.
Bata India Ltd.
BSE Code:
500043
NSE Code:
BATAINDIA
Reuters Code:
Founded in 1931, Bata India Ltd is engaged in the manufacturing and retailing of footwear and accessories for women, men and kids. Having a retail network of 1,400+ stores, the company has a significant presence in almost all metros and towns. Through its manufacturing facilities in West Bengal, Bihar, Haryana, Karnataka and Tamil Nadu, the company produces some of the country’s well-known brands. In an effort to accelerate its growth trajectory, Bata India is continuously increasing its focus on tier III and tier IV cities where the potential for growth is significant.
April 30, 2015
BATA.NS
Bloomberg Code:
BATA:IN
Market Data
BUY
Rating CMP (`)
1,018.8
1,221.7
Target (`)
~19.9%
Potential Upside Duration
Long Term
Face Value (`)
32.1
37.9
EBITDA (`bn)
3.1
2.9
3.5
4.3
Net Profit (`bn)
1.9
1.6
2.0
2.6
EPS (`)
29.7
24.2
30.5
40.1
P/E (x)
34.3
42.0
33.4
25.4
7.8
6.9
6.0
5.1
EV/EBITDA (x)
20.2
21.9
17.9
14.1
ROCE (%)
30.9
24.8
25.7
26.8
ROE (%)
22.7
16.5
18.0
19.9
P/BV (x)
*Bata India has changed its financial year from Jan-Dec to Apr-Mar.
One year Price Chart 200 100
CNX Nifty Shareholding Pattern
Feb-15
0 Mar-15
Bata India, one of the market leaders in organized Indian Footwear Market, is betting big on tapping the tier III and tier IV markets (smaller towns) through distributors and franchises. The company has developed a completely new line of merchandise to tap the unorganized footwear market, which account for ~60% of the total market. The company plans to open new outlets in these areas and has tied up with wholesalers to sell shoes in rural shops. Bata India has already piloted such Bata stores in smaller markets which turned out a success. We believe, Bata India is making the right investments and the attempt to target the unorganized market is a step in the right direction as the market accounts for nearly two-third of the USD 35 bn Indian footwear market. Grabbing a significant market share in this area would have a noteworthy impact on the company’s profitability.
27.7
Jan-15
Targeting the unorganized market: a move towards grabbing a potential market share
20.7
Dec-14
Mar17E
Oct-14
Being one of the oldest footwear brands in India, Bata India has suffered with an unfavourable impression of a perception drag as the brand has been unable to connect with the youth. The company’s attempt to attract young generation by entering into the niche footwear market through Hush Puppies, FOOTIN etc. helped a lot in altering the customer mindset. Following the success of these stores in India, the consumers’ perception for Bata as a mass market brand has changed. On the back of this positive perception for Bata, we remain hopeful for a pick-up in Bata’s sales in the coming time.
Mar16E
Nov-14
the youth
Mar15E*
Revenue (`bn)
Sep-14
Entry into the niche premium segment: a successful attempt to attract
Dec13
Aug-14
1,496.0/975.0 1,496.0 31.9 4.5 1.0 6,547.2 6,291.4
Fiscal Year Ended Y/E
Jul-14
With plans to launch e-commerce mobile application in 2015, Bata India is planning to grab ~10% of sales through the online platform. The company has planned a hybrid ‘click-and-pick’ model or a ‘click-and-reserve’ model to be launched in 2015, wherein customers can choose a product online, and pick it up later from the store. The idea behind this model is to increase sales as the customers, who will be picking their product from the store, might end up buying other things also.
Jun-14
Hybrid e-commerce services augur well for Bata India
May-14
10.0
52 week H/L (`) Adj. all time High (`) Decline from 52WH (%) Rise from 52WL (%) Beta Mkt. Cap (`crore) EV (`crore)
Apr-14
Investment Rationale
Apr-15
Volume No.. 1 Issue No. 15
Bata India
Mar15
Dec14
Diff.
Promoters
53.0
53.0
-
FII
17.7
20.0
(2.3)
DII
11.5
9.8
1.7
Others
17.8
17.2
0.6
Bata India - India’s leading footwear retailer and manufacturer Bata India, incorporated in 1931 as Bata Shoe Company Pvt Ltd, is an India-based footwear manufacturer and retailer. With its large portfolio of ~20 brands including Bata, Ambassador, Angry Birds, Bata Industrials, Bata Lite, Bata Comfit, Baby Bubbles, Bubblegummers, Marie Claire, Hush Puppies, Mocassino, Naturalizer, North Star, Power, Sandak, Scholl, Weinbrenner, Sparx, Sundrops, Sun Shine etc; the company is engaged in the business of manufacturing and trading of footwear and accessories for women, men and kids. Over the years, Bata India has established a leadership position in the footwear industry and is the most trusted name in branded footwear.
With its large portfolio of ~20 brands, Bata India is engaged in the business of manufacturing and trading of footwear and accessories for women, men and kids.
Bata India operates primarily in two main segments, namely, Footwear & Accessories (F&A) and Surplus Property Development (SPD). While F&A division is engaged in manufacturing and trading of footwear and accessories items through retail and wholesale network, SPD division is involved in the development of real estate at Batanagar in West Bengal. In an effort to accelerate its growth trajectory, Bata India is continuously increasing its focus on tier III and tier IV cities where the potential for growth is significant.
Through its production facilities in West Bengal (Batanagar), Bihar (Patna and Hathidah), Haryana (Faridabad), Karnataka (Bengaluru) and Tamil Nadu (Hosur), Bata India produces some of the country’s well-known brands. It sells approx. 50 mn pairs of footwear every year and its retail network of over 1,400 stores gives it a coverage that no other footwear company can match. Approximately 99% of Bata India’s revenue comes from the domestic market. In an effort to accelerate its growth trajectory, Bata India is continuously increasing its focus on tier III and tier IV cities where the potential for growth is significant. The company’s efforts towards improvement in product offerings and expansion of its presence in existing as well as in new markets, makes us positive for this stock.
Revenue is expected to grow at a CAGR of ~22% over CY13-FY17E
Revenue Trend
Profit Trend 300.0
4,000.0
250.0
500.0
257.4
196.3
100.0
155.7
150.0
190.9
3,787.1
200.0
172.1
2,065.2
1,000.0
1,842.5
1,500.0
2,766.8
2,000.0
3,209.4
2,500.0
258.9
`crore
3,000.0
1,549.1
`crore
3,500.0
50.0 0.0
0.0 CY11
CY12
CY13 FY15E FY16E FY17E
CY11
CY12
CY13
FY15E FY16E FY17E
Weak performance in Q4; aggressive plans to open new format stores makes outlook brighter
Bata India reported a 3.1% YoY drop in its standalone revenue at `537.2 crore in December quarter, compared to `554.4 crore in the year ago period.
Demonstrating weak performance in the fourth quarter ended December 2014, Bata India reported a 3.1% YoY drop in its standalone revenue at `537.2 crore compared to `554.4 crore in the year ago period. This was mainly on account of problems relating to the introduction of new supply chain IT systems.
Reported weak set of numbers in Q4 CY14
15.6
13.3
500.0
11.6 11.4 548
6.5 61.4
39.0
7.1 63.6
59.4
97.2
537.2
9.5
622.1
39.4
100.0
65.8
99.7
200.0
52.8
300.0
495.4
554.4
8.0
34.9
9.5
400.0
0.0 Q4CY13
Q1CY14
Total revenue
Q2CY14
EBITDA
Net profit
EBITDA margin (%)
Strong hiring across segments raised employee cost
72
8.0
10.0
2.0
66
-
0.0
64
As a % of total revenue
74.1
68
72.5
70
80.1
10.0
4.0
Employee cost
12.0
11.7
74
20.0
Q4CY13 Q1CY14 Q2CY14 Q3CY14 Q4CY14
14.0 13.5
69.2
6.0
14.0
76 `crore
%
64.1
65.3
61.4
8.0 57.7
40.0
13.6
78
10.0
9.9
52.4
`crore
80
12.0
9.4
14.9 16.0
82
11.9 14.0
11.9
50.0
30.0
Net profit margin (%)
Addition of new stores led to a spurt in Rent cost
75.5
11.6
60.0
Q4CY14
Meanwhile, operating expenses (which accounted for ~89% of Bata India’s total revenue in Q4CY14) grew by 4.6% YoY to `475.8 crore, thereby denting the operational performance. While raw material cost (as a % of total revenue) grew the most, up 557bps YoY; employee cost, rent and other expenses (as a % of total revenue) surged 250bps, 130bps and 185bps YoY, respectively. Strong hiring across segments like e-commerce, marketing and retailing raised the employee cost, while addition of ~50 stores, during the quarter,increased the rent expenses. Consequently, EBITDA margin contracted substantially by 700bps YoY to 11.0% in the fourth quarter ended December 2014, as against 18.0% in the same period a year ago.
Operating expenses (which accounted for ~89% of Bata India’s total revenue in Q4CY14) grew by 4.6% YoY to `475.8 crore, thereby denting the operational performance.
70.0
Q3CY14
%
600.0
`crore
20.0 18.0 16.0 14.0 12.0 10.0 8.0 6.0 4.0 2.0 0.0
18.0
6.0 4.0 2.0
62
Q4CY13 Q1CY14 Q2CY14 Q3CY14 Q4CY14 Rent charges
As a % of total revenue
%
700.0
Since Bata India is continuously delivering contemporary range of products in high quality and great value, we expect an improvement in the 15 month period ending March 2015.
Lastly, the standalone net profit declined 33.8% YoY to `34.9 crore in Q3FY15 compared to `52.8 crore in the corresponding quarter a year ago impacted by a 3.4% YoY fall in other income to `7.5 crore followed by a 12.7% YoY growth in depreciation cost to `18.5 crore, during the above-said period. Since Bata India is continuously delivering contemporary range of products in high quality and great value, we expect an improved performance in the 15 months period ending March 2015. Bata India has changed its financial year from Jan-Dec to Apr-Mar. Moreover, Bata India’s continuous focus on investments towards the opening and renovation of stores, products, marketing, systems and processes, are likely to yield improved results in the quarters to come.
New city format stores - key growth driver going forward; strategy to add 100 retail stores year-on-year bodes well for Bata India
The company has been adding 100 stores year-on-year and will be sticking to the same strategy for the next couple of years.
As a part of its growth strategy to make the brand more accessible to its customers, Bata India’s retail expansion plans are going on smoothly. The company has been adding 100 stores year-on-year and will be sticking to the same strategy for the next couple of years. In line with this strategy, Bata India opened its new city format store at the Great India Place, Noida, in November 2014, in succession to the launch of their largest store in Bandra, Mumbai. The new format stores offer customers an international shopping experience with new extensive product offering in a newly introduced city format which displays the product range in a much advanced format. Going forward, we remain hopeful on the prospects of these new format stores as Bata India is aggressively pursuing its plan to open such stores at key locations. The company’s emphasis on aspirational designs and continuous addition of a wider range of products to its existing portfolio also makes us optimistic for its future prospects.
Increasing Revenue per store trend 20,000.0
1.13
1.02
CY09
CY10
1776.1
CY08
1566.0
1040.0
CY07
1286.0
902.0
5,000.0
0.61
0.53 713.8
10,000.0
0.86
0.78
616.4
`crore
15,000.0
1.25
CY12
CY13
0.0 Retail revenues
CY11
14.0 12.0 10.0 8.0 6.0 4.0 2.0 0.0
Revenue per store
New sales channels to drive up revenue growth to ~`60 bn in the coming 3-4 years The company, which currently operates over 1,400 stores nationwide, is expecting a threefold growth in its total revenue at ~`60 bn in the next three-four years.
Having increased its appeal among the younger generations, Bata India plans to increase its focus on e-commerce and digital platforms. The company, which currently operates over 1,400 stores nationwide, is expecting a three-fold growth in its total revenue at ~`60 bn in the next three-four years. The annual turnover for the 12 month period ended December 2014 (including online sales) stood at `22 bn. In line with its strategy to materialise this aim, Bata India generated 100% YoY volume growth in CY13. The year 2013, certainly would be counted among the most active years for e-commerce division for the company. During the year, Bata India’s e-commerce business reached ~750 cities across India with its shipments. The company’s website, www.bata.in, has experienced a
Bata India is focusing to build a customer base of ~10 mn while trying to integrate digital with its retail stores.
With specialized brands like Hush Puppies and FOOTIN, in its product basket, Bata entered the niche footwear market, in the late nineties, catering to specific target customers.
Till then, Bata India is making continuous investments in various marketing plans to reposition the brands in the minds of consumer as international premium lifestyle casual footwear brand in India.
tremendous growth in traffic of approx. 2.5 mn visitors in CY13. Moving ahead, Bata India is planning to launch an e-commerce mobile application in 2015, wherein the company will initially offer select brands like Bata, Hush Puppies and Marie Claire. Other brands like Dr. Scholl's, Bubblegummers, Power, Weinbrenner, Ambassador, Comfit, Mocassino, Wind India, etc. will be rolled out over two years. Through the mobile application, the company plans to start a click and pick model. The model will provide the customers a ‘block and pick-up’ facility, which will help them block a product through the website or app and then go to the store and buy it. This app also provides the option to exchange the product. Also the pricing will remain the same both on its online platform and in stores to avoid cannibalization. The company is focusing to build a customer base of ~10 mn while trying to integrate digital with its retail stores. We expect the company to witness a strong improvement in sales given its consistent efforts towards strengthening its e-commerce business. Further, efforts towards establishing lasting relations with the customers and partners, through better customer case services, is likely to yield fruitful results.
Focus on specialised brands - a successful attempt to alter the customer mindset With specialized brands like Hush Puppies and FOOTIN, in its product basket, Bata entered the niche footwear market, in the late nineties, catering to specific target customers. Till then, Bata India is making continuous investments in various marketing plans to re-position the brands in the minds of consumer as international premium lifestyle casual footwear brand in India. HUSH PUPPIES: In line with its overall retail expansion program, Bata India has been continuously expanding its premium brand, Hush Puppies. The company continues to open exclusive stores and shop-in-shop stores in premium departmental stores. At the end of CY13, Hush Puppies had 34 exclusive stores and 37 shop-in-shops. FOOTIN: Bata India’s retail concept, FOOTIN offers a range of footwear focusing on affordable fashion and trendy styles. Such stores offers fashionable, young looking and affordable footwear presented through a high-density display concept. It is one of the new business models with a different approach to improve volume growth of the company. During CY13, Bata India opened 8 new FOOTIN stores across India, with a new range of footwear for both men and women. These stores are unique in terms of display and ambience and different from other footwear retail stores in India. Being one of the oldest footwear brands in India, Bata India has suffered with an unfavourable impression of a perception drag as the brand has been unable to connect with the youth. Following the success of these stores in India, the consumers’ perception for Bata as a mass market brand has changed, which has enhanced the brand image of Bata India among the young generation. On the back of this positive perception for Bata, we remain hopeful for a pick-up in Bata’s sales in the coming quarters.
Long-term outlook looks positive for Bata India With Bata India’s efforts towards bringing an improvement in its financial performance, we expect the company will see a gradual improvement in performance, which thereby will increase the QoQ sales growth.
Bata India is taking various initiatives to enhance its revenue-base as well as profitability which had been under pressure from the past few quarters. The company has soft-launched its loyalty program and plans to implement a comprehensive loyalty program by FY16. Through the launch of this loyalty program, Bata India expects to increase the customer stickiness to the brand and to generate better footfalls. Moreover, the company is in the process of implementing SAP, which will help in better inventory management and demand forecasting. Furthermore, the company has launched a range of accessories like glares, women’s leggings, and premium shoe care products, so as to gain customers’ attention, which should drive growth in the accessories segment. With Bata India’s efforts to boost its financial performance, we expect the company will see a gradual improvement in performance. The recently launched loyalty programme as well as implementation of new supply chain IT systems promises better outlook for long-term.
Profit & Loss Account (Consolidated)
Balance Sheet (Consolidated) Dec13
15M Mar15E*
Mar16E
Mar17E
Share Capital
64.3
64.3
64.3
64.3
Reserve and surplus
775.6
879.1
1,023.2
1,228.5
Net Worth
839.9
943.4
1,087.5
1,292.7
Trade payables
365.4
451.8
519.6
597.5
89.1
44.6
49.0
53.9
87.7
75.0
78.8
82.7
1,382.0
1,514.8
1,734.9
2,026.9
Fixed assets
272.0
320.2
336.2
353.0
Investments
-
4.9
4.9
4.9
Deferred tax assets
68.1
87.2
95.9
105.5
Loans&advances
141.3
292.9
322.2
354.4
Other current assets
900.6
809.7
975.8
1,209.1
Tax
1,382.0
1,514.8
1,734.9
2,026.9
Net Profit
Y/E (`mn)
Provisions Other current liabilities Total equity & liability
Total Assets
Y/E (`mn)
Dec13
15M Mar15E*
Mar16E
Mar17E
EBITDA Margin (%)
15.1
10.5
10.8
11.2
EBIT Margin (%)
13.8
9.3
9.6
10.1
NPM (%)
9.2
5.6
6.1
6.8
ROCE (%)
30.9
24.8
25.7
26.8
ROE (%)
22.7
16.5
18.0
19.9
EPS (`)
29.7
24.2
30.5
40.1
P/E (x)
34.3
42.0
33.4
25.4
130.7
146.8
169.2
201.2
P/BVPS (x)
7.8
6.9
6.0
5.1
EV/Net sales (x)
3.0
2.3
1.9
1.6
20.2
21.9
17.9
14.1
EV/EBITDA (x)
*Bata India Ltd will now follow financial year (Apr-Mar) for accounting purposes.
For private circulation only
Mar16E
Mar17E
2,065.2
2,766.8
3,209.4
3,787.1
Expenses
1,753.3
2,475.1
2,861.8
3,361.3
311.9
291.7
347.7
425.9
Other Income
31.5
33.1
34.7
36.5
Depreciation
59.2
66.3
73.0
80.3
284.2
258.4
309.4
382.1
1.3
1.6
1.9
2.2
282.9
256.9
307.6
379.8
92.0
101.2
111.3
122.4
190.9
155.7
196.3
257.4
EBITDA
EBIT
Profit Before Tax
Valuation and view
Key Ratios (Consolidated)
BVPS (`)
15M Mar15E*
Total revenue
Interest
Y/E
Dec13
Given Bata India’s consistent efforts towards attracting new customers and retaining the existing ones, we remain positive on the growth prospects of the company in the long-term. With a massive restructuring exercise, Bata India has evolved from being a low growth, low-profit generating company to one that can boast on all key parameters, namely, growth, profitability and cash generation. The company’s investments in new sales channels, franchisee model in tier III and tier IV cities and launch of e-commerce model are steps in the right direction. Considering the above aspects, we rate the stock as ‘BUY’ at a CMP of `1,018.8, attractively placed at P/E of ~33.4x and ~25.4x, for FY16E and FY17E, respectively to arrive at a target price of ` 1,221.7, with a potential upside of ~19.9% for the coming 12 months.
Disclaimer : This document has been prepared by Funds India and Dion Global Solution Ltd. (the company) and is being distributed in India by Funds India. The information in the document has been compiled by the research department. Due care has been taken in preparing the above document. However, this document is not, and should not be construed, as an offer to sell or solicitation to buy any securities. Any act of buying, selling or otherwise dealing in any securities referred to in this document shall be at investor’s sole risk and responsibility. This document may not be reproduced, distributed or published, in whole or in part, without prior permission from the Company. © Copyright – 2015 - Dion Global Solution Ltd and Funds India.
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