Bata India Ltd Management Discussions

Industry structure and developments

India is the second-largest producer of footwear and third-largest footwear consumer globally. The footwear market in India was seeing an upsurge since past many years and was poised to continue its momentum in coming years on the back of growing demand for trendy, fancy and comfortable footwear among the youth of the Country.

Rapid urbanization, higher disposable income and growing influence of social media led to change in fashion trends. With increasing trend for active and exercise regimes, demand for athletic shoes grew rapidly as well.

Global economy has plunged into a severe contraction and is expected to shrink by over 5 percent this year due to the massive shock of the coronavirus pandemic and the shutdown measures to contain it. Except stores selling essential commodities, all other stores were shut down across the Country for nearly two months. Even today, not all retail stores have resumed operations. Even with the ease of lockdown norms, the consumer sentiment would take some time to revive. Though there is a shift of focus to e-commerce, it currently accounts for less than 10% of the total footwear sales in the Country.

Under the “New Normal” as India Inc. shifts to “work from home” and with socialising becoming a rare occasion, shoppers are purchasing casual and comfortable open footwear.

The silver lining, however, is the increasing awareness about health, thereby driving the demand for sports footwear. The retail footwear business is expected to improve gradually as the festive season is still ahead of us.

Opportunities and Threats

Recent changes in the consumer spending behaviour along with fall in disposable income has posed serious challenges for sustained future growth. To maintain such growth, your Company is taking necessary steps such as expanding its e-commerce footprint allowing deliveries in over 1,300 cities, rolling out its omni-channel home delivery across 900+ stores and giving customers the option to shop from homes via WhatsApp chat with our neighbourhood stores. Your Company is also working on various cost-optimisation measures including rental renegotiation, closure of unviable stores and digitalisation drive across the organization, etc., to eliminate redundancies. Your Company continues to focus on stylish, comfortable and durable quality products so as to be ahead of competition.

“Bata Ladies” and “Comfit” categories maintained good momentum. With changing lifestyle and focus on personal health, your Company is optimistic about its brand “Power” which has seen good demand uptick in the last year. Another opportunity in the current scenario is the preference of consumers towards more “comfortable” rather high fashion footwear. Your Company is uniquely placed to take advantage of this trend with its aspirational brand image especially in the Comfortable and Trusted footwear arena, wide range of recognized brands, upgraded online experience and unparalleled retail footprint.

Key Focus Areas

Marketing and Campaigns

Batas agile marketing strategy continued to evolve from traditional channels to digital and moment marketing with its continued focus on making the Brand more aspirational, making our retail stores inviting, leveraging deeper consumer insights and evolving the brand based on consumers post-purchase experience. We identified that working women, kids and youth are fast growing segments, while the mens segment continues to be the largest one. We launched industry-first 9-to-9 campaign promising working women non-stop comfort from morning till evening and promoting Bata Comfit, Naturalizer and Hush Puppies brands. For men looking to expand their collection for different occasions, we created a campaign promoting Unlimited casual collection promising 500+ styles ranging from sneakers, loafers, boots & athleisure, across Hush Puppies, North Star and Bata Red Label brands.

Our digital marketing content has always tried to touch a chord with the customers with focus on relevant content along their digital journey. For the youth segment, we promoted new Power fitness range, North Star chunky sole sneakers & Bata Red Label colorful high-heels, in social media channels, via influencers and at fashion events like Lakme Fashion Week, where the designers talked about their love for the Bata Brand and how surprised they were to see Batas new avatar. Youth could discover the products in social channels and had the Buy Now option there itself. The Womens day digital film was Batas signature way of acknowledging all women who have contributed to making us what we are today, by showcasing our 10 exclusive women-run stores across India.

With our continued focus on attracting the younger audience, last years Festive campaign featured Kriti Sanons younger sister Nupur Sanon and highlighted our New Arrivals Every Friday proposition and showcased camera-ready diverse collections. While, we upped our ante with Surprisingly Bata campaigns in areas of fashion, casual and comfort, we also launched our new Back to school collection campaign with Anti-Bacterial protection that kills 99.99% of odour-causing bacteria and received endorsement from 8 out of 10 Doctors for this range which helped reinforce trust enjoyed amongst the moms.

With all these multiple campaigns throughout the year and with moment marketing, we saw improvement in Brand affinity scores, footfalls and sales. Batas overall shoppers age dropped by 3 years over the last 2 years and we are firmly placed to reap the benefits of youth demographic dividend that India enjoys.

Innovation

We understand the importance of innovation in designing and creating our Collections. The successful implementation of new ideas and technologies is crucial to our business and gives Bata a competitive advantage over other brands in the marketplace.

Consumers preference has moved from normal everyday products to the ones which have more to offer and fulfill their needs. All our new ideas & technologies are taken through an Innovation Funnel, which determines their lifecycle from Idea stage to Roll out stage. Less than 50% make it to the marketplace, but those which do, have proven technologies, strong designs, appealing names and exciting claims. Their success rate are also determined by consumers focus groups done prior to launch.

The big stories which drove these results can be streamlined in 4 major areas which define Bata and its portfolio brands as the most trusted in India: Comfort, Performance, Protection & Hygiene, Sustainability.

The technologies which best performed were Memory Comfort, Memory Foam and Ortholite in the comfort area; Life Natural/ Bata Shield antimicrobial on schools shoes collection; various Power technologies and GripLight in the performance area; APX rubber made of recycled tires as a big sustainable story.

Our Innovation agenda continues relentlessly as our Funnel delivers solid projects which will help drive the business growth. In coming years, 2020 and 2021, your Company will launch more sustainable stories (Bloom & Power Eco), Comfort blockbusters (Comfort Foam, Comfi Flex & Air vent technology) and Performance (Hydro Lite, Etpu & Floatz).

Customer Care Initiatives

Customer Service and Experience has been a big focus area for your Company. There is a dedicated customer service team to ensure that customers dont face any inconvenience and their concerns are addressed in a time-bound and effective way.

Over the year under review, your Company focused on improving its Customer Experience area with key initiatives like - automation of claim & exchange via a new point of sale utility to fast track the process, addition of a guided IVR with an option to request call back during high traffic hours and ensuring call abandonment was always less than 3%. Bata India continued to collect & measure consumer feedback actively about their shopping experience as well as claim/exchange experience. We also continued to drive detractor close-looping actively by calling back detractors and resolving their concerns. As a result, our Net Promoter Score improved by 12 percentage points annually.

Bata Club

Our flagship loyalty program “Bata Club” members has increased over the years & currently has over 13 Million active members (last 1 year active). We relaunched Bata Club during 2019, with the objective of increasing its awareness, rewarding our loyal shoppers, making it more consumer-centric and bringing in digital interventions. These measures included - launch of an exciting welcome kit to encourage first-time shoppers to come back, use of advanced analytics to drive more relevant and personalized campaigns, introducing technology driven in-store tools like customer single view at point of sale (POS) to drive conversion, upsell & cross-sell, launch of new communication channels like WhatsApp for Business and a digital microsite to see reward benefits. All these has translated to increased engagement with Bata Club members: average monthly repeat rate has gone up by 5% percentage points and campaigns walk-ins rate has also doubled vs last year.

Segment wise or product wise performance

Your Company operates in Footwear & Accessories Segment only and performances of major business categories and key brands of your Company during the financial year ended March 31, 2020 are highlighted below:

Retail Business

Your Company has followed a strategy of “maximizing presence” which is built on Batas core value strategy of “Win everywhere”. Top end of the retail & consumer space is being served through opening Shop in Shops of Bata in large format Departmental stores having National presence. We are aiming to achieve higher brand equity through our presence in such counters. The core set of market is covered with the Company operated retail stores on highstreets & in Malls of Metro cities & tier 1-2 towns. While keeping the focus on growing existing stores, your Company also adopted a multi-prong strategy to continue presence in new malls, open stores in un-represented retail trade areas on high-street, enhance presence in legacy location & grow in the same market through bigger & better stores and also upgrade store experience through partial / complete renovations. Your Company kept a higher focus on opening franchisee stores in tier 3-4 towns and opened 52 stores thereby adding more than 40 new towns. Your Company is working towards a vision of 500 Stores through franchise network in the Country by increasing reach in towns with population of less than 2 lac. These spacious new stores are built in new Global Red Design which are true to our “Surprisingly Bata” campaign & with its clean design thinking & focus on Red & White color, gives a delightful shopping experience to our consumers. We also upgraded over 300 current stores to the proven Red Design.

Your Company started the concept of Bata Experience Centers under the name “Happy Feet Center” which gives consumers unique experiences and services like getting their feet scanned for a customized 3D insole, medicated pedicure and a shoe laundry which brings back shoes to life. These centers would be opened in select stores in key cities and would mark our market leadership which is not limited to selling footwear.

During the financial year ended March 31, 2020, your Company opened 66 new retail stores in addition to 19 relocations, 52 Franchisee stores and renovated 49 stores across India. Your Company closed 37 stores during the year under review. Your Company has plans to aggressively continue Revival of our Old Concept Stores into Red Concept to give our customers an aspirational experience.

Digital Multi-Channel Business

E-commerce business maintained steady growth during the year under review. We sold more than 1.8 Million pairs of footwear through online channels and achieved a turnover of Rs. 1250 Million. Launch of Endless Aisle, that connected retail store inventory to online website with technical integration, has multiplied the business potential by manifold. Bata India now ships more than 95% of orders received from Bata.in through its stores. Tools like WMS & Marketplace integration were put in place to scale up our market place operations. Advancing to Auto Replenishment lets the online stocks replenished for e-commerce the way retail stores are replenished with inventory on a regular basis.

In addition, Launch of Bata Home Delivery Services in over 900 stores allows store staff to place orders on customers behalf if the article of their choice is not available in the store. This has helped retaining 100K+ customers in 2019, who otherwise would have walked out of our stores due to non-availability of size and color.

In 2019, Bata.in focused on Women centric campaigns to bring a paradigm shift in our women segment sale and it resulted in minimizing the gender ratio gap to 9%. In addition, Amazon observed a slight shift in audience group to a younger section as 42% of Bata customers shopped under the age band of 15-24 years vs last year, when it was 25-34 years.

B2B business has been steady on Amazon and Flipkart. Focus has been on improving secondary sales on these platforms which in turn improves primary business. Rigorous marketing campaigns including Cost per Click (CPC) and Cost per Million Impressions (CPM) were launched while diligently participating in brand specific and category specific events for increased Brand visibility.

Tech integrations like Return and Exchange Functionality improved customer experience on Bata.in, thus reducing customer complaints. Thus, your Company has also focused on Technology upgradation to make internal processes robust and strengthen the serviceability.

Hush Puppies

In Hush Puppies marketing there was a shift in communication from lifestyle to technology with introduction of new product technologies like Bounce Max, Bounce and Bounce Plus. Throughout the year, there has been consistent communication around bounce technology with focus on reactivating brand social media assets. Campaigns were promoted through various touch points covering Retail, in-mall branding, activations, print, digital and PR.

Hush Puppies has been the go-to brand for formal wear but with this new bounce technology collection, it introduced a large variety in causal styles and a vibrant range of colors. The collection is a perfect addition to your wardrobe with a variety of styles that can be paired up for modern work attires to on-the-go ensembles to trendy weekend looks.

The new range for men and women comes with smart sneakers, pumps and ballerinas in smooth-grain leather, knitted fabrics and soft colorful suede for men and women. The collection boasts of athletic-inspired comfort combined with elevated tailored styling that allows for more wearing occasions than an average shoe choice.

Comfort has been Hush Puppies DNA and with Bounce Plus, the brand is taking the comfort quotient up a notch. Where consumers are looking for footwear to have the performance features of today, Bounce Plus collection brings casual styles infused with technology to keep up with consumers hustling lifestyle.

Naturalizer

American shoe brand Naturalizer has been a pioneer in designing shoes specifically suited to the contours of womens feet since 1927. After successfully launching its exclusive stores in multiple international cities like New York, Chicago, Toronto & Dubai, Naturalizer has launched its first flagship store in India at DLF Promenade mall, New Delhi followed by second store at DLF Avenue, Saket. Designed in New York and adorned by working women, the shoe with the beautiful fit has been retailing exclusively in India at 50 Bata stores across 4 cities for almost a decade.

Concept stores in India have been launched basis the New York, 5th Avenue store of the brand, carefully cultivated to reflect brands heritage while incorporating modern elements to offer the ultimate brand experience designed specifically with their customer in mind. Objective with the launch of this store is to reach the loyal customer base while creating the ultimate destination for discovery through a strong retail showcase and experiential marketing.

The Naturalizer collection serves well to the modern-day women for all day comfort as the patented N5 comfort technology takes you anywhere and everywhere with unmatched ease. The collection flaunts countless styles ranging from pumps, mules, chunky soles and heels. Whether its a family outing or a night out, movie night or client meetings, the collection has it all. The brands design philosophy resonates with modern aesthetics combined with textures from their own archives and finds ways to incorporate them in the new collections.

Non-Retail Business

Your Companys non-retail business division comprises of urban wholesale, industrial and institutional business divisions and exports. Across all the divisions, actions are taken to improve customer service, enhancing quality of Product / Packaging and Upgrading the capability of employees. In the MBO business, products have been included which are innovative in terms of comfort and durability. In 2019, we changed the look, feel and quality of our lead brand Remo in Mens Dress, which received very good response. The revenue of this brand also grew handsomely in second half of the year. Bata availability in MBO have grown to more towns. We added about 175 new towns in 2019 and focus is to grow it further in 2020.

Outlook

The current economic state, fears of recession and challenging retail environment, pose new threats to businesses across all sectors. The Country wide lockdowns and the “New Normal” may lead to fundamental shift in customer behaviour and retail businesses in particular. Your Company is focused on “Survive, Revive, Revitalise and Thrive” strategy and is constantly monitoring the store level performance, driving sales through online channels and cost optimisation across all functions. Your Company is strategically positioned to harness the present challenges, given the strength of its Brand, innovation capabilities, retail foothold and growing online presence in footwear and accessories category.

Risks and Concerns and Contingent Liabilities

Your Company acknowledges the fact that competition from both domestic and international players is increasing by every passing day. In addition to increasing competition, the changing customers behaviour and impact of online marketing initiatives have an effect on your Companys performance since your Company has a huge network of retail stores Pan India. With the opportunity for employment, gradually increasing people / talent retention is considered as a challenge. Your Company also realizes that modernization of I.T. systems along with having suitable protection from risk of loss / theft of data is one of the major areas of concern globally. Your Company monitors its major risks and concerns at regular intervals. Appropriate steps are taken in consultation with all concerned including the RCM Committee and the Audit Committee of the Board to identify and mitigate such risks.

During the normal course of its business operations, your Company has been subjected to litigations in connection with or incidental thereto. These litigations include civil cases, excise and customs related cases, etc. filed by and against the Company. These cases are being pursued with due importance and in consultation with legal experts in respective areas.

Your Board believes that the outcome of these cases is unlikely to cause a materially adverse effect on the Companys profitability or business performance. Your Company has a Contingent Liability of Rs. 412.36 Million as on March 31, 2020 as compared to Rs. 435.89 Million as on March 31, 2019. Attention is drawn to the explanations mentioned in Note No. 30 of the Notes to Financial Statements for the financial year ended March 31, 2020. In view of the present status and based on legal advice obtained from time to time, your Board is of the opinion that no provision is required to be made against these Contingent Liabilities.

Internal control systems and their adequacy

A separate paragraph on internal control systems and their adequacy has been provided elsewhere in the Boards Report. Discussion on financial performance

Your Company has been able to achieve profitable growth and believes that this is sustainable, barring unforeseen circumstances.

The Earnings per Share (EPS-Basic and Diluted) of your Company for the financial year ended March 31, 2020 was at Rs. 25.44 as compared to the (EPS-Basic and Diluted) for the previous financial year ended March 31, 2019 was at Rs. 25.65. Your Company recorded EBITDA margin of 27.17% during the financial year under review as compared to 16.30% during the financial year 2018-19. However, as your Company has implemented Ind AS 116 on Accounting for lease effective April 1, 2019, accordingly these numbers are not comparable as against those of previous year.

Your Company does not have any Bank Borrowings and the entire capital expenditure has been funded through internal sources.

The Capital Expenditure incurred during the year under review amounted to Rs. 899.23 Million as compared to Rs. 911.96 Million in the previous year.

Details of significant changes in key financial ratios alongwith explanation

In compliance with the requirement of the Listing Regulations, the key financial ratios of the Company alongwith explanation for significant changes (i.e., for change of 25% or more as compared to the immediately previous financial year will be termed as significant changes), has been provided hereunder:

Particulars	2019-20	2018-19
(i) Debtors to Sales (in days)	7	8
(ii) Inventory to Turnover Ratio (in months)	3.43	3.44
(iii) Interest Coverage Ratio	4.54	116.53
(iv) Current Ratio	2.50	2.92
(v) Debt Equity Ratio*	-	-
(vi) Operating Profit Margin (%)	17.49	14.11
(vii) Net Profit Margin (%)	10.64	11.26
(viii) Return on Net worth (%)	17.13	18.88

* There is no borrowing in the Company. However, Finance cost includes interest expenses accounted for various deposits in accordance with Ind AS 109, Financial Instruments and interest expense accounted on various lease contracts in accordance with Ind AS 116, Leases.

• The significant changes in Interest Coverage Ratio has been recorded due to significant increase in finance cost of the Company due to Ind AS 116.

• The significant changes in Operating Profit Margin (%), is due to cost efficiencies / productivity improvement and premiumisation of our product range leading to increased profits while Net Profit Margin (%) and the Net worth Ratio (%) has decreased primarily due to suspension of operations in all units in compliance with lockdown instructions issued by Central and State Governments due to Covid-19.

The other financial ratios of the Company relating to previous 10 years has been provided in other part of Annual Report 2019-20.

Material developments in human resource / industrial relations front, including number of people employed

Your Company has been continuously working to improve human resources skills, competencies and capabilities in the Company, which is critical to achieve desired results in line with our strategic business ambitions. Some key initiatives that have been taken during the financial year 2019-20 in this direction are summarized below:

Employee Engagement

• Celebration of Founders Day - On 8^th February, 2020 we celebrated our first Founders Day, held in the Gurgaon office. This day was celebrated along with all our employees and their families. The celebrations included employee contests wherein our employees showcased their talent as part of “Batas Got Talent”, many gaming stalls and snacks on the go. This event core centered around celebrating employees who have completed long service years with the Company, covering 15, 20 and 25 years service tenures with us.

• Internal Customer Satisfaction Survey - In order to align on our strategic focus areas as one team, we launched an internal CSAT survey. The objective of this survey was to know “how well we understand our internal customers & their expectations”, “our responsiveness” and “challenges and bottlenecks”. This exercise has helped us in identifying opportunities to manage and deliver better on expectations of our internal stakeholders and end consumer. Post the survey, each department has worked out an Action Plan and is working towards ensuring that our internal customers are just as happy as external customers.

Diversity & Inclusion

• The Company is keen to promote diverse workforce across the organization. On the occasion of International Womens Day, this year we launched our Balanced Workforce Strategy (BWS), under the branding of “Wforce”. The WForce initiative offers a platform to promote and connect with our women employees across the Company. In addition to this launch, we have also tied up with TRRAIN (Trust for Retailers & Retail Associates of India) to focus on our diversity hiring program at our store level.

Training & Development Initiatives

• Functional and Behavioral Training

We launched online learning for our employees catering to their individualized development needs. Employees can now take charge of their own learning and complete these trainings online as per their own convenience and time availability basis their specific development goals through the course of the year. In addition to this, we also offered a series of classroom training programs including Leadership & Coaching for Leaders, Personal Effectiveness, Negotiation skills and building up B2B Sales capability. Cross functional trainings were facilitated by internal experts across Retail, Merchandising & Collection teams.

• Retail Curated Program Offerings

For our store staffs, an online learning platform i-GROW covers all our employees across our retail operations. This 24/7 learning platform is accessed by all our employees to complete their product training & certification as well as gain useful knowledge on new launches, MAP agenda and other seasonal retail programs.

This year we also launched the Retail Reboot program covering all our store employees. This program was developed with a goal to impact the conversion rates by training store teams on improvements in the core processes. In the first phase of the program, Retail Managers and District Managers successfully completed “Train-The-Trainer” workshops conducted to become internal process coaches to cascade down the program to Store Managers.

Career Management

• ‘Stepping Stones our career program was launched in 2019 to enable an employee to make a choice of role across functions and understand the differentiating competencies and work out a well-defined learning plan in collaboration with their respective functional heads. Another integral part of this initiative, is the introduction of a transparent Internal Job Postings (IJP) program which helps facilitate cross functional internal movements of our employees. ^•

• With an aim to enhance the learning opportunities for our employees and to encourage knowledge sharing amongst BATA India and APAC regions, we created the Talent Xpress program. This is a meritorious program wherein high potential/ high performing employees in middle level roles are provided with exposure to different business challenges and get an opportunity to work with internal SMEs across the Asia Pacific Region.

Industrial Relations

Your Company believes in developing long term relationships with all our employees on an ongoing basis. Industrial relations at all the manufacturing units of your Company have been harmonious and peaceful with active involvement of the employees in the collective bargaining process. Your Company has also encouraged wholehearted participation of the employees and union in improving productivity as well as quality of its products.

As on March 31, 2020, there were 4,913 permanent employees on the rolls of your Company.

CAUTIONARY STATEMENT

There are certain Statements which have been made in the Management Discussion and Analysis Report describing the estimates, expectations or predictions, may be read as forward-looking statements within the meaning of applicable laws and regulations. The actual results may differ materially from those expressed or implied. The important factors that would make a difference to the Companys operations include demand-supply conditions, raw material prices, changes in Government Policies, Governing Laws, Tax regimes, global economic developments and other factors such as litigation and labour negotiations.

BUSINESS RESPONSIBILITY REPORT (BRR)

In compliance with Regulation 34(2)(f) of the Listing Regulations read with the SEBI Circular No. CIR/CFD/CMD/10/2015 dated November 4, 2015, your Company has prepared a BRR in the prescribed format for the financial year ended March 31,2020 describing initiatives undertaken by it from an environmental, social and governance perspective, which is annexed to the Boards Report and marked as Annexure - IX. The BRR has been uploaded on the website of the Company at www.bata.in and is available at the https://www.bata.in/bataindia/a-29_s-181_c-42/investor-relations.html

ANNEXURES TO THIS REPORT

The Annexures referred to in this Report and other information which are required to be disclosed are annexed herewith and form part of this Report:

Annexure	Particulars
I	Dividend Distribution Policy
II	Extract of the Annual Return as per Form No. MGT-9
III	Secretarial Audit Report
IV	Corporate Governance Report
V	Particulars of Conservation of Energy, Technology Absorption and Foreign Exchange Earnings and Outgo
VI	Annual Report on CSR activities and CSR Policy
VII & VIII	Disclosures on remuneration of directors and employees of the Company
IX	Business Responsibility Report

ACKNOWLEDGEMENTS

Your Board is grateful for the continuous patronage of our valued customers and remains committed to serving them by delivering more style and comfort at every step. Your Board also acknowledges and appreciates the support rendered by all its business partners, suppliers, vendors, associates and dealers as well as the regulatory authorities of the Central and State Governments in India. Your Board is indebted to the unwavering support and trust reposed by you, our investors & shareholders and are also thankful to the Bata Shoe Organization (BSO) for their continuous support and guidance.

Your Board acknowledges, appreciates and values the year on year efforts by employees, workmen and staff including the Management headed by the Executive Directors who have all worked together as a team in achieving a commendable business performance despite a challenging business environment. Your Board wishes to place on record its deep appreciation of the Independent Directors and the Non-Executive Directors of the Company for their great contribution by way of strategic guidance, sharing of knowledge, experience and wisdom, which helps your Company to take the right decisions in achieving its business goals.

Your Board also wishes to place on record their deep appreciation to the Companys employees, suppliers, customers and Government authorities for their selfless efforts in helping your Company to gradually reach normalcy in operations within few weeks of lifting of lock down. The ownership and responsiveness shown by all the stakeholders is unparalleled and is a testimony of the spirit of this great organization.

	For and on behalf of the Board of Directors
	Rajeev Gopalakrishnan	Sandeep Kataria
Place : Gurugram	Managing Director	Whole-time Director and CEO
Date : May 25, 2020	DIN:03438046	DIN:05183714