.

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 countrys 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 companys 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 companys 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 Batas 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 - Indias 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 countrys 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 Indias 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 companys 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 Indias 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
Indias 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 Indias
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
Indias 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 companys 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 Indias e-commerce business reached ~750 cities
across India with its shipments. The companys 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 Indias 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 Batas sales in the coming quarters.

Long-term outlook looks positive for Bata India

With Bata Indias 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, womens leggings,
and premium shoe care products, so as to gain customers attention, which should drive
growth in the accessories segment.
With Bata Indias 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 Indias 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 companys 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 investors 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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