more accelerated. Line reduction. And hopefully, now these are all Pareto stores, so they should be a larger contribution to the overall store network from a turnover perspective. These stores have seen a line reduction of 33%. That's reduced the clutter piece. They have also seen an inventory reduction of almost 22%. So a significant return on invested capital for these stores and are much better from an availability perspective or size sets, et cetera, for the lines that we have kept there at almost 450 basis points. What does that result in is a much better consumer experience. The NPS scores are better. The Google ratings are better of these stores. The unit per transaction is much better. The turnover is better in terms of same-store growth versus control stores as well as the volume pair is -- throughput is much better. So we are able to display our merchandise, display our proposition to consumers much better and the stores are run more efficiently from a store manager perspective, which I've talked about for now the last 2, 3 quarters. We hope to continue this projection going forward and maybe even consolidate even better. The second big initiative, Slide #6, is on driving value proposition. We do sense stress even now in the mass segment, the middle and mass segment. And there have been concerted efforts. They're gaining significant momentum. Now we see some signs of success on it. Some of the examples I put here, Bata Ladies, a very large volume contributor as well as value contributor to the stores turnover. We have introduced key price points, both in open and closed. And there is significant success in terms of checkout rates. They have also improved as far as checkout rates go. As you can see some of the data points, I'll just take you one of them and then we can extrapolate for the rest. Opening price points of INR 399 and INR 499 were introduced at scale across almost 800 doors. Those price points resulted in checkouts going from 3.5% to 8%. The meaning of checkout and the better reference would be the average checkout of the full portfolio of our network is about 4% roughly. That's basically equivalent to 2 turn. So anything about [ 4 ] is better than average. These portfolio showed a checkout of 8%, right, and at a large volume base of almost 15,000 pairs per month -- per week and which is also significant from an overall growth perspective. So we now plan to expand this to almost a full network, which is close to 1,200 stores. A similar data point for INR 799, INR 999, checkouts moving up to 6.4%, price points clearly demarcated and then the network getting expanded and obviously then backed up with now communication to consumers outside the store in terms of the value proposition, depending on what's the proposition in which stores. One example has been shown. Similarly is on the Power side and the price points of INR 1,699, INR 1,999, first time introduced at scale, some initial signs of success and a checkout of 6.6%. We would like to now expand this across the network and with additional lines also. So 4 more lines coming through in addition to the 7 lines. So there should be a significant portfolio that we build there. So these are just a couple of examples. There are many more that are being worked upon on the value proposition and hopefully allowing us to have a little more optimism going forward. On the portfolio evolution, 3 large levers: casualization driven by Floatz, Power driving the athleisure portfolio and Hush Puppies on the premium side. On Floatz, Slide #8, significant progress. Momentum continues, 30% plus kind of growth. It is significantly indexed from a price point perspective. It is 1.2x of the average ASP of the store. So it adds on to the ASP of a store while driving significant volumes. We [ built ] the quarter that went by, as you can see on the wrong -- on the right side, did see a significant addition of new portfolio. What we have been very conscious of is that as the new one comes in, there is the existing one which is now faded out also. So standardized merch packs have been done for various clusters of stores of Alpha, Beta, Gamma. And as you can see, some of these are collabs with Disney properties. Some of them are technology introductions and some of them are just pure design and color introductions. But to great response and obviously, the checkouts are showing up out there. We also launched in this quarter, some of our largest campaign for the quarter was around Floatz, Comfort Never Looked So Good, along with the mega influencer, Prajakta Koli, to great response also. The second being -- second piece on Slide #9 on Power portfolio investment. These are on the premium side, price points of INR 2,500 to almost INR 4,000 plus. These again saw significant traction. Checkouts mind you at this level are relatively lower at these price points. Even there, if you're getting 4.5%, it's extremely good because it results in significant turnover. And there, we plan to obviously extend this whole Power Easy Slide collection to the full network now and with a significant widening of the range. And we are now wanting to also insert this property of Easy Slide in some other product categories of us that I will talk to you as we go by in the subsequent quarters. Power Stamina on the premium side for running shoes, good response at INR 4,000 plus checkout of 4% at 9 -- at 6 lines. So that continues to invest on democratizing technology. The last but not the least, on driving premiumization, Hush Puppies continues to expand. We are now close to 150 EBOs, as you can see in the graph, both COCO as well as Franchise combined. We will want to see a reasonable split of almost, let's say, about 60-40 in terms of expansion going forward of COCO as well as Franchise in this. And this was backed with obviously a large campaign that we continued on the "Ease, Please" along with Vir Das, the brand ambassador for Office Sneakers to great response. And that was the first major departure that we have done from the core categories of Hush Puppies of formal dress shoes as well as informal dress shoes, which are mocassins as well as loafers. That's the center piece of Hush Puppies sales. Office Sneakers has been a significant addition to that portfolio. In addition, as you can see in Slide 11, we have been also investing significantly on driving a refresh of the entire Hush Puppies brand. The new concept, as you can see in before after, much more brighter, does have a very premium codes. The category is displayed in a far more focused manner as well as the fixtures are reduced to make it easy for consumers to navigate and give them better comfort and accessibility. So 36 of those stores that I showed you have been already converted, and that progress will continue to keep investing on this channel for that Consumer segment. Moving to Slide #12. Inventory agility is very critical. I think this is some area that belatedly, we have gotten to the task. Now we are on it for almost about 3 quarters, and the progress is there in the subsequent 2, 3 charts. Slide #13, the lines overall, while I showed you for the ZBM stores dropped by 33%, overall for the full network has dropped by 25%, and the clutter at the stores also, including aged lines has also dropped by almost 23%. The top articles availability has also gone up by 7%. But however, this area, we still have significant headroom to progress, and there is a concerted project called Customer First, which is in this complete zone of end-to-end, how do we improve this entire agility. Total inventory -- moving to Slide #14. Total inventory has dropped year-on-year significantly. I showed this last quarter also. This quarter also, it's dropped by 16%. And this is despite the fact that we are building up inventory sequentially for the season -- upcoming season. And year-on-year, it's still almost at the lowest level that we have ended June at for several years now. Despite that, our stock turns are better and our aged inventory has been significantly reduced to less than half, which should also portend well in terms of full price sales going forward into the season. Customer First project is on track. As I mentioned, it's a large-scale project, which is dedicated for end-to-end improvement in terms of how do we not only forecast for inventory, but also the lead times as well as the way we store inventories upstream versus downstream. And the best-in-class benchmark that we have is that the stock turn improvement that you see to 2.1, which is on a trailing 12-month basis. It's not an easy metric to move. We want to see it in the next about 12 months to move to almost 2.5 plus. Moving to Slide #15. Other highlights, 644 Franchise stores, expansion on Franchise store continues. We were a little less than required in 20 stores. Largely the first half of the quarter was disturbed because of the geopolitical situation of Indo-Pak, et cetera, and that disrupted the momentum. But then onwards, it has picked up, and we are hopeful of maintaining the momentum of about 30 to 40 stores a quarter. NPS keeps on moving ahead. We have now introduced a significantly more stringent metric, which is on Google ratings, which is visibly outside to consumers as well as externally validated, and that's at about 4.6. KROs are now from a multi-brand outlet. We have now significantly invested on KROs, and that's at about 1,500, 300 more than last year. And we've been awarded a few awards, Best Workplace Culture, et cetera. We also launched 3 large campaigns. I talked about the Floatz one. I talked about HP. For Bata, we had launched under the Make Your Way platform, the Tropical Breeze Collection, which was under the comfort piece. Moving to financials. So therefore, this is a summary. Financials, the growth was flat at minus 0.3% at INR 942 crores. Gross margin, however, took a slight toll at minus 133 basis points. The EBITDA margin was at about 22.9% and the PAT landed up at about 5.5% before exceptional, less by 112 basis points. There were 2 exceptional items, as I mentioned below in the fine print. One was a VRS cost that we incurred towards a partial relieving of some workers in one of our factories, in line with our longer-term plan of trying to get an efficiency on fixed costs. And the second one was in the base year of last year, where we had got an exceptional item of realization of Faridabad line at INR 134 crores. That brings me to the end. There are a few slides in the appendix, which you can go through. Thank you.

Yes, we can now move to Q&A moderator, please.

[Operator Instructions] We have our first question from the line of Gaurav Jogani from JM Financial.

My first question is with regards to the gross margin this quarter around. We are seeing improvement in the contribution from the premium part of the portfolio. We are also seeing the quality of the merchandise, et cetera, improving. However, still we see that the gross margins have declined. So if you can highlight what has really led to this?

Okay. Gaurav, thank you. You know, your observation is right. The -- partially, the reason that has been there, especially in the last couple of quarters would be on the lines of clearance of some of the inventory, not only aged, but also what we call as basically discontinued. And that's the process that we are now putting in much more stringency as part of what I have talked about as Customer First. But effectively answering your question, I think a large part of it is done. Now we are in a situation wherein we actually don't carry as much aged inventory or discontinued from that front and especially compared to last year. So now we should be able to basically realize a lot of that benefit from a gross margin perspective. However, there is some part of it which we will realize. Some part of it will get redeployed where we are doing the value proposition initiatives, some of the categories.

Okay. Sure. That's clear. And my second question is with regards to the multiple steps that you have been taking, even, I mean, is the Zero Base Merchandising, the portfolio revamp, even on the tech front that you're doing multiple initiatives. However, somehow the revenue growth has been hard to come by. So if you can dissect that what it is that despite a very low base, we are not able to take the revenue growth to even mid-single digit. So what apart from this slow macro consumption would help to drive it to double digits?

Okay. If I have understood your question right, it's basically in terms of what is it that is causing the roadblock to revenue growth, right, in whatever, in various segments or any commentary on that front? It is -- I mean, while we leave aside the environment piece Gaurav, the piece that is, I think, in our view, is going to be at the lower price points. And that's where basically the revenue growth is most critical to come through from. And that's the piece that we are focused significantly on. While this quarter, we did see a significant -- how do you say, sluggishness on the MBO that is the distribution business front, we did see encouraging signs from a stores perspective on the lower price point, and we are hopeful that the initiatives that I've talked about will only gather momentum as we go forward. So the lower price point, less than INR 1,000 is where the stress is, and that's where we want to basically keep accelerating ourselves, while we push the premium part separately that I've talked about.

[Operator Instructions] The next question is from the line of Sameer Gupta from India Infoline.

First question is on the margin front. Now in the peak, Bata, if I just look at a pre-Ind AS basis, including the rental is part of other expenses, Bata made a 16% EBITDA margin a few years back. And last year is finished at around 11%. There is some benefit of that royalty accounting here. Now the company is hinting it's focusing more on the value part and that might be margin dilutive for some of the years. Internally, as an organization, is there a guardrail in terms of margin that this is the bottom and we will not allow the margin to go down from here? Is there a thought process around that?

Okay. Sameer, so a couple of things, right? While you're talking on the -- I'm assuming what you're talking is at an EBITDA level, right? But there are -- I mean, in a very simple way, there are 3 large pieces towards this margin, right? One is obviously gross margin. The second one is, let's say, store-related fixed costs, right, which are leverage coming from a same-store growth. And the third one is corporate fixed costs, right, including manufacturing as well as corporate overheads. Are you with me till now?

Yes.

Yes. Okay. So now I'll try and give you some commentary on it, while we don't give forward-looking guidance on margins, but the way we are approaching for it, and let's see whether it addresses your question, right? One is in terms of gross margin, I gave a commentary just prior to this question that was asked. And therefore, we are very hopeful that, that should come through. We will redeploy some part of it, right, of this cleaner inventory, et cetera, towards price point value. But I don't think that dilutes margins too much and especially once we start driving scale because that gives us economies of scale from a cost of product perspective. So that's on the gross margin piece. On the piece, which is to do with the leverage on same-store growth, which is anyway super critical. And that comes through, I think our cost structures have been reasonably tightly run. And once we are able to -- and that's why if you saw my presentation, the focus is on same-store growth, right, we should be able to get that realized and transferred from a leverage perspective from an EBITDA. The last piece is on corporate. There, we have done obviously a significant amount of work, both in terms of in-house manufacturing over the last 2, 3 years as well as from a productivity perspective of corporate staff and which I'm very hopeful we should be able to see the realization as we see the top line improve.

Okay. Let me put it in another way. See, I understand that the efforts are towards driving same-store sales growth, and that in turn will drive leverage. But those are not entirely in our hands, as if it would have been, we would have had a good history of SSS growth in the past few years also. So my question is that then there is a level after which if margins drop, the business doesn't make a very good return on investment. It will be sub 10% beyond the point. So do we have a thought process in the organization that, okay, now it's time to do more cost-cutting or we need to get more optimum levels of efficiencies, something on those lines I'm asking?

Yes, yes, that's what I meant by the third piece because the second and third piece is where you can leverage your fixed cost. So obviously, I think while on one end is leverage coming from top line, otherwise, you can make sure that you tighten up your fixed cost as much. As you can see, the manpower line has been much tighter even for the last couple of quarters, and that's what we will see going forward. Amit, do you want to add in some more?

Yes, yes, Gunjan, and thanks for that opportunity. If you look at in terms of beyond gross margin, so there is a gross margin erosion of about 130 bps as a percentage of sales versus last year same quarter. The -- all the other cost item, if you add up, there is a benefit of closing close to about 45 to 50 bps, which has emerged. Now this is emanating from all the structural initiatives on fixed cost, which Gunjan talked about. So we are very aware in terms of top line challenges because of various factors, which Gunjan also captured. Therefore, we are very tightly running the ship in terms of all the structural costs, they have -- they are continued to be hard loop. And wherever we are finding access, we are ruthlessly cutting it out. So that endeavor continues.

Got it. This is very helpful. Second question is that if I just look at the channel, the feedback suggests that Bata stores are significantly understaffed, which technically leads to lower conversion. And this is despite the Flexi Manpower initiatives. And now -- I'm sure this is a feedback you would have also received over the course of several con calls. Any initiatives you're doing to tackle this? I know I asked the first question on margins, but great to get your thoughts here.

Yes. So it will be great, Sameer, if you are able to pass on that feedback because we do our checks on this front. And it is actually a very -- it is a template that is run centrally as well as empowered into the regions, which then gives the store the right to manpower, and obviously correlated to their conversion metrics and stuff on that front. And I think broadly, while it is fine, there will be pockets where fluctuations do happen for whatever reasons, the system can be far more agile in terms of reacting to it but should work in that manner. So if there are specific gaps, more than happy to tackle them. Does that answer your question?

Sameer, are you there? Sameer?

I think we've lost him.

We'll move on to the next question, sir. [Operator Instructions] The next question is from the line of Sandip Sabharwal from Asksandipsabharwal.

I've been attending your call for the last many quarters and each call, the outlook seems to be very bullish when you present itself, but when we come to the end of the quarter, the top line virtually is stagnating. And the brand Bata also doesn't resonate so well with the young generation of today. And secondly, there are a lot of B2C brands which have come up, which are doing reasonably well. So what is aiding the company that despite so many initiatives, there's virtually no growth?

Okay, Sandip. So 2, 3 things, right? Obviously, we also would like to see much better top line. I think on a couple of fronts that we -- I mean, that I would like to respond on a slightly more macro level. One is that I think the consumer, especially in our target consumers, which is the middle class, broadly the belly of the population, have obviously seen a certain pinch that is there in terms of the inflation that they've gone through. Now making sure that they see value for money in our products, which we were known for is something that we want to make sure that we consolidate and strengthen ourselves. And more importantly, also make sure that these are presented to consumers in the right way, and which is why this whole piece of ZBM, et cetera, is being worked upon. Now that's one big piece. The second piece that's there is that the online piece, you're absolutely right. There is a significant amount of traction that is there online. Obviously, a far stronger traction that was there, let's say, the immediate period post-COVID, et cetera. But there is a shift that is structurally there in terms of consumers having moved online. And a lot of the D2C brands are from there. Now we have reinforced basically on 2 fronts. Obviously, our e-commerce business is our fastest-growing business for some time. The dotcom business is obviously now getting significant investment. We have just launched our app, let's say, about 10 days back. There is already about 10,000 downloads that have already happened. So there is going to be significant impetus that we continue to keep plugging there. However, the conscious piece is that we want to make sure that this is consistently a profit accretive kind of a channel. And we don't want to land up buying up sale, which is not going to sustain down the line. The last piece that's there is on product design itself. And we are now working not only in India, but also globally in terms of getting our significant amount of effort going behind product design and which means the technology as well as making sure that trends in the materials are rightly captured. Now one right example of this is, let's say, for example, the Floatz. Now very clearly, it's at least the average consumer profile of Floatz is almost about 10 years -- 8 to 10 years younger, right? It is a product line that has been started only about 3.5 years back, and it's already hitting a run rate of about INR 200 crores annualized. So there is -- where you put this together, it does work out. So that's where the endeavor is Sandip. But yes, I agree with you, we can do much better top line.

The only point being like as all of us know, footwear is sort of essential, like you can't do without it. So how much you can capture out of the market, that's the whole question. So -- and once the brand loses mind share, then taking it back becomes difficult. So wishing you the best, and let's hope things will be better going forward.

[Operator Instructions] The next question is from the line of Tanuj from JM Financial.

Two questions from my side. First one will be, sir, we have slowed down our pace of implementing the Zero Base Merchandising. Like as much I remember, you guided to implement this in 300 stores by end of this Q1, but we are now to 194 stores. So any kind of hindrance which we are facing that you want to highlight?

Okay. And what's your next question, Tanuj?

Next question will be on margins, sir. As our Franchise mix and e-commerce penetration is increasing, so how is this going to impact both the gross and EBITDA margins? How much dilutive, both the things has been?

No, at an EBITDA level, it is not dilutive. At a gross margin, it can play a little mix because of the way the business model is structured for it. And I have mentioned this in the past also. In fact, our Franchise business actually is exceptionally accretive from an EBITDA business. So I hope that addresses that, that it should be net accretive from a profitability perspective as they grow. The ZBM piece, in a way, you're right. I would have expected this to accelerate much better because all performance metrics from a consumer experience, from a throughput, productivity of the stores, revenue per square foot as well as from, as I said, ROIC, they are all better. The piece, however, that is making sure that we are a little more consolidated in the way we go about it has been our -- when the stores are made such -- are made so lean that you have to have the complete system running really smoothly to service those stores. Now ideally, once we do that, we want to make sure that we sustain it, and we don't want to have a hiccup. Now we've had a situation where we went -- the team went a little too eagerly, and we actually had to take a toll on turnover for a couple of weeks, and which is why now we want to make sure that we don't have these blackout periods in between because they can be very damaging to the stores' performance. And that's the reason why it's getting a little modulated. As I mentioned in my presentation, while we see are comfortable with the 50 stores getting transformed into this network progressively every quarter, hopefully, I think with the various other initiatives falling in place, we should be able to accelerate it to about 65, 70 stores.

[Operator Instructions] The next question is from the line of [ Avinash ] from Motilal Oswal Financial Services.

So my question is relating to the sneakers. So at one point, we have introduced something like a Sneaker Studio. There was a lot of focus there. So what happened to that? I mean, for the last, so few quarters, we're not seeing any kind of growth there. So what exactly is happening there?

Okay. Avinash, so Sneaker Studio continues. I think we are now at last count, close to almost about 800 stores out of the network with a Sneaker Studio now. The endeavor at that point in time, just to give you a context, was to make sure that the sneaker proposition from within the store is brought out and which is why we put up the panel and therefore, the Sneaker Studio concept was brought in. Now the point is that now we see that we need to take this to the next level and which is why the initiative is now in the portfolio that we are displaying in the Sneaker Studio and which is what now I've been focusing a lot more, and that's what the organization is working on also. But that doesn't mean that the Sneaker Studio initiative has stopped. That still continues. And any store that undergoes a renovation or a new store opening does have a distinct Sneaker Studio concept. But the driver is now going to be portfolio going forward for the next level of growth that we need from this category. And that's why I focused on what I talked about both from a Power perspective as well as value proposition.

Okay. Okay. Got it. I mean I just -- I don't need an exact number, but what would be the ASP of the sneakers that we are doing? What's the kind of growth rate in the last couple of quarters that we are seeing in this category? Because we account for like a substantial 20% of the top line rate, if I'm not wrong.

Sorry, can you just repeat the last point?

How much is sneakers account?

I mean sneakers account for like 20% of the top line last time when we spoke of.

Yes. Yes. Yes. Right. So it's about a 20% contribution to top line of the stores. It is an ASP, which is about 1.2x of our store ASP, overall sneakers. Power is much higher. We do sell sneakers under Bata also, and we do sell sneakers under North Star.

Any view on like how has the growth been there in the last couple of quarters? Because BIS and everything was done with and other players are reporting like their inventory position are getting better in the sneaker portfolio.

Can you just repeat that?

No, what I'm trying to say is like...

[ Because we're ] slightly better, I would say, not dramatically different, but it's been slightly better than the overall growth rate over the last, say, about last 6 months or so.

The next question is from the line of Nirav Savai from Abakkus Investment Managers.

My question is on the COCO format. Now it's been more than 2 years where expansion is extremely very slow, and I understand there has been a lot of store closures. So how do we see this year as far as COCO format expansion is concerned? And what kind of store closures are we looking at?

Right. So I mean, it's a continuous process, Nirav, that happens in the retail world. And obviously, modulating based on basically same-store growth in the environment that we see, then the net additions are an outcome of that in a way. But we still go on doing about roughly, in my view, about 70 to 80 gross additions that happen every year in COCO, gross, right? Now depending on some of the consolidation initiatives that we are on, let's say, for example, in the last about last 2, 3 quarters, there has been an accelerated effort towards that. That will result in the net numbers that we are talking about. But we have still been largely, I would say, flattish, maybe a few stores addition year-on-year. And that should only accelerate as we see the environment improving, hopefully. There has been obviously a lot of expansion that has happened through the Franchise format, especially in the smaller towns, where obviously, the benefit comes through in terms of new town additions, which are obviously grabbing new consumers. Simultaneously, a lot of our effort has been towards not only Zero Base Merchandising expansion, but also towards better Bata Red 2.0, which is renovating the stores, and that reaches at about, I think, about 60% of the network now.

Right. Right. So basically, at net level, we should look at minimal 10, 15 kind of store expansion?

As of now, in the short term, yes.

And I understand the stores which we are shutting down are not very profitable stores and maybe some of them might be loss-making stores. So what can be the incremental addition in margins, which we can look at post closure of the stores because we have been doing this exercise for more than 3 years? Yes.

Right. So normally, a store, we don't allow it to be significantly negative. So as long as -- as soon as it turns marginally negative from a 4-wall margin basis, it gets into a scanner. And then I think in another about 3 to 4 months is where then the decision is [ precipitated ] in case all other levers have been basically fructified. So that's where the benefit arise, but I'll let Amit answer in case of he's got a better number to answer you on this.

So typically, the closures what we have done, they should help us increase our operating costs or facilitate reduction of the operating cost because the stores were loss-making, right? So typically, we see on an average is about, let's say, 40 to 50 basis point improvement coming in the overall operating margin from the store closure.

Okay. So that is something which we can foresee for rest of the year?

Yes. But also what happens is that when you open a new store, which Gunjan also mentioned, it takes time to become profitable. So the year 1, generally, the new stores are not profitable on year 1. So therefore, there is that compounding or, let's say, impact which happens. So net-net, on account of store opening and closure at best, you see a 10 to 20 basis point improvement only, which is largely coming from the store closure, but gets offset because of the store opening. But year 2, year 3 onwards, that delta of 50 basis -- 40 to 50 basis points, which I mentioned, that continues to be.

So we have been adding 70, 80 stores, I understand for the last 3 years. And the closures have been maybe, let's say, 50 stores. Now the years, let's say, FY '23, '24, those stores would have turned profitable now? Or is there any time frame, let's say, a new store for, let's say, 2 years doesn't function or operate as per our expectations, we shut it down. So what is the criteria of store closure or are these old legacy stores, which have been burning cash for a long time?

See, internally, we have a stringent framework in terms of performance evaluation for any store. Like Gunjan mentioned, we look at stores which are closer to breakeven from that evaluation perspective. So one is a criteria on the bottom line. Second criteria is also the brand presence within that geographical space also. So there could be a couple of stores which are marginally loss-making, let's say, from an operating cost perspective of that store, they are operating at a minus 2%, minus 3% of our loss, but we do not have either our own store or present through Franchise, given that the quantum of loss is significantly -- it's negligible, we may continue to operate. But any store which is significant, again, that gets addressed irrespective of the duration. Minimum criteria what we apply is 2 years from a store [ opening ].

All right. And how many such stores would be still there, which we are looking to close? Or do we see FY '26 as a conclusive year for cutting down loss-making stores or this is an ongoing process, which will keep on continuing?

It's an ongoing process, right? So every 6 months, we refresh the store performance, while the data is available on a monthly basis, but given that there are various factors which impact the store performance, the first intent is to fix those other levers, which helps us driving either in terms of the merchandise refresh or the margin profile change or renegotiation with the landlord, right? But when everything also doesn't figure out, and as I said, based on the criteria which we follow, till it doesn't meet, then only we proceed for the closure.

Right. Right. So basically, these closures of 50, 60 stores will continue FY '26 and beyond that also, we see that happening because that's also something which is impacting growth?

Sorry to interrupt you, Mr. Nirav.

Yes, this was just the last question.

Sorry, what was -- [ can you specify that ]?

In terms of -- as Gunjan was…

So I'm saying store closures also has been impacting the top line growth. So is this a final conclusive view or this will, 50-50 stores will -- I mean, this will continue to close every year?

See, it's an ongoing process, which is what is always going to be there, and any diligent retailer will have it. However, the quantum of stores will be very difficult to project. We, as of now, see a significant reduction in the pipeline that we see, right? I mean the -- let's say, the red list that Amit was talking about, which is refreshed every 6 months, that's significantly lower versus, let's say, 1 year back, right? Now will that expand going forward or will that reduce will also depend upon basically the stores performance. So our objective is to make sure it becomes smaller and smaller because there is some amount of write-off that you do of fixed costs, right? So you have built an equity. You have invested in a certain locality. So you don't want to do too many of them. It also predicates on the fact that how good you are at opening new stores, what is the right location? Have you got the right commercials going, et cetera, et cetera? And there is obviously a bunch of things that people have done in terms of getting the right triangulation of various inputs into a potential of a store and therefore, the commercials. So we have tied up with third-party agencies that get us some kind of a consumption pattern and therefore, potential demand. Therefore, we hope that this pipeline will keep reducing going forward, if that's the narrow question.

We have our next question from the line of Prerna Jhunjhunwala from Elara Securities.

I wanted to understand the volume growth in this quarter and ASP performance given all the initiatives taken and hurdles faced.

Yes. [ Can you ] just help me?

No, [indiscernible].

Just a second. Yes. Okay. Broadly, I think both of them have been flattish, Prerna, right, largely driven by basically the fact that we had a disproportionate amount of impact in the first half of the quarter, especially in the I&D business because of the conflict, et cetera, that we talked about. So it's been broadly flattish on that front, allowing for the mix change, et cetera.

Okay. So sir, with all the initiatives taken, whether it is Zero Base for EBOs as well as focus on Power and Floatz and stuff, when do we see volume growth and revenue growth picking up? And how do we see internally on the growth that can be achieved at an overall level in the company?

Yes, yes. So I answered that question earlier. Our endeavor is towards making sure that despite demand conditions remaining soft, some of these initiatives help us drive the growth, and we are hopeful that this comes sooner rather than later that we can get the full bang of all these efforts coming together at the store front.

Okay. Okay. Understood, sir. And any color on how much stores can be added at a net level in this year?

We should be looking at broadly, while the longer-term guidance has been to basically add about 130 to 150 stores a year with a ratio of about 80-20 Franchise to COCO. But -- so we should be in that ballpark, maybe a little lower because of, I think, the slower last couple of quarters, but we should see acceleration going forward, primarily driven to Franchise, as I mentioned in my presentation earlier also.

[Operator Instructions] The next question is from the line of Rajiv Bharati from Nuvama Wealth.

Yes. Sir, with regard to your franchisee network, which used to be close to 150-odd stores on COVID period and now 650 stores. What is, let's say, the throughput number? How has it moved over the years? And has there been a repeat, the franchisee has come back or what proportion of these franchisees have come back to open, let's say, another store with you? Just to gauge the success here. And the related question is in terms of your Hush Puppies arrangement, isn't there a mandate to, let's say, get to a certain milestone number of stores in, let's say, 2, 3 years out? Yes. These are 2 questions.

Okay. All right. Thanks, Rajiv. Quickly on the Franchise piece, Franchise contributes to roughly around about 12% of turnover on the retail sales price level, right? Realization turnover, obviously, is a little lower because of the way we realize full price on the DOS side, right, on the COCO side. The piece on repeat franchisees, we see more and more of it. Right now, if I last recollect, I think on an average, partner of us has about 1.7 or 1.6 stores with us. But let's say, the last -- the additions that we are doing, about 60% of our additions are coming from existing partners. So -- and we want to propagate that further. So we are encouraging franchisees to open more, and we are seeing that happening much easier, much faster because obviously, they understand our systems and portfolio much better and vice versa also. On the Hush Puppies front, we will -- basically, the point is that we do have some kind of an arrangement on the brand. We have long since crossed that from a relationship perspective because it's been well established. It's been there for a long time. And -- but however, we are ahead of plan on that front. So we don't see a constraint from that perspective. Does that answer your question, Rajiv?

Yes. Just a follow-up on the first part, the 12% contribution you mentioned, let's say, pre-COVID, what was the contribution? Because you mentioned that this is margin accretive as compared to the remaining business, right? But overall -- on the EBITDA side. But overall EBITDA hasn't moved. So something else is eating into, let's say, if this channel is growing better.

Yes. So what is the question, Rajiv?

No. So has the contribution changed materially? This 12% number was in the same ballpark earlier also, is it in terms of contribution?

No, no, no. Franchise contribution was much lower earlier. I mean that is the whole reason that it's expanded, right? It was less than -- I mean, I can't recollect immediately, but my sense is it was less than 3%.

As there are no further questions from the participants, I now hand the conference over to the management for closing comments.

So thank you, everyone, for joining. It was lovely interacting. Over to you, moderator, and JM Financial.

Thank you, sir. On behalf of Bata India Limited and JM Financial, that concludes the conference. Thank you for joining us, and you may now disconnect your lines.

Thank you.