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Reuters: BATA.BO; Bloomberg: BATA IN
Bata India
Sleeping Giant Ready To Take Strides Bata India (BIL) did phenomenally well during the period CY10-CY13 (December year-end) before faltering from its high-growth path. During CY10-CY13, BIL clocked sales/EBITDA/PAT growth of 17%/26%/31%, respectively. FY15 marked the year of faulty SAP implementation, leading to severe supply chain problems. As a result, the performance took a hit and sales grew by a meager 4.4%. Although sales in FY16 improved 12.2% (on account of a low base and scrapping of SAP), they remained subdued for the first nine months of FY17. We believe the company should be able to post moderate sales CAGR of 8% over FY16-FY19E. Sales growth will mostly be led by improvement in realisation with a minor growth in volume. Our belief is based on the management’s stance to focus on the youth (which was not the case earlier) and concentrating on a more trendy and fashionable shoe-line with better price realisation. Improved sales growth supplemented with a slight improvement in gross margin (20bps), decline in rental costs as a percentage of sales (70bps), and moderate growth in employee costs (CAGR 5%) are expected to result in a rise in operating margin - from 11.2% in FY16 to 13.4% by FY19E. We expect sales/EBITDA/PAT to grow 8%/15%/19%, respectively, over FY16-FY19E. BIL stock has traded at 32x one-year forward earnings in the past 10 quarters. We have valued BIL at 30x FY19E earnings (EPS of Rs20.4) at Rs612, up 23% from the CMP.
Better product mix will lead to improved margins: Currently, BIL’s high-end brands such as Hush Puppies, Power, Marie Clarie and accessories account for ~30% of BIL’s total sales. The product development team is coming up with a new shoe line targeting the youth who prefer trendy and fashionable shoes and don’t mind shedding a few extra bucks for the quality. The management expects the new shoe line to have an average selling price or ASP of Rs3,000-Rs5,000/pair in the men’s category and Rs2,000-Rs,3000/pair in the women’s category. We also believe that Hush Puppies (ASP Rs2,500/pair) will continue registering good volume (growth of 10% in the past three years) supplemented by the growth in Power brand. With rising contribution from high-end products, BIL’s overall ASP will increase by ~4%. With rising ASP, we expect the operating margin to improve by 230bps over FY16-FY19E.
Goods and Services Tax or GST implementation to be volume-kicker: Indian footwear industry is largely dominated by the unorganised players, accounting for ~70% of the total shoes manufactured. India is the second-largest manufacturer of footwear after China and third-biggest consumer of footwear globally. India’s per capita footwear is way below that of developed economies and stands at 1.7 pair per person. With GST implementation, BIL will have to pass on the tax benefit, if any, to customers. However, we believe that volume growth coming from an unorganised player will be unprecedented. With ~1.5bn pairs of footwear being manufactured by unorganised players, we believe that post GST these players will become financially unviable. However, we haven’t factored in any volume growth because of GST implementation. Any incremental benefits from GST will only make our estimate look dwarfed.
Bata is still a strong and most trusted household brand: Despite rising competition from online stores and fancy international brands such as Nike, Puma, Steve Madden, etc, Bata continues to be India’s most trusted brand as per the Brand Trust Report. Bata brand is the perfect embodiment of value for money, high quality, comfort and footwear for the entire family. We do not see any reason for the Bata brand to erode despite having real competition from foreign brands. We continue to believe that Bata will keep capturing the ‘mind share’ of its customers in India.
BUY
Sector: Retail
CMP: Rs499
Target Price: Rs612
Upside: 23%
Akhil Parekh Research Analyst [email protected] +91-22-3926 8093
Key Data
Current Shares O/S (mn) 128.5
Mkt Cap (Rsbn/US$mn) 63.8/954
52 Wk H / L (Rs) 614/399
Daily Vol. (3M NSE Avg.) 524,822
Shareholding (%) 3QFY17 2QFY17 1QFY17
Promoter 53.0 53.0 53.0
Public 47.0 47.0 47.0
Others - -
One-Year Indexed Stock Performance
Price Performance (%)
1 M 6 M 1 Yr
Bata India 6.5 (6.9) 1.8
Nifty Index 6.1 2.5 21.9
Source: Bloomberg
Y/E March (Rsmn) CY12 CY13 FY15 (15M) FY16 FY17E FY18E FY19E
Revenues 18,425 20,652 26,940 24,181 24,932 27,550 30,755
YoY (%) 19.4 12.1 4.4 12.2 3.1 10.5 11.6
EBITDA 2,744 3,218 3,349 2,706 2,772 3,470 4,127
EBITDA (%) 14.9 15.6 12.4 11.2 11.1 12.6 13.4
Adjusted PAT 1,716 1,994 2,044 1,552 1,828 2,221 2,623
Reported PAT 1,716 1,908 2,312 2,187 2,012 2,221 2,623
FDEPS (Rs) 13.4 15.5 12.7 12.1 14.2 17.3 20.4
YoY (%) 47.3 16.2 -34.4 18.7 17.8 21.5 18.1
RoE (%) 26.9 24.8 19.9 19.8 14.7 16.1 17.0
RoCE (%) 26.1 25.5 17.7 14.2 14.8 16.3 17.2
RoIC (%) 32.9 35.6 22.8 18.6 21.3 27.4 30.4
P/E (x) 37.4 32.2 39.2 41.3 35.1 28.9 24.4
Price/sales (x) 3.5 3.1 3.0 2.7 2.6 2.3 2.1
EV/EBITDA (x) 22.8 19.1 23.1 22.4 21.1 16.6 13.7
Source: Company, Nirmal Bang Institutional Equities Research
70
80
90
100
110
120
130
Feb-16 Apr-16 Jun-16 Aug-16 Oct-16 Dec-16 Feb-17
BATA INDIA LTD Nifty 50
13 February 2017
Institutional Equities
2 Bata India
Valuation
We have assigned Buy rating to BIL with a 12-month target price of Rs612, up 23% from the current market price. Our growth estimates are driven by the following key factors: 1) Introduction of new shoe line with higher price realisation leading to increased ASP, and 2) Improved product mix expected to improve blended margins. Other factors that are important to our estimates are: 1) Improvement in gross margin because of increased contribution from high-end products, 2) Decline in rental costs as a percentage of sales, and 3) GST implementation leading to higher volume growth and offsetting any possible negatives that may spring up in case our thesis does not pan out. BIL is expected to clock revenue/EBITDA/PAT CAGR of 8%/15%/19%, respectively, over FY16-FY19E. BIL stock currently trades at P/E of 35x FY17E, 29x FY18E earnings, and 24x FY19E earnings. We have valued the stock based on 30x FY19E earnings (one-year forward P/E for the past 10 quarters is 32x).
Exhibit 1: One-year forward EV/EBITDA Exhibit 2: One-year forward P/E
Source: Nirmal Bang Institutional Equities Research
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(Rs)
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30x
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Institutional Equities
3 Bata India
Investment rationale
Better price realisation to improve operating margin
Youth segment was not a key focus area for BIL in the past. However, the management now believes that with a growing youth population and rising disposable income, this segment will be key driver for growth. The company hired an Italian designer, Mr. Mateo Lambert, in late 2015 who is currently head of the product development team comprising 25 designers based in Gurgaon and 70 designers based in Kolkata. Since the past two months, BIL has introduced many trendy and fashionable shoe designs targeting the youth segment. The trendy shoe line has been launched under Power brand and currently is being rolled out in 50 cities. The management expects rollout of the high-end shoe line in 200 cities during the year. ASP of these Italian designer shoes is ~Rs3,000-Rs5,000/pair for men and Rs2,000-Rs3,000/pair for women. BIL has been introducing better designs to improve its ASP. Rising sales of these products will help BIL to climb the value chain. Currently, ASP for BIL’s shoes across segments is ~Rs470/pair. ASP posted a CAGR of ~11% over CY05 – FY16. The rise in ASP was mainly on account of: 1) Scrapping of low-end products from its product line, 2). Increased share from high-end brands such as Hush Puppies (10%-11% of total sales), Power brand (8%-9% of total sales), Marie Clarie, etc. The rise in ASP of Bata’s core brand is by going for certain value addition in footwear.
Exhibit 3: Growth in price realisation
Source: Company, Nirmal Bang Institutional Equities Research
Repositioning of Bata brand
With a history of more than 80 years in India, BIL has come a long way. Bata has survived major financial crisis during the past two decades to emerge as a strong footwear brand. Bata was initially positioned as a family store for all footwear and related products. Bata became a need brand as it positioned itself as a provider of products to meet the needs of the middle class section of society. The brand has something for every member of the household. Then it came up with new brands like Marie Claire, Hush Puppies and North Star. BIL was known as a manufacturing company which produced footwear and sold them. Over the years, BIL changed its image from a manufacturing company to a marketing company. Bata placed itself in the market as a fashion conscious and lifestyle brand. It became more visible in shopping malls and created a shop-in-shop experience in multi-branded stores. Later, BIL also introduced international brands like Scholl, Marie Claire, Bubble gummers, Power, and North Star. Over the past few years, BIL has removed its low-end line-up of shoes and come up with high value brands of shoes. As a result, its operating profit per pair improved over CY10 – FY15 before dropping in FY16 (mainly because of the failure in SAP leading to supply chain problems). However, we are confident that with improved operational efficiency, rising contribution from high-end brands and voluntary retirement scheme or VRS expenses now a thing of the past, EBITDA/pair will improve going forward.
0%
5%
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-5%
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CY
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CY
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CY
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CY
13
FY
15
(15
M)
FY
16
Leather Foot Wear Footwear-Rubber/Canvas Footwear-Plastic Average
Institutional Equities
4 Bata India
Exhibit 4: Rising EBITDA per shoe pair
Source: Company, Nirmal Bang Institutional Equities Research
Bata has established itself as a strong household brand in India
BIL more than 1,250 stores across 500 cities, 2,500 designs, 300 distributors and 15,000 independent footwear dealers across India. BIL now sells ~50mn pairs annually. Men’s shoes contribute 50%-55%to total sales, women’s shoes account for 30%-32% of total sales; kids’ shoes contribute 7%-8% to sales, while the rest is contributed by accessories. Over the past few years, BIL has been able to change the consumer perception that Bata shoes are only meant for school kids (school shoes) and for elderly. By introducing young brands such as Hush Puppies, Weibrenner, Northstar, Power, Mocassino and Bubblegummers, BIL has been able to change its perception among customers.
One of the most popular brands of BIL, Hush Puppies, contribute 10%-11% to total sales with ASP of Rs2,500-Rs3,000/pair. Hush Puppies completed 20 years of its presence in India. Hush Puppies continue to live up to its brand image of comfort, quality and style. FY16 was a milestone year for Hush Puppies as BIL sold over 1mn pairs in 2015 itself. In addition to being available through retail stores, wholesale network and e-commerce channel of the company, the brand has been expanding its presence through 68 exclusive stores and 37 shop in-shops in premium departmental stores. In FY16, Hush Puppies embarked on a journey of re-positioning itself as an international premium lifestyle casual footwear brand.
Power brand is BIL’s premium brand in the sportswear segment. Power brand competes against some of the best global sportswear brands such as Nike, Adidas and Puma. However, prices of Power shoes are less then at least 30%-40% when compared with peers. Power brand contributes 8%-9% to total sales.
In order to cater to the children category, BIL introduced many new designs and innovative footwear under Bubblegummers and Disney brands. Through Bubblegummers, BIL strived to make quality shoes with uncompromising comfort and features that safeguard their little feet. With 18% of the population below the age of 10, the potential for growth in the children category of footwear is huge. Therefore, it is one of the key focus areas for BIL. With a revamped collection, a dedicated team to drive this brand, experience of being associations with brands like Angry Birds in the past and Walt Disney at present, BIL has robust plans to make Bubblegummers the best children’s footwear brand in India. Bubblegummers contribute ~3% to total sales of the company.
BIL has established an association with The Walt Disney Company India and is working with a set of designers from the latter to create a complete collection covering all types of footwear ranging from casual shoes, canvas shoes and ballerinas to everyday-wear sandals and chappals. BIL has been exploring the possibility to create exclusive ‘Disney Corners’ in some key retail stores across major cities in India to highlight the collection and add value to the children category of footwear. BIL is confident that its young little customers will be excited and thrilled to see their favourite characters in their favourite shoes.
1,6
79
2,3
05
2,7
44
3,2
18
3,3
49
2,7
06
2,7
72
3,4
70
4,1
27
0
10
20
30
40
50
60
70
80
90
-
500
1,000
1,500
2,000
2,500
3,000
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4,000
4,500
CY10 CY11 CY12 CY13 FY15 FY16 FY17E FY18E FY19E
EBITDA EBITDA/pair
(Rs)(Rsmn)
Institutional Equities
5 Bata India
Exhibit 5: Bata brands
Men Women Kids
Ambassador Bata Bata
Bata Comfit Bubblegummers
Bata Life Hush Puppies Disney
Comfit Marie Claire Power
Hush Puppies Naturalizer
Mocassino North Star
North Star Power
Patapata Sandak
Power Scholl
Scholl
Sunshine
Weinbrenner
Source: Company, Nirmal Bang Institutional Equities Research
BIL has a far wider audience because of the number of brands it offers and varied price range. International brands such as Nike, Puma and Adidas cater to the high-end segment with their ASP more than Rs3,000/pair. Domestic brands such as Relaxo mainly cater to the mass segment where their ASP is ~Rs250/pair. Relaxo has mainly four brands – Bahamas, Flite, Sparx and Schoolmate. Metro shoes, although it offers a wide price range, has only four brands – Metro, Da Vinchi (premium brand), Mochi and MSL. ASP of Metro shoes is much on the higher side when compared to BIL and Relaxo. Metro’s ASP is ~Rs1,500/pair (MSL shoes at Rs500/pair, Mochi and Metro at Rs1,600/pair and Crocs at Rs2,300/pair.
Exhibit 6: Number of brands owned by the companies
Source: Company, Nirmal Bang Institutional Equities Research
18
4 4
10
0
2
4
6
8
10
12
14
16
18
20
Bata Relaxo Metro Liberty
(Nos.)
Institutional Equities
6 Bata India
Strong retail distribution network
BIL has a retail network comprising 1,265 stores in India spread across 500 cities. Around 50% of its stores are in Tier-I cities, mainly metros. The balance 50% stores are spread in Tier-II and Tier-III cities. Of the 1,265 stores, 1,121 stores are of Bata brand, 102 are of Hush Puppies and 42 are foot-in stores. Pan India, BIL has a presence of 2,650,000 sq.ft. in the retail space. The company also operates a large non-retail distribution network through its urban wholesale division and caters to millions of customers through more than 30,000 dealers.
Exhibit 7: Retail reach through CoCo stores Exhibit 8: New store additions - Bata
Source: Company, Nirmal Bang Institutional Equities Research Source: Company, Nirmal Bang Institutional Equities Research
In the past, BIL expanded its stores at an average run-rate of more than 100 stores every year. However, with demonetisation the company turned a bit cautious and wants to be careful in terms of store expansion. With rising store reach, we believe the Bata brand will continue capturing the mind share of its customers.
Exhibit 9: Rising sales revenues per store
Source: Company, Nirmal Bang Institutional Equities Research
1,250
262
400 340
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Bata Relaxo Metro Liberty
(Nos.)
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146
189
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159
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20
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140
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(Nos.)
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9.410.4
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25
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CY07 CY08 CY09 CY10 CY11 CY12 CY13 FY15 FY16
No. of stores Sales (Rsmn) Sales/store
(Rsmn)(Rsmn/Nos)
Institutional Equities
7 Bata India
Implementation of GST to give a major kick to volume
With GST implementation likely from 1 July 2017, we believe that organised players in the footwear industry will be major beneficiaries. Indian footwear industry is dominated by unorganised players who account for 70% of the total industry. Indian players, on an annual basis, manufacture ~2.1bn pairs of footwear annually, of which ~1.5bn pairs are manufactured by small unorganised manufacturers and the rest ~0.6bn pairs are made by organised players such as BIL, Relaxo Footwear, Metro Shoes, Liberty, Action, Khadims, Paragon, Nike, Puma etc. Of the 600mn pairs of footwear manufactured by organised players, BIL manufactures ~50mn pairs every year i.e. ~9% of pairs.
BIL pays ~17.5% in indirect taxes. There is a good chance that post GST, shoe manufacturers will come under the 18% tax bracket. Even though BIL won’t be able to save anything on the tax front, we believe it will be a major beneficiary in terms of increased volume. With GST, we believe small unorganised players will not be able to sustain financially. This will greatly benefit players like BIL. As a result, we believe that volume growth post GST implementation can be unprecedented.
Exhibit 10: Market segmentation
Source: Company, Nirmal Bang Institutional Equities Research
Even though we are confident of strong volume growth for organised players post GST implementation, we have not factored in strong volume growth in our estimates.
Exhibit 11: Assumption sheet
FY16 FY17E FY18E FY19E Growth(%) Comments
Sales 24,181 24,932 27,550 30,755 8% We believe that sales growth of 8% will come mainly on account of increase in price realizations and minuscle growth in volumes
Gross Profit 12,620 12,949 14,381 16,116 - -
Gross Margins (%) 52.2% 51.9% 52.2% 52.4% 20bps Small incremental improvement in gross margins will come due improvement in ASP
EBITDA 2,706 2,772 3,470 4,127 15% -
EBITDA Margins (%) 11.2% 11.1% 12.6% 13.4% 230bps Improvement in operating margins will come on account of - betterment in gross margins, decline in rental cost by 70bps over FY16-FY19E and moderate growth in employee cost
PAT 1552 1828 2221 2623 19% Moderate sales growth complemented with better operating margins will led to healthy PAT growth of 19%
PAT Margins (%) 6.4% 7.3% 8.1% 8.5% 210bps -
Source: Company, Nirmal Bang Institutional Equities Research
600
1500
Market segmentation
Organized Unorganized
Bata share: 9% of organized segment at ~50mn pairs
Institutional Equities
8 Bata India
Financial performance – YTD
Sales and sales growth
BIL’s sales have posted a CAGR of 14% over CY10 – FY16. Sales growth mainly was because of the rise in ASP over the years. Increase in ASP has been mainly on account of rising contribution from high-end brands such as Hush Puppies and increase in value-added products. Of the 14% sales growth, ~12% came from the rise in price realisation over CY10–FY16. We believe this trend will continue going forward. We expect moderate sales growth of 8% over FY16-FY19E. We have assumed moderate volume growth of 1.5% while the remaining portion of sales growth will be taken care of by the rise in price realisation.
Exhibit 12: Sales & sales growth - Annual Exhibit 13: Sales – Quarterly
Note: FY15 includes 15 months of sales. Growth normalized to 12 months.
Source: Company, Nirmal Bang Institutional Equities Research
Source: Company, Nirmal Bang Institutional Equities Research
Gross margin
BIL’s gross margin remained range-bound in the range of 52% to 54%. Margins peaked out during CY13 and FY15 at 54.1%. Margins bottomed out in 1QFY17 at 50% and have been on the rise since then. We believe that with the launch of trendy shoes under Power and Weinbrenner brands, ASP will increase and thereby pushing gross margin up by at least 50bps from 51.9% to 52.4% over FY17E-FY19E.
Exhibit 14: Gross margin – Annual Exhibit 15: Gross margin – Quarterly
Source: Company, Nirmal Bang Institutional Equities Research Source: Company, Nirmal Bang Institutional Equities Research
EBITDA and EBITDA growth
BIL’s operating profit posted a CAGR of 8% over CY10 – FY16. With the exception of FY16, BIL reported healthy EBITDA growth. We expect operating profit to post a CAGR of 15% (15% over CY10 – FY15) over FY16 – FY19E. Healthy growth in operating profit will come on account of sales growth supplemented by improvement in operating margin from 11.2% in FY16 to 13.4% by FY19E.
22.6
19.4
12.1
4.4
(10.2)
3.1
10.5 11.6
(15)
(10)
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25
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CY10 CY11 CY12 CY13 FY15 FY16 FY17E FY18E FY19E
Net Sales Growth (%)
(Rsmn) (%)
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FY
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FY
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3Q
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17
(Rsmn)
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54.1 54.1
52.2
51.9
52.252.4
50.5
51.0
51.5
52.0
52.5
53.0
53.5
54.0
54.5
CY10 CY11 CY12 CY13 FY15 FY16 FY17E FY18E FY19E
(Rsmn)
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55%55%
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3Q
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Institutional Equities
9 Bata India
Exhibit 16: EBITDA - Quarterly
Source: Company, Nirmal Bang Institutional Equities Research
EBITDA margin steadily increased from 13.3% to 15.6% over CY10 to CY13 before declining to 12.4% in FY15. FY15 was exceptionally challenging for BIL as sales growth moderated to 4% followed by a sharp rise in employee and rental expenses by 17% and 14%, respectively. We believe that operating margin should improve from here onwards (11.1 in FY17E to 13.4% in FY19E) mainly on account of improved product mix, improvement in operational efficiency because of plant modernisation and slightly reduced employee strength (~Rs220mn spent on VRS to let go employees at Faridabad unit in Haryana).
Exhibit 17: EBITDA margin – Yearly Exhibit 18: EBITDA margin - Quarterly
Source: Company, Nirmal Bang Institutional Equities Research Source: Company, Nirmal Bang Institutional Equities Research
PAT and PAT growth
With sales growth of 8% and EBITDA growth of 15% over FY16 – FY19E, the company’s PAT is expected to grow at a healthy pace of 19% over the same period.
629
961
633
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636 614
469
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491
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821
535
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(Rsmn)
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14.9 14.915.6
12.411.2 11.1
12.613.4
0
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8
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16
18
CY10 CY11 CY12 CY13 FY15 FY16 FY17E FY18E FY19E
(Rsmn)
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18.0
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11.6 11.4
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5C
Y1
4
1Q
FY
16
2Q
FY
16
3Q
FY
16
4Q
FY
16
1Q
FY
17
2Q
FY
17
3Q
FY
17
(%)
Institutional Equities
10 Bata India
Exhibit 19: PAT - Quarterly
Source: Company, Nirmal Bang Institutional Equities Research
Return on equity and capital employed
BIL’s RoE and RoCE stayed at over 25% till CY13 before slipping to to sub-20% level in FY15. Last three years have been challenging for BIL because of a couple of mistakes, mainly implementation and then scrapping of SAP and aggressive store expansion. As a result, the company delivered poor returns on equity and capital. However, we expect the return ratios to improve from 14% in FY17E to 17.2% in FY19E.
Exhibit 20: Return on Equity (RoE) Exhibit 21: Return on Capital Employed (RoCE)
Source: Company, Nirmal Bang Institutional Equities Research Source: Company, Nirmal Bang Institutional Equities Research
Free cash flow and cash from operations
BIL has been a cash guzzler mainly because of its better working capital cycle and lower capital expenditure requirement. The company generated cash flow from operations of ~Rs10,000mn over CY10 to FY16 and free cash flow of ~Rs4,700mn. We expect BIL to generate ~Rs9,000mn of Cash Flow from Operations (CFO) and ~Rs6,300mn of free cash flow or FCF cumulatively over FY17E – FY19E.
385
619
376
512
394
594
390 349
584
899
541
448
279
503
321 358
-
100
200
300
400
500
600
700
800
900
1,000
1CY
13
2CY
13
3CY
13
4CY
13
1CY
14
2CY
14
3CY
14
4CY
14
5CY
14
1QF
Y16
2QF
Y16
3QF
Y16
4QF
Y16
1QF
Y17
2QF
Y17
3QF
Y17
(Rsmn)
19.9 19.8
14.716.1
17.0
0
5
10
15
20
25
FY15 FY16 FY17E FY18E FY19E
(%)
17.7
14.214.8
16.317.2
0
2
4
6
8
10
12
14
16
18
20
FY15 FY16 FY17E FY18E FY19E
(%)
Institutional Equities
11 Bata India
Exhibit 22: FCF and CFO
Source: Company, Nirmal Bang Institutional Equities Research
Exhibit 23: CFO versus PAT Exhibit 24: Working capital cycle
Source: Company, Nirmal Bang Institutional Equities Research Source: Company, Nirmal Bang Institutional Equities Research
Indian footwear market
Indian footwear market, like its international counterpart, can broadly be classified into – men, women and kids. Indian footwear segment is dominated by men who account for 60% of the industry while women and kids contribute 30% and 10%, respectively. Men’s footwear segment is growing at 10% whereas women’s footwear segment is growing at almost twice the rate of men’s, at 20%.
Exhibit 25: Market segmentation (%) Exhibit 26 : Market segmentation (mn pairs)
Source: Company, Nirmal Bang Institutional Equities Research Source: Company, Nirmal Bang Institutional Equities Research
1,4
56
(20
2)
1,4
14
1,6
61
1,1
96
1,7
56
2,8
19
1,8
70
2,1
44
90
6
(1,4
00
)
57
6 96
4
(44
5)
1,3
41
2,0
19
87
0
1,1
44
(2,000)
(1,500)
(1,000)
(500)
-
500
1,000
1,500
2,000
2,500
3,000
3,500
CY10 CY11 CY12 CY13 FY15 FY16 FY17E FY18E FY19E
CFO FCF
(Rsmn)
1,4
56
(20
2)
1,4
14
1,6
61
1,1
96
1,7
56
2,8
19
1,8
70
2,1
44
95
4
1,1
65
1,7
16
1,9
94
2,0
44
1,5
52
1,8
28
2,2
21
2,6
23
(500)
-
500
1,000
1,500
2,000
2,500
3,000
CY10 CY11 CY12 CY13 FY15 FY16 FY17E FY18E FY19E
CFO PAT
(Rsmn)
36
5047
5457
52
45 45 45
0
10
20
30
40
50
60
70
0
20
40
60
80
100
120
140
160
CY10 CY11 CY12 CY13 FY15 FY16 FY17E FY18E FY19E
Avg inventory period (days) Avg collection period (days)
Avg payment period (days) Cash conversion cycle
(Days)(Days)
60%
30%
10%
Men Women Kids
1,260
630
210
-
200
400
600
800
1,000
1,200
1,400
Men Women Kids
(mn pairs)
Institutional Equities
12 Bata India
Footwear market can broadly be classified into two categories based on usage – regular (includes daily and sports footwear for which material used can be leather/rubber/plastic and occasional (consists of premium and luxury shoes made mostly of leather and sometimes non-leather).
Exhibit 27: Market segmentation based on pricing
Source: Company, Nirmal Bang Institutional Equities Research
India is the second-largest producer of footwear globally after China, although the difference between annual productions between the two countries is huge. India currently accounts for ~9% of total global shoe production. Global volume of footwear stands at 22bn pairs per year of which ~2bn are produced in India. 90% of the footwear produced in India is consumed within the country while the rest 10% is exported primarily to European markets such as the UK, Germany, Italy and France and some shipped to North America.
Exhibit 28: Main footwear consumption countries
Source: ICRA, Nirmal Bang Institutional Equities Research
61%
22%
7%7% 3%
Casuals Mass Sports/active Premium Leather Premium non-leather
0
5
10
15
20
25
Ch
ina
US
A
Ind
ia
Jap
an
Bra
zil
Ind
on
esi
a
Fra
nce
Ge
rma
ny
UK
21.720.5
19.3
6 5.3 4.63.2 3.1 2.7
mn pairs
Institutional Equities
13 Bata India
Changing trend in Indian footwear Industry
Increase trust in branded footwear
Today, ~60% of Indian population falls under the age group of 15-54 years. With a growing youth population and rising middle-class, the thrust has been on branded products. A fast-growing economy and a rising number of affluent consumers pushed India into the league of most brand-conscious countries globally. However, there is growing consumer preference for footwear with price point ranging between Rs999 – Rs4,999/pair with regard to national as well as international brands. We believe this growing thrust on high-priced range of products will assist companies like BIL, Mochi (Metro Shoes) and Red Tape (Mirza International) in increasing the ASP of their products. Thus, growth will come not only from rising volume but also from increased price realisation.
Rising trend towards casual shoes and sports shoes
Even though comfort is the first criteria for most customers, there has been a rising trend where customers prefer more casual footwear such as sneakers. There is a surge in demand for designer footwear. Last year, there was an upsurge in casual category men’s and women’s footwear and there is rising customer preference for bright colours and quirkier patterns. BIL has appointed Mr. Mateo Lambert who heads the product development team comprising 70 designers who have been of late working on bringing more fashionable and trendy footwear catering to the youth. The new shoe line is sold under its own Bata brand at ASP of Rs2,500 – Rs3,000/pair. BIL has launched the new shoe line at 50 stores and plans to expand it further to 200 stores, mainly in metro and Tier-I cities.
We believe that given BIL’s increased focus on the youth segment and trendy footwear, this changing trend will hugely benefit the company going forward. BIL introduces more than 500 new designs every year (from close to 2,000 proposed internally by its design team). The management believes that the success rate with its new designs is 75%.
Growing opportunities in women’s segment: Women’s footwear constitutes only 30% of Indian market share currently. But the growth rate of this segment is double than that of the men’s segment. While the men’s footwear market has registered 10% CAGR in the last financial year, it is 20% in case of the women’s segment. In case of BIL, women’s footwear account for 30%-32% of total sales with popular brands such as– Bata, Comfit, Hush Puppies, Marie Clarie, Naturalizer, North Star, Power, Sandak and Sholl.
Omni-channel retailing: Retailers have started venturing into omni-channel retailing and trying in-store marketing solutions such as beacons to enrich the shopping experience and finding out ways to bridge the gap between offline and digital channels. In addition to engaging users on the digital platform, and even influence their merchandising decisions, many retailers are using the platform not just to showcase products but also to actually sell them. The same goes for mobiles. Companies won’t just use the small screen to ‘get in front’ of customers (i.e. through geo-fencing and mobile-enabled sites). In 2016, retailers incorporated mobile phones into other parts of the customer journey, including order fulfilment, payment, and loyalty.
BIL has tie-ups with major e-commerce portals mainly Amazon, Myntra, Jabong, Flipkart, etc. The company sold more than 3,80,000 pairs of footwear through online channels and achieved a turnover of around Rs360mn. BIL’s e-commerce presence is in more than 2,000 cities across India. 80% of the shoes sold through e-commerce portals are exclusive, while 20% overlaps with its brick and mortar stores’ shoe line. Currently, there are 500 exclusive designs sold through the e-commerce route. BIL has also launched ‘Click and Collect’ service for its stores in the Delhi NCR region. The customers can now shop the entire range of products available online with the click of a button and have their preferred footwear or accessories delivered to the local BIL retail store of their choice.
Institutional Equities
14 Bata India
Exhibit 29: Leading footwear brands in India
Brand Year of Establishment
Segment Presence Product Portfolio Retailing Format
Bata 1931 Mass/Economy/Active Sports/Premium
Men’s, women’s, kid’s footwear with international brands such as Hush Puppies, Marie Claire, Scholls etc.
1,250 stores across 500 cities, wholesale division, dealer-distribution network, own website and other e-commerce portals.
Metro 1947 Mass/Economy/Active Sports/Premium
Men’s, women’s, kid’s footwear with international brands like Clarks, Steve Madden, Crocs etc.
310+ EBOs in 90 cities and online retailing through brand website and other e-commerce portals.
Liberty 1954 Mass/Economy/Active Sports/Premium
Men’s, women’s and kid’s footwear. 400 EBOs & 6,000 multi-brand outlets.
INC. 5 1954 Economy/Premium Women’s footwear. 225 shop in shops and 32 stand-alone stores across the country.
Ajanta 1956 Mass/Economy Rubber, PU, PVC, EVA, canvas and leather footwear for men, women and kids.
20 showrooms in eastern part of the country, MBOs and distributors.
Khadims
1965 (wholesale & distribution) Mass/Economy/Active/
Sports Men’s, women’s & kid’s footwear. 600 retail outlets in 21 states.
1993 (Retail journey)
Action 1975 Mass/Economy/Active/ Sports
Men’s, women’s, kid’s footwear Franchised EBOs, brand website, leading e-commerce portals.
Paragon 1975 Mass/Economy Rubber, PU, PVC, EVA and TPR footwear for men, women and kids.
Distributed through 80 depots and more than 450 distributors across India.
Relaxo 1976
Mass/Economy/
Men’s, women’s, kid’s footwear. EBOs, franchised outlets, own website and e-commerce portals
Active/Sports
Sreeleathers 1987 (in Kolkata) Mass/Economy/Active Men’s, women’s, kid’s footwear. 6 EBO’s and dealer network.
Catwalk 1990 Economy/Premium Men’s & women’s footwear.
150 stores in 31 cities, in partnership with retail chains like Pantaloons, Globus, Central, Hypercity, Mega Mart, Lifestyle, Reliance Footprint, Shoppers Stop etc.
Mochi 2000 Economy/Premium Men’s, women’s and kid’s footwear. Footprint in more than 35 cities through 70 retail outlets.
Source: Company, Nirmal Bang Institutional Equities Research
Institutional Equities
15 Bata India
Financials (standalone)
Exhibit 30: Income statement
Y/E March (Rsmn) CY13 FY15 (15m) FY16 FY17E FY18E FY19E
Net Sales 20,652 26,940 24,181 24,932 27,550 30,755
% growth 12.1 4.4 12.2 3.1 10.5 11.6
Raw Material 9,488 12,378 11,560 11,984 13,169 14,640
Staff 2,133 3,119 2,627 2,640 2,812 3,008
Rent 2,620 3,743 3,363 3,451 3,692 4,060
Freight 429 498 525 573 551 615
Commission 642 862 720 747 827 923
Others 2,121 2,991 2,679 2,766 3,031 3,383
Total Expenditure 17,433 23,591 21,475 22,161 24,081 26,629
EBITDA 3,218 3,349 2,706 2,772 3,470 4,127
% growth 17.3 (16.8) 1.0 2.4 25.2 18.9
EBITDA margin (%) 15.6 12.4 11.2 11.1 12.6 13.4
Other income 313 432 301 514 536 569
Interest 13 18 17 26 40 40
Depreciation 592 792 752 648 723 798
Profit Before Tax 2,927 2,971 2,237 2,611 3,242 3,857
% growth 16.2 (18.8) (5.9) 16.7 24.2 19.0
Tax 935 928 685 783 1,021 1,234
Effective tax rate (%) 32.0 31.2 30.6 30.0 31.5 32.0
Adjusted Net Profit 1,992 2,044 1,552 1,828 2,221 2,623
% growth 16.1 (17.9) (5.1) 17.8 21.5 18.1
Extraordinaries (86) 268 635 184 - -
Reported Net Profit 1,906 2,312 2,187 2,012 2,221 2,623
% growth 11.1 (3.0) 18.3 (8.0) 10.4 18.1
Dividends 489 489 543 582 776 892
Carried over to BS 1,503 1,555 1,009 1,246 1,445 1,731
EPS (Rs) 15.5 12.7 12.1 14.2 17.3 20.4
% growth 16.2 (34.4) 18.7 17.8 21.5 18.1
DPS (Rs) 3.3 3.3 3.5 3.8 5.0 5.8
Payout (%) 21.9 18.1 20.6 24.0 28.9 28.2
Source: Company, Nirmal Bang Institutional Equities Research
Exhibit 32: Balance sheet
Y/E March (Rsmn) CY13 FY15 (15m) FY16 FY17E FY18E FY19E
Equity 643 643 643 643 643 643
Reserves 7,767 9,579 11,188 12,654 14,099 15,830
Net worth 8,410 10,221 11,830 13,296 14,742 16,473
Deferred Tax Liability (681) (876) (1,019) (1,019) (1,019) (1,019)
Liabilities 7,729 9,345 10,811 12,277 13,723 15,453
Gross Block 6,094 7,265 7,656 8,646 9,646 10,646
Depreciation 3,549 3,883 4,635 5,284 6,007 6,806
Net Block 2,544 3,383 3,021 3,363 3,639 3,841
Capital work-in-progress 155 166 190 - - -
Long-term Investments 49 50 50 50 50 50
Inventories 5,827 7,047 6,789 6,771 7,358 8,137
Debtors 509 584 696 692 765 854
Cash 2,557 2,100 3,405 5,644 6,514 7,659
Other Current assets 1,505 2,169 2,294 1,995 2,204 2,460
Total Current assets 10,399 11,900 13,184 15,102 16,841 19,110
Creditors 3,654 4,545 4,277 4,617 5,017 5,548
Other current liabilities 1,763 1,608 1,357 1,621 1,791 1,999
Total current liabilities 5,417 6,153 5,634 6,237 6,808 7,547
Net current assets 4,981 5,747 7,550 8,865 10,034 11,563
Total Assets 7,729 9,345 10,811 12,277 13,723 15,453
Source: Company, Nirmal Bang Institutional Equities Research
Exhibit 31: Cash flow
Y/E March (Rsmn) CY13 FY15 (15m) FY16 FY17E FY18E FY19E
EBIT 2,626 2,557 1,953 2,123 2,746 3,328
(Inc.)/Dec in working capital (111) (1,223) (497) 924 (299) (385)
Cash flow from operations 2,515 1,333 1,456 3,048 2,447 2,943
Other income 313 432 301 514 536 569
Depreciation 592 792 752 648 723 798
Deffered Liabilities (237) (195) (143) - - -
Interest paid (-) (13) (18) (17) (26) (40) (40)
Tax paid (-) (935) (928) (685) (783) (1,021) (1,234)
Dividends paid (-) (489) (489) (543) (582) (776) (892)
Extraordinary Items (86) 268 635 (184) - -
Net cash from operations 1,661 1,196 1,756 2,635 1,870 2,144
Capital expenditure (-) (697) (1,641) (415) (800) (1,000) (1,000)
Net cash after capex 964 (445) 1,341 1,835 870 1,144
Inc./(Dec.) in short-term borrowing
(267) - - - - -
Inc./(dec.) in long-term borrowing - - - - - -
(Inc.)/Dec. in investments - (1) - - - -
Cash from Financial Activities (267) (1) - - - -
Others / Extraordinary income (10) (11) (36) 220 - -
Opening cash 1,871 2,557 2,100 3,405 5,644 6,514
Closing cash 2,557 2,100 3,405 5,644 6,514 7,659
Change in cash 686 (458) 1,305 2,239 870 1,144
Source: Company, Nirmal Bang Institutional Equities Research
Exhibit 33: Key ratios
Y/E March CY13 FY15 (15m) FY16 FY17E FY18E FY19E
Per share (Rs)
EPS 15.5 12.7 12.1 14.2 17.3 20.4
Book value 65.4 79.5 92.0 103.5 114.7 128.2
Valuation (x)
P/E 32.2 39.2 41.3 35.1 28.9 24.4
P/sales 3.1 3.0 2.7 2.6 2.3 2.1
P/BV 7.6 6.3 5.4 4.8 4.4 3.9
EV/EBITDA 19.1 23.1 22.4 21.1 16.6 13.7
EV/sales 3.0 2.9 2.5 2.3 2.1 1.8
Return ratio (%)
RoIC 35.6 22.8 18.6 21.3 27.4 30.4
RoCE 25.5 17.7 14.2 14.7 16.0 17.0
RoE 24.8 19.9 19.8 16.0 15.8 16.8
Margin ratio (%)
EBITDA margin 15.6 12.4 11.2 11.1 12.6 13.4
PBIT margin 12.7 9.5 8.1 8.5 10.0 10.8
PBT margin 14.2 11.0 9.3 10.5 11.8 12.5
PAT margin 9.7 7.6 6.4 7.3 8.1 8.5
Turnover ratio
Asset turnover ratio (x) 2.7 2.3 2.2 2.0 2.0 2.0
Avg inventory period (days) 120 134 114 110 110 110
Avg collection period (days) 9 10 10 10 10 10
Avg payment period (days) 75 87 72 75 75 75
Solvency ratios (x)
Debt-equity - - - - -
Growth (%)
Sales 12.1 4.4 12.2 3.1 10.5 11.6
EBITDA 17.3 (16.8) 1.0 2.4 25.2 18.9
PAT 11.2 (3.1) 18.3 (8.0) 10.4 18.1
Source: Company, Nirmal Bang Institutional Equities Research
Institutional Equities
16 Bata India
Rating track Date Rating Market price (Rs) Target price (Rs)
26 September 2011 Buy 320 409
1 November 2011 Buy 363 419
10 January 2012 Buy 275 419
1 March 2012 Buy 350 419
20 March 2012 Buy 363 419
20 April 2012 Buy 422 504
26 April 2012 Buy 428 504
2 May 2012 Buy 439 504
22 June 2012 Buy 424 504
10 July 2012 Buy 436 504
27 July 2012 Hold 448 504
14 August 2012 Hold 457 504
4 October 2012 Hold 491 504
1 November 2012 Sell 427 393
4 February 2013 Buy 392 500
27 February 2013 Buy 379 500
26 April 2013 Buy 352 433
8 May 2013 Hold 393 433
14 May 2013 Hold 400 433
5 June 2013 Hold 432 433
26 July 2013 Buy 438 532
29 July 2013 Buy 454 532
7 October 2013 Buy 431 532
31 October 2013 Buy 444 532
20 December 2013 Buy 505 655
7 January 2014 Buy 513 655
22 January 2014 Buy 487 655
13 February 2014 Buy 500 655
26 March 2014 Buy 565 655
30 March 2014 Buy 538 655
2 May 2014 Buy 534 623
22 May 2014 Buy 546 628
4 July 2014 Buy 672 796
6 August 2014 Buy 627 754
25 August 2014 Buy 626 754
10 October 2014 Buy 669 754
7 November 2014 Buy 637 751
12 December 2014 Buy 656 751
12 February 2015 Buy 646 750
13 April 2015 Buy 579 750
22 May 2015 Buy 561 678
28 May 2015 Buy 520 678
10 July 2015 Buy 579 678
6 August 2015 Accumulate 617 678
15 October 2015 Accumulate 536 580
5 November 2015 Accumulate 484 461
11 February 2016 Accumulate 487 509
31 May 2016 Accumulate 570 550
4 August 2016 Accumulate 553 530
13 February 2017 Buy 499 612
Note: BIL reduced its stock face value from Rs10 to Rs5 with effect from 8 October 2015. Earlier market prices and target prices have been adjusted accordingly.
* Coverage shifted to Akhil Parekh w.e.f. 13 February 2017.
Institutional Equities
17 Bata India
Disclaimer
Stock Ratings Absolute Returns
BUY > 15%
ACCUMULATE -5% to15%
SELL < -5%
This report is published by Nirmal Bang’s Institutional Equities Research desk. Nirmal Bang group has other business units with independent research teams separated by Chinese walls, and therefore may, at times, have different or contrary views on stocks and markets. Reports based on technical and derivative analysis may not match with reports based on a company's fundamental analysis. This report is for the personal information of the authorised recipient and is not for public distribution. This should not be reproduced or redistributed to any other person or in any form. This report is for the general information for the clients of Nirmal Bang Equities Pvt. Ltd., a division of Nirmal Bang, and should not be construed as an offer or solicitation of an offer to buy/sell any securities.
We have exercised due diligence in checking the correctness and authenticity of the information contained herein, so far as it relates to current and historical information, but do not guarantee its accuracy or completeness. The opinions expressed are our current opinions as of the date appearing in the material and may be subject to change from time to time without notice.
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