Bata India Limited (BATAINDIA) Q2 FY23 Earnings Concall Transcript

Bata India Limited (NSE:BATAINDIA) Q2 FY23 Earnings Concall dated Nov. 14, 2022

Corporate Participants:

Nitin Bagaria — Company Secretary

Gunjan Shah — Managing Director and Chief Executive Officer

Shaibal Sinha — Director

Analysts:

Manoj Menon — ICICI Securities — Analyst

Girish Pai — Nirmal Bang Equities Private Limited — Analyst

Rishab Satwala — Mitsui Capital — Analyst

Gaurav Jogani — Axis Capital — Analyst

Akshen Thakkar — FIL — Analyst

Vikas — Equirus — Analyst

Bhargav Buddhadev — Kotak Mutual Fund — Analyst

Tejas — Spark Capital — Analyst

Ankit Kedia — PhillipCapital — Analyst

Divyanshi — — Analyst

Presentation:

Operator

Ladies and gentlemen, good day, and welcome to the Bata India Limited Q2 FY ’23 Earnings Conference Call hosted by ICICI Securities.

[Operator Instructions]

I now hand the conference over to Mr. Manoj Menon, Head of Research, ICICI Securities. Thank you, and over to you, sir.

Manoj Menon — ICICI Securities — Analyst

Hi, everyone. It’s a wonderful good morning, good afternoon or good evening depending on the part of the world you’re joining this call from. Representing I-Sec, it was a absolute pleasure to host the Senior Management of Bata India Limited for the results conference call today India time afternoon. The company is represented by Mr. Gunjan Shah, Managing Director and CEO; Mr. Shaibal Sinha, Director; Mr. Nitin Bagaria, Company Secretary.

Without much ado, over to the management for their opening remarks and post which we will open the floor for Q&A. Over to you, sir.

Nitin Bagaria — Company Secretary

Thank you, ICICI team and welcome everyone. Good afternoon to all of you. I have with me Mr. Gunjan Shah who is Managing Director and CEO. We also have Mr. Shaibal Sinha, who has been with Bata from over — Bata Group for over 18 years now. He was the Director Finance for Bata India from 2004 to 2010 and he was also Non-Executive Director from 2015 to ’19 and then again from 2021, he is overseeing as you all know from the stock exchange disclosures that he is overseeing the Finance and Accounts function for the company. We will directly jump into the presentation that has already been shared with the stock exchanges. We assume you have gone through the same. We will navigate through the slides as well as the base numbers so that we stay synchronized. Slide number 2 is a disclaimer, I’m sure you have gone through the same. I now request Gunjan to take us through the presentation and we can jump into the Q&A. Thanks and over to you, Gunjan.

Gunjan Shah — Managing Director and Chief Executive Officer

Thank you. Thanks Nitin. Hi everyone, welcome to the call for the quarter two ended September ’22 of this financial year. I am on Slide number 4, which is the overview of the quarter. Just before I get into the next slide, despite as I had mentioned even in my results release, that despite a reasonably tough environment in an operating sense, both inflation and otherwise, I think we have managed to deliver some good growth and obviously in a sustainable manner and we’ll talk about many of the levers and what are we doing about it in the presentation going forward.

Moving to the next chart, I think the piece that I already shared with many of you all who have attend this call now over several quarters, that these are big cost levers strategically that we have been climbing, obviously multiple initiatives keep getting populated into this and we will keep updating you on various changes that we make that are obviously fueling our strategy and footprint going forward. On this I think portfolio, we continue to push ahead of sneakers, sneakers continues to outgrow consistently via buying or a significant margin and therefore increased our overall growth more than retail and now also we are trying to work towards even our multi-brand distribution business as well as the e-commerce business, but there is significant factor that continues on this, and in fact right now, we are in the verge of launching our sneakers campaign for this season, winter is a season for sneakers. Along with that, we also have significant outperformance that we saw in various other premium categories of ours and I’ll talk about that subsequently.

On expansion, again I think we spoke about it that we will want to access and make sure that our brand equity is commensurate basically our expansion and ability or access to consumers. We are following a capital-efficient model and therefore while we have seen now since last quarter and even in this quarter, net company owned or COCO store additions but a large part of our footprint expansion will be driven through franchise as well as distribution model. This quarter again we saw significantly large numbers of franchise store additions, we are well on our way of our vision of 500 stores that I had set for myself by about 2024. Hopefully we should achieve that earlier than expected. This has been also backed by significant multi-brand distribution channel increase that also we will talk subsequently.

Marketing investments continue, we did have — start of the festive season and some other region festive etc., did get come in September or the latter part of the quarter. So various campaigns were unwanted and then obviously October onwards we have started on mainline festive campaigns and now the sneaker campaign we talked about, so if that continues and we continuously invest behind the brand to build the franchise for the future. MDS made from out of school, I’ve talked about it, this has now got institutionalized that is linked to performance measurement etc., across the length and breadth of the organization and that also continues to strengthen even in this quarter across channels and concepts of ours. So digital footprint, one of the best quarters in e-commerce that you have seen in terms of revenue terms, but also in terms of hiking factors, in terms of reductions of complaints as well as, as I said now, even the sneaker unit now is spreading across the growth engines.

On fuel efficient supply chain, couple of initiatives are put, some of them that have been concrete progress in the quarter gone by. Regional sourcing, which is bringing the supply closer to the demand clusters, we have made further progress and talked about initial initiatives last quarter, now even more volumes have been cut in the large part of one single category that is sold in the south, which is what’s getting source in the north, now we are ready for sourcing in the south that has got operationalized and we should start seeing that coming through in terms of distribution cost benefits going forward.

We have also basically sterilized successfully warehousing operations on our retail network, the first in Bata history and hopefully not the last, many more to come. We will wait and watch the entire benefits that we extract from it as well as then expand it across our warehousing footprint. Flexible manpower which you see on the sixth point on this chart, but we use, we are now 15% of our retails man power is flexi, which is either weekenders or part-time and that gives us a much benefit on costs on one side, but more importantly, on making sure that the entire heavy footfalls time for whether it’s weekends or weekdays we’ve got much higher manpower available at the right time.

The last piece I think we’re proud to share with you all that we have in this quarter signed and are going ahead with significant technology initiatives. There is a inventory software which we used, which is getting upgraded but simultaneously along with that we have also kicked off the entire ERP transformation exercise which will have multi-year benefits as we go through it, not only in terms of digitizing the entire, value chain, but more importantly, also making sure that we have a much better control and efficiency measures in place as data analytics takes over once we stabilize this, this program of ERP roll out should stabilize over the next — it’s a multi-year program that I say, but the largest and the most module of that will kick-in by the next about 12 months or so.

We have also along with it for this large network, just go back please, we have also rolled out pretty large technology transformation on the merchandising side, just to give you an indication of what this means is basically it not only automates but it also standardizes the entire thing of 7,000 strikers on one end and 2,000 plus point of sale on the other hand from a retail point of view and expanding and how will you make sure that the right size, the right price points are available to the right consumers in the cohort stores and points of sale, whether it is the COCO stores, whether it is a franchisee stores and whether it is the shop-in-shops.

With that, more on some of these highlights that I’ve talked about. On retail and portfolio expansion, this quarter we have seen, as I said last quarter, we saw the first rate additions on COCO stores and continues while we shave off the non-profitable stores and that is now up even more aggressive task that we have taken going forward, but simultaneously, we also keep adding in the right places. So in addition, we saw about 10 stores, we also saw net additional franchise of about 30 stores and shop-in-shops about close to 30. This was also backed by renovations in existing stores which are now cumulatively standing at about 54 and about 20-odd renovations in this quarter also. What you see in the bar graph is how the contribution of that is, so as you can see that while the red bar which is the COCO stores has come down from a contribution to network of about 66% despite net additions for almost 68% the previous quarter, it is compensated by obviously a significant addition that we now progressively seen, franchise network is now almost close to 20% in fact by next quarter we expect this to touch 20%.

In this also, we have also expanded significantly our sneaker studio stores. Now we stand at 450 plus and that is a big driver of the sneaker out growth that I’ve talked about and have been a driver overall growth. As I said, the premium category, some examples here Hush Puppies, the sneakers categories led by Northstar and Floatz are all that have basically significantly outpaced that also tells us that there is a certain traction or a significant amount of traction that we see on the premium side and we will continue to participate, in fact I will speak about a new concept that we have tried around the premium side [Technical Issues] charge down the line.

Franchise, 30 additions I’ve spoken all about this, we crossed 850 stores, till not too far back, we were less than half of it. The mission in the next 18 months or so, these about 500, we hope to exceed that by a miles as we progress. This year looks like we will set the highest ever additions on franchise and it’s on the back of 2021 which was or financial year 2022 which was also a highest ever at about 70 stores. Now we’ve seen it grow at steady run rate of 50, 30 stores a quarter and hopefully expanding even faster. So there is a lot of science etc., that had been worked behind the franchisee stores to make sure that we are activating the opportunities, there is a wide opportunity that we see, and I think that’s, a piece we’ll continue.

On the multi-brand outlets, non-coverage cross the 1,100 towns for the first time, there is a steady accretion that we see on that and that keeps adding to basically growth in the distribution business, even last quarter we have grown healthily over all reference points, whether it’s last year or pre-COVID levels and we hope that to continue while there is some sluggishness that we see because of the inflation and price increase that we have seen and that is something that we are working aggressively towards basically minimizing the — as we see raw material prices turning around that should basically help us not only in terms of margins on this front but also in terms brining back price points and opening price points at mark categories across channels even in the retail outlets, etc., there is a strong growth that’s more on this.

So moving further, digitally enabled sales hits the record contribution or highest ever of about 7% this quarter, and on a normative base of — with full retail recovery and we are obviously seeing significant growth over last year of almost 50%, but couple of what we had seen pre-COVID. As I said, it’s backed by significant sustainable initiatives, we see complete rate coming down, we see obviously new category that we are participating in, speaker sales has now started driving growth for participating in it besides the core strength areas. And we are also now focusing significantly in terms of now leverage we are getting in this e-commerce business. This was all obviously backed by significant marketing initiatives, and as you can see, some examples of various initiatives that we have driven, this is not only above the line but also a lot of below the line initiatives, vocalize, now even multi-brand outlets we are getting into making sure that we are activating the brand even at back to outlet level even in the distribution channel and that is leading to obviously flagship for us.

Other key highlights of mention, I mentioned one over the 2019, these are large solutions that had been taken in to move the chart. NPS, this was [Indecipherable] we had moved it successfully to 70 plus last quarter and this quarter we have moved it to even 73. Also, this is backed by significant improvement that we see across concepts and even the franchise network, which is expanding fast but simultaneously also giving us great consumer experience is also improving extremely high and this gap between the two was very narrowing, and hopefully will get eliminated sooner or later.

One of our factories received obviously quality certification as well as the last point that I was mentioning earlier, which is that we have also experimenting in terms of the traction that we see on the premium side and that is we are trying to see how best we can leverage while these categories as well as Hush Puppies portfolio is significantly outpacing growth, but we have also opened up opened up the entire Red Label concept with the store last quarter and that is giving us promising results in terms of higher ESDs almost 2.5x so far formatting ASPs in our network as well as attracting us more fashionable, trendy and income consumers.

With that getting into the financials, these numbers are visible to you all, even earlier in our release. Last quarter we clock hit INR30 crores that was 35% the previous year in quarter two and obviously 15% higher than pre-COVID. So significantly moved ahead of pre-COVID. Margins were at about 19%, slightly muted compared to what we have seen even in the recovery and we hope to see with the various initiatives that we have rolled out as well as the raw material prices turning around, we want to see that obviously bouncing back going forward, hence that was backed.

With that, that comes to my end. Thank you so much for listening into the presentation and we will be happy to take your questions with the shareholders.

Questions and Answers:

Operator

[Operator Instructions]

The first question is from the line of Girish Pai from Nirmal Bang Equities Private Limited. Please go ahead.

Girish Pai — Nirmal Bang Equities Private Limited — Analyst

Yeah. Thank you for the opportunity. Gunjan, I do not understand there is the other expenses that shot up quite significantly compared to plus…?

Gunjan Shah — Managing Director and Chief Executive Officer

Sorry, just speak a little louder.

Girish Pai — Nirmal Bang Equities Private Limited — Analyst

Yeah. Can you hear me now?

Gunjan Shah — Managing Director and Chief Executive Officer

Yeah, now better.

Girish Pai — Nirmal Bang Equities Private Limited — Analyst

Okay. So the other expenses were about 17% of sales in 2Q FY ’20 pre-pandemic, it’s gone up to about 52 point something in 2Q FY ’23. So what were the incremental changes that have happened in the other expenses side and will it remain so elevated going forward or are they going to come off?

Gunjan Shah — Managing Director and Chief Executive Officer

Okay. See basically there are three, four elements that are there to this, right. And some of them, we are working towards — some of them require structural corrections, some of them, as I said, with scale we should be starting a lot more benefits coming through. Among them are to do with the mix of channels. So some of the channels that we are obviously expanding and therefore not necessarily comparable, which is basically, let’s say, franchise model that I have spoken in the past as well as the e-commerce channel etc. The gross margin is where some of those expense lines are taken and therefore come in a little lower but basically they do bring in a lot more efficiency in some of the other line items. The other piece that is there is that as we see some of these channels gaining scale, we also see that those will start giving us basically benefits as we structurally attack those costs. There are multiple initiatives that we have rolled out which is to basically try and attack those fees-related benefits, one of them is basically consolidating our warehousing footprint as we gain scale and therefore are able to supply from larger freight providers as well as warehouse locations, etc. Some of them were required initially to be a little more flexible, where we weren’t sure of what is the response that we will get, e-commerce being requisite, now scale and stability in channel and a bit of foresight forward-looking outlook, we should be able to therefore now start amortizing those. Rent and occupancy is one more big area that I think we will work upon and try and make sure that starts coming back through, which is where I mentioned that some of the non-profitable stores, that’s a continuous activity, now its stability in trend lines and therefore offbeat reports, we are now able to annualize those much better post-COVID postponement, therefore may take appropriate calls wherever required to eliminate the non-productive expenses. Shaibal, you want to add something?

Shaibal Sinha — Director

Yeah. Also in 2021 and earlier, we had some benefits in terms of rent negotiation and some of the other expenses, which have normalized this year. And also little bit of a change in the mix and mix stuff businesses actually moving where the freight cost is slightly higher than with e-commerce business moving at a much faster pace. So these are something which has actually but I think we have complete control over these and we have initiatives set up so that we will be able to control these costs going forward.

Girish Pai — Nirmal Bang Equities Private Limited — Analyst

Okay. In terms of volumes, the volume commentary last quarter was that, it was about 90% of what the volumes were in 1Q FY ’20, bit of a pre-pandemic 1Q. Based on that, volume picture look today compared to 2Q FY ’20, what’s the ASP growth like — if you can give — throw some light on that ASP volume picture?

Gunjan Shah — Managing Director and Chief Executive Officer

Correct, correct. So basically, I think it’s been an equal split if you compare to pre-COVID levels, Girish, right. So if it is 15%, I would say about 6%, 7% came from volume so that’s very healthy. That is what I had commented on also last time, right. So it has been an equal split between price increase and volumes. There is also the price increase while we were not able to necessarily pass on the entire piece that we wanted especially the marked categories where also we had seen the entire GST piece that I talked about last time. But now with obviously some of the inflationary pressures hopefully turning around it should be able to continue and push on this volume front with where we see this inflation decrease, so.

Girish Pai — Nirmal Bang Equities Private Limited — Analyst

Just one last question with regarding advertising spending as strategic revenue, has that gone up substantially compared to say the 2%, 2.5% levels that you were clocking pre-pandemic, is that one of the reasons why other expenses are also?

Gunjan Shah — Managing Director and Chief Executive Officer

That is one of the expenses, but I would say, it’s not an expense, in my mind, it’s an investment and we will — obviously there will be a quarter on quarter movement, but we will basically want to ensure that we keep investing behind the brands, so yeah.

Operator

Thank you. The next question is from the line of Rishab Satwala from Mitsui Capital. Please go ahead.

Rishab Satwala — Mitsui Capital — Analyst

Hi. So I just have the same question over other expenses. So on a normalized basis, what should we expect given all the puts and takes that you have given us?

Gunjan Shah — Managing Director and Chief Executive Officer

It will be very difficult for us to extrapolate the entire piece, but I think the broad commentary that is going to be there is that, there are two, three angles for it, right. As I mentioned that there is certain pieces which are to do with inflation even fuel etc., related which are linked to freight which we are very hopeful with the initiatives that we have done in terms of freight optimization as well as the regional sourcing that it cost that I talked about as well as some of the negotiation, reverse auctions etc., that we have initiated that pace should start getting optimized, but some of the other angles that are not related to channel reach will sustain.

Shaibal Sinha — Director

The other piece is obviously the occupancy piece which there will be on the action plan that we talked about. I think the objective is that going forward, we would like to make sure that at channel levels, we would like to keep improving our margins as we go along, but there is a mix which is changing. So that is something which obviously impacts the overall at a company level. But our objective is that we are absolutely on top of channel level and make ensuring that we are not really increasing the cost channel level and improving the margins basically.

Rishab Satwala — Mitsui Capital — Analyst

Right. So if we look at it, leaving, let’s say, the next three, four quarters aside, if we look at it from the medium to long-term perspective, would you expect to get back to your previous EBITDA margins of let’s say FY ’20 or are you aiming for the same?

Gunjan Shah — Managing Director and Chief Executive Officer

That will be very difficult, we don’t give forward-looking forecast but endeavor is to not only reach there, but obviously exceed it in the long run.

Operator

[Operator Instructions]

The next question is from the line of Gaurav Jogani from Axis Capital. Please go ahead. I am so sorry, Gaurav we are unable to hear you clearly, can you use the handset mode while you are speaking. Sir, your voice is breaking up. Mr. Jogani your voice is breaking up.

Gaurav Jogani — Axis Capital — Analyst

[Indecipherable]

Gunjan Shah — Managing Director and Chief Executive Officer

I don’t think we can hear you. Maybe we can…

Operator

Mr. Jogani may we request that you return to the question queue because we are unable to hear you. The next question is from the line of Akshen Thakkar from FIL. Please go ahead.

Akshen Thakkar — FIL — Analyst

Yeah. Hi guys, just one question around margin building on to the other question. Firstly, you did mentioned that margins are different across channels, maybe not the exact number, but could you just gravitate for us which are the high margin channels for you, which are the low margin channels for you? And then if you have to get back to — we are looking at the numbers you had gotten to 16% on an annualized basis, 17%, 18% on sort of good quarters before COVID start, if you’re looking at going back to that sort of levels from here, in your view, is it gross margin that drives it here or do you think it’s going to be more operating leverage that gets us over there? Those two questions from my side. Thank you.

Gunjan Shah — Managing Director and Chief Executive Officer

Okay, thanks. We don’t comment on the margins specifically and also a quarter is a very short period to evaluate a channel from a margin because some of the elements that had to do with, let’s say, inflation etc., impact a certain portfolio etc., very differently. So, like a mask category, as you’re aware of have gone through a lot more impact due to materials and related inflation as well as taxation change, right, which was made to GST of below 1,000. But structurally, we want to make sure that all the channels try to gain scale. E-commerce as I mentioned has indexed a little lower, but the rest of them are ballpark in that same zone, maybe a plus or minus. Structurally, in the long run that is how we want to maintain the channel operating margin, that is how we look at it.

Akshen Thakkar — FIL — Analyst

Okay. And would you say that even gross margins in online channels are lower because if I [Speech Overlap]?

Gunjan Shah — Managing Director and Chief Executive Officer

So it is a mix. Sorry what’s your name?

Akshen Thakkar — FIL — Analyst

Akshen.

Gunjan Shah — Managing Director and Chief Executive Officer

Askhay okay, see there’s line to be seen not only gross margin, while obviously the influence across lines but there are various cost lines that shift depending on the channel, so retail, the cost lines fit below the gross margin whereas in some of the others like even a franchise or even e-commerce, right, the cost line fits after — are already absorbed into the margin and we pass onto the partner. And therefore all the lines are important, right, for these channels and therefore that’s how we work on. Even in e-commerce, we see a great opportunity going forward both in terms of cost lines below the margin as well as in terms of the gross margin that we see directly whether in terms of basically getting the right portfolio done. Now as we gain scale and better partnership with some of the marketplace etc., how do we get curated portfolio from directly with these partners and therefore create a pool of gross margin that influence the [Indecipherable].

Akshen Thakkar — FIL — Analyst

So then just onto the second question that if you have to get to wherever the margins land up, right, on a pre-IndAS basis, they were at 16%, 18%, let’s say, directionally going over there. Do you think the heavy lifting has to be done by operating leverage or you see gross margins are being under at this stage and gross margin also need to move up from these levels?

Gunjan Shah — Managing Director and Chief Executive Officer

It will be a combination of both Akshay and that is what I was trying to say. And it is not just one channel, it will be across channels, right. And simultaneously as I mentioned we want to see volume based growth and that is something where also we will always keep in mind and that’s been also a factor in the quarter gone by.

Operator

Thank you. The next question is from the line of Vikas from Equirus. Please go ahead.

Vikas — Equirus — Analyst

Thank you, sir. Sir my first question is with respect to our advertisement spends, can you quantify what was the amount spend on the advertisement this quarter?

Gunjan Shah — Managing Director and Chief Executive Officer

I think it was about 2.5% or so for this quarter, but directionally we want to be gradually increasing this over a period of time. So while, let’s say, the June quarter might have been a little higher, this quarter little lower, etc. So it’s a quarter-on-quarter change, but broadly we want to be in the ballpark of about 3% for the long-term.

Vikas — Equirus — Analyst

Understood. And sir, one more question. We did mention that we also went through renovation of around 27 stores during the quarter. So can you just give a ballpark number, what was the amount spent on the renovation of the stores because that would add to other expense component?

Gunjan Shah — Managing Director and Chief Executive Officer

So we spent on capex about on a renovation of our store. We spend roughly in the range of about 3 million to 5 million depending on the size of the store and the extent of renovations. In fact 2 million to 5 million, right. And our endeavor is towards making sure that these stores that undergo renovations give us the delta same-store growth in the range of about 7% to 8% and that more than makes up for the payback that you would like for the capital is okay.

Vikas — Equirus — Analyst

Correct. And sir, one last question, was there any sort of one-off into our gross margins or probably into any of the expenses that would have fault up and that was like one-time in nature for this quarter?

Gunjan Shah — Managing Director and Chief Executive Officer

Yes. So we had taken certain prudent expenses, provisions in this quarter, that’s how the expenses are looking little bloated on overall basis, but those one-offs won’t be there going forward.

Vikas — Equirus — Analyst

I’m so sorry, sir, I did not get it, what was the expense that was…

Gunjan Shah — Managing Director and Chief Executive Officer

See, we had to take some prudent provisions for certain litigations that are underway, right, while we are contesting it etc. So those have to be or that had to be taken for expenses that were related to the last several years.

Vikas — Equirus — Analyst

Understood. And would you quantify that, how was the — what was the amount?

Gunjan Shah — Managing Director and Chief Executive Officer

They were INR11 crores.

Operator

Thank you. The next question is from the line of Bhargav Buddhadev from Kotak Mutual Fund. Please go ahead.

Bhargav Buddhadev — Kotak Mutual Fund — Analyst

Yeah, good afternoon, team and thank you for the opportunity. My first question is on our formal category, so I just wanted to know what is the percentage of recovery over the pre-COVID levels in the formal category that we have seen so far?

Gunjan Shah — Managing Director and Chief Executive Officer

Sorry, in the formal category, what has been the percentage of recovery pre-COVID?

Bhargav Buddhadev — Kotak Mutual Fund — Analyst

Yes. So three quarters it was INR100 rupees. What is it now?

Gunjan Shah — Managing Director and Chief Executive Officer

Understood, understood. Right. So the formal category would be indexed at about, I would say, we were at INR115 for the quarter then we would be at about INR108 or so in the formal categories. Both men and ladies.

Bhargav Buddhadev — Kotak Mutual Fund — Analyst

Okay. So, still we haven’t recovered, right, back to pre-COVID?

Gunjan Shah — Managing Director and Chief Executive Officer

No, it’s more, I said INR108 versus INR100. So it has recovered but obviously some of the other categories have driven it even further. So sneakers for example open, how you say casual footwear, the clothes etc., on the premium side. So, all of them had delivered and some of the fashion stuff that we rolled out under Red Label as well as Marie Claire etc., that has driven it even faster.

Bhargav Buddhadev — Kotak Mutual Fund — Analyst

And is it possible to share what has been the volumes registered as in the first half of this year?

Gunjan Shah — Managing Director and Chief Executive Officer

Sorry. What was that volume?

Bhargav Buddhadev — Kotak Mutual Fund — Analyst

Volume number?

Gunjan Shah — Managing Director and Chief Executive Officer

Not a absolute, but as I mentioned, that out of the 115, the 15% growth, we saw about 7% coming from volume.

Bhargav Buddhadev — Kotak Mutual Fund — Analyst

Okay. Secondly, historically if you look at Bata, the focus was primarily on realization increase and volume growth was flattish for almost a decade. Going forward over the next three to five years, are we also focusing on volume growth or strategies can continue to focus on realization net increase?

Gunjan Shah — Managing Director and Chief Executive Officer

So, two parts to that answer. And I mentioned this even earlier, right. It’s a longer-term lease, obviously there will be monetization based on inflation at some periods, but the quarter gone by as well as going forward, our endeavor is to make sure that we got volume-based growth but simultaneously several categories we see a lot of potential in terms of premiumization. In fact, currently the traction on the premium side is extremely high. So that will obviously also continue. So it will be a combination of both. Right now, a lot of the energy of the organization, etc., is to ensure that the price point that we have indicated because of price increases we try and get those aggressively back as and when we can afford or as we get in efficiency as well as some of the raw material prices turning around. So it will be combination of both, let’s put it that way shortly.

Bhargav Buddhadev — Kotak Mutual Fund — Analyst

And lastly sir, we’ve seen a lot of merchandise change on the casual portfolio. How about the formal portfolio, over there also we modernize the merchandise?

Gunjan Shah — Managing Director and Chief Executive Officer

Absolutely.

Operator

Thank you. The next question is from the line of Anand Shah from Axis Capital. Please go ahead.

Gaurav Jogani — Axis Capital — Analyst

Hello, hi sir. This is Gaurav here from Axis Capital. My question with regards to, you mentioned that the advertising cost, we are reinvesting towards portfolio casualization and evolution, so would that mean that structurally we will go above the levels of 2%, 2.5% seen in the past, given the fact that we require more investments in these lines?

Gunjan Shah — Managing Director and Chief Executive Officer

I have just answered that question, we will obviously see variations by quarter. But broadly on the ballpark, we would like to keep on inching it forward. So 2.5% was your baseline that you referred to, we would like to ensure that it keeps inching towards 15% and further but on an, let’s say, equated annual basis, we will not see significant spikes, we will keep gradually ticking it up.

Gaurav Jogani — Axis Capital — Analyst

Sure sir, thank you for this. And the next question with regards to the rentals you already mentioned. Now we are seeing incremental — the stores are getting opened on the franchisee basis and the proportion of COCO is also coming down. So shouldn’t the impact of the rental be a bit lower versus what we are seeing right now because both of these franchisee stores again what I am assuming would be paying the rent by themselves?

Gunjan Shah — Managing Director and Chief Executive Officer

Yeah, that’s a natural mathematical conclusion. For sure, our franchise model in old set of rental is not on our pit and which is what I responded to someone else on the gross margin side. So many of the cost line get absorbed there.

Operator

Sorry to interrupt Mr. Shah may we request that you return to the question queue, there are participants waiting for their turn.Thank you. The next question is from the line of Tejas from Spark Capital. Please go ahead.

Tejas — Spark Capital — Analyst

Hi, thanks for the opportunity. Sir my question pertains to couple of points that you made in our presentation, so two points in particular. So the fifth point which is on agile and efficient supply chain you spoke about 3PL pilot implementation and speed to market point as well and sixth one on flexi manpower. So if you can elaborate both the points and how should we see the benefit of the same, would it be absorbed totally in P&L or would it largely reflect in better capital efficiency?

Gunjan Shah — Managing Director and Chief Executive Officer

So why don’t I invite Shaibal to answer it.

Shaibal Sinha — Director

Yeah. So I think it has impacts at various levels basically because of the inflation also going up in certain areas, we would like to initiate all these cost saving initiatives and try and absorb instead of passing of complete to the consumers of all the increases. So ASP we have not been able to increase at that level on a low price items because of where volume actually comes from. We are initiating all cost saving initiatives, which will have an impact. The second thing is on operating expenses also, we are working on certain initiatives, which will help us in actually protecting our operating margin. So overall, if you see, I think this is just not something which is going to impact our margins yet we will be not increase at a proportionate level, gross margins would be predicted and then we will try and improve our operating margins on overall basis.

Gunjan Shah — Managing Director and Chief Executive Officer

To add, there are a few more initiatives which are in the pipeline, right, while I did not put them here because we won’t to see concrete outputs, but hopefully, next quarter, we’ll be able to talk about it, which are to do with sourcing consolidation getting economies of scale because we don’t procure from our contract partners and manufacturers large volumes and therefore getting that optimization going, beside obviously extracting whatever weakness in terms of raw material efficiency.

Tejas — Spark Capital — Analyst

Sure. And sir, between distribution expansion and improving quality of distribution, where do you see more low-hanging fruits between the two drivers?

Gunjan Shah — Managing Director and Chief Executive Officer

Actually our distribution expansion is with the quality of distribution. So that is why we are talking about WD and not just ND, in normative terms, if that’s the question that you were looking at, right. For me, even the franchise is a significant amount of distribution expansion because I am enhancing access in markets and consumer cohorts, where obviously there’s a lot of backend brand equity as well as requirement but whatever the total it was not available. So they go hand in hand in my mind.

Tejas — Spark Capital — Analyst

Sure. And sir, last one if I may, what was the mix of open footwear and closed footwear as on first half?

Gunjan Shah — Managing Director and Chief Executive Officer

I don’t think we have it. So it is basically in the range of about 50-50, it varies a little by the quarter but broadly 50-50. December quarter will be higher on closed, but summer is a little higher on open, that kind of an achievement.

Operator

Thank you. The next question is from the line of Ankit Kedia from PhillipCapital. Please go ahead.

Ankit Kedia — PhillipCapital — Analyst

Sir. My first question is regarding the higher inflation, so currently if index it to pre-COVID where would be the market of our products today? And do you think the price increase in the system is sufficient or you need to take further price increases in the coming quarters?

Gunjan Shah — Managing Director and Chief Executive Officer

Okay. So I can’t give an outlook just because I don’t have a confirmed outlook on [Indecipherable]. But early signs we do see some reversals of it, but we will wait for proof of the putting and obviously it filters into the pipeline of inventory. So there is a certain lag effect that does happen but we do see early signs of it, as I mentioned basically early in the call and there is, as I said, a consolidated action plan across in terms of trying to make sure that we expect it. And not only in material prices but also in terms of other components like jewels etc., right, and various third-party vendors that we also some of our activities etc. Index to pre-COVID I would still say, it’s elevated I think in many categories, we would have taken commensurate price increases, as Shaibal mentioned, from our categories, it’s where we have seen some amount of demand implication of it also because — trying taxation. So I think it was stabilized, but there is some amount of stress right now on that front.

Ankit Kedia — PhillipCapital — Analyst

Sure. My second question is regarding the wholesale business, there are three components. One is the coverage, second is the debt at the retail content, third is the product, so once published perspective we already reached 1,100 odd towns, but from the depth and from the product perspective where are you currently placed in terms, you think there is scope to improve 30%, 40% more or are you broadly there and it’s more to do with product now?

Gunjan Shah — Managing Director and Chief Executive Officer

Okay. So I know I mentioned some category. So basically this entire multi-brand outlet initiative and trust which has been gradually and now this year has given us significant dividends, it’s been fueled on both right 1,100 towns in a market like India etc., is nothing. So there is a long scope there itself, there is a huge scope on that front. However, it is very required that it is done with a certain conscious products strategy, otherwise you can go haywire both in terms of your complexity as well as your USP on why do you feel that we should be the preferred participant as an outlet level or a consumer level product category, we have right now focused on, what we call, competitive edge categories primarily historically its being basically the former measurement stress that we call, it has been cooled and it has been plastic material, the PDT material that is called basically sandal. Going forward, we see this — now with the success that we are seeing, we have seen growth happening year-on-year at these categories, etc. Even in this tough period, we have seen growths on it, right, we are now spreading that to some more categories now in a conscious manner. Couple of them one is on the sports side, especially the open sandals but even the closed shoes or sports and simultaneously in terms of ladies dress, which has a Ballerina etc, right. Now they have to be catered to that segment and the target consumer clientele is different, therefore, portfolio that you design for them has to be distinctly different and that cannot be a replica of what we sell in retail and which is where there is a conscious work that is happening. So we select categories step by step and keep expanding while we keep making sure that we develop a certain a USB flash competitive edge in whatever we participate.

Ankit Kedia — PhillipCapital — Analyst

Sure. And sir, my last question is, government is talking of PLI in footwear and in the last call also you spoke of China Plus one, you want the manufacturing in there for the other geographies, earlier than expected given the PLI scheme, what will be the capital outlay you look at and from a manufacturing perspective, where do we stand today because only 40% is in-house manufactured for Bata India also rest is outsourced. So if you can throw some light on that?

Gunjan Shah — Managing Director and Chief Executive Officer

Yeah, so there are two distinct questions, actually. So, one is that the PLI we will wait for the formal notification as and when it comes while we have been party to some of the proposals that are in the works right now. And I’m sure once it comes out we can comment a little more because we will have also gone through it in detail. The other piece which has to do with Bata India becoming a sourcing base for the world or globally Bata, there are concrete initiatives that are afoot. It is not necessarily only constrained to our in house manufacturing so that’s why I said, there are two distinct questions. It can also synergize for sure right, but the point is they are two distincts in my mind and that is parallelly upward irrespective of what happens on the PLI front and that we will see progress over the next about six months. The reason being that anything that you — so there are two ways in which we are trying to triangulate, one is that there are a whole bunch of market which Bata operates globally where products that we successfully scale, sell and buy in large volumes in India, those categories are not necessarily the same products but those categories and those types of products and therefore those capabilities can be easily exportable. The second piece is designing for products which are right now, let’s say, from a China Plus one perspective. So to diversify the base because we are also impacted, we do have a large sourcing in China and these ups and downs of China supply hiccups will impact us too. So both of them are in work but that’s independent in my mind on the PLI at some point in time they might converge, that’ll be great.

Nitin Bagaria — Company Secretary

Yeah, we will take up the last question and then we will wind up.

Operator

Divyanshi, your line is in the talk mode. Please go ahead.

Divyanshi — — Analyst

Yeah, thanks for the opportunity. Sir I just wanted to check, so for 15% growth versus pre-COVID I guess that was mix of B2B business to franchisees, wholesale as well as online channels, must have increased versus pre-COVID. So and revenues for B2B channels in my view are represented except commissions, so has that also impacted some of our growth to some extent?

Gunjan Shah — Managing Director and Chief Executive Officer

Sorry, I didn’t get your question, you’re saying that the growth got impacted because of?

Divyanshi — — Analyst

The B2B mix in the business which is wholesale, franchisees online but definitely increased versus pre-COVID and B2B revenues in my view, if I understood correctly, I represented ex of commissions. So has that also sort of impacted — had some impact on the 15% growth that we have seen versus pre-COVID?

Gunjan Shah — Managing Director and Chief Executive Officer

So are you trying to tell me that — okay, so you’re saying that it’s not an apple-to-apple realization from a per [Indecipherable], is that the question you are asking?

Divyanshi — — Analyst

Yeah. So if you can sort of tell us the number, which you have seen in terms of growth for only the company owned stores, that would be helpful.

Gunjan Shah — Managing Director and Chief Executive Officer

Yes, we don’t use segment wise, but we’ve seen growth all across channels and that’s what I raised, and it has been across retail, franchise, e-commerce and IND. For sure obviously some of these growth engines that I’ve talked about because of the inorganic addition as well as same-store growth. We have developed a little faster.

Divyanshi — — Analyst

Got it. One small request if you could consider things on these channels have different sort of revenue recognition in terms of gross margins, EBITDA margins as well as revenue recognition. If you could provide the channel wise sales going ahead, it would be really helpful.

Gunjan Shah — Managing Director and Chief Executive Officer

We’ll evaluate that.

Divyanshi — — Analyst

And lastly, sir. How is the — you have indicated from margin perspective for all these standards, how are the B2B channels segment sales franchisee, there is online play in terms of working capital versus via direct retailing channels?

Gunjan Shah — Managing Director and Chief Executive Officer

So they’re much more efficient from a working capital perspective, is that question?

Divyanshi — — Analyst

Yes, that’s the question.

Gunjan Shah — Managing Director and Chief Executive Officer

For sure, over the large part of the inventory base working capital, right, is at the stores in the COCO network, e-commerce and IND for sure anyway we get — they are to be partner. On the franchise also, our model involves basically outright sale and therefore the inventory is with the franchise partner.

Divyanshi — — Analyst

Got it sir, they must be operating at a much, much leaner working capital that was — do you have some…?

Gunjan Shah — Managing Director and Chief Executive Officer

Not they necessarily but we for sure because our working capital blockage that had released significantly. We obviously want to make sure that that enables us to have inventory turns at a much better as we stabilize these channels going forward.

Divyanshi — — Analyst

Sure sir, and what would be the receivable days for, say, franchisees online and wholesale?

Gunjan Shah — Managing Director and Chief Executive Officer

What could be the?

Divyanshi — — Analyst

Receivables days?

Gunjan Shah — Managing Director and Chief Executive Officer

Receivables. It is largely on a cash and carry basis from selected basis we do have receivables, but we don’t see a big shift in that trend line going backwards or going forward.

Shaibal Sinha — Director

And that is all within the credit limits backed by bank guarantees and increased loan, we did not bad debt an issue if that’s what you are hinting towards.

Operator

Ladies and gentlemen that was the last question, I now hand the conference over to the management for the closing comments.

Nitin Bagaria — Company Secretary

Thank you everyone for joining. Looking forward to interacting with you again. In case there are any further queries, you can direct them to us, we would be happy to answer them. Thanks a lot. Thank you, everyone.

Operator

[Operator Closing Remarks]