27 July 2013
2QCY13 Results Update | Sector:
Consumer
Bata India
BSE SENSEX
19,748
Bloomberg
Equity Shares (m)
M.Cap. (INR b) / (USD b)
52-Week Range (INR)
1, 6, 12 Rel. Per (%)
S&P CNX
5,886
BATA IN
64.3
52.1/0.9
990/687
1/10/-21
CMP: INR878
TP: INR1,036
Buy
Financials & Valuation (INR b)
Y/E DEC
Net Sales
EBITDA
PAT
Adj.EPS
(INR)
Gr. (%)
BV/Sh.(INR)
RoE (%)
RoCE (%)
P/E (x)
P/BV (X)
2012 2013E 2014E
21.1
3.2
2.0
31.5
17.8
132
30.3
26.2
27.9
6.7
24.8
3.9
2.6
39.8
26.3
162
11.5
27.1
22.1
5.4
29.1
4.7
3.1
49.0
23.0
198
10.7
27.3
18.0
4.4
Revenues in-line; SSS up 10% YoY:
Net sales grew 13.6% YoY to INR5.72b (v/s our
estimate of INR5.82b), primarily driven by volume growth of 2% YoY, higher
realizations and better product mix. Same store sales (SSS) grew 10% YoY in value
terms and 2-3% YoY in volume terms, which is exciting. Bata opened 37 stores
and closed/remodeled 15-20 stores in 1HCY13. To increase brand recall and
educate consumers on its newer offerings, Bata has hired DDB Mudra for
advertisement and marketing initiatives. It has planned a prime time television,
radio and print campaign in 2HCY13, which should improve brand visibility. It
plans to open 90-100 new stores in CY13, which should help drive growth.
EBITDA margin surprises positively, driving PAT:
EBITDA margin expanded 30bp
YoY to 16.8% (v/s our estimate of 16%), driven by 50bp YoY gross margin
expansion and 30bp YoY reduction in employee cost. Rent increased by 20bp YoY
to 10.9% of sales, significantly lower than our estimate of 12%. The management
was able to keep rent under control by focusing on opening more stores on
revenue sharing basis and by negotiating with existing store owners. Adjusted
PAT grew 17.6% YoY to INR619m (v/s our estimate of INR599m).
Plant modernization and premiumization to drive up margins:
Bata’s gross
margin expanded 50bp in 1HCY13, primarily on account of reduction in raw
material cost and focus on premiumization. The company plans to spend
~INR500m on plant modernization, which should help improve productivity and
throughput, in turn aiding margin expansion.
Valuation and view:
Given Bata’s strong franchise, improved merchandise, strong
balance sheet, and improving growth visibility, we believe that its premium
valuations are justified. We revise our margin assumptions upwards, resulting in
~2% upgrade in our earnings estimates for CY13 and CY14. Maintain
Buy,
with a
target price of INR1,036 (26x CY13E EPS of 39.8).
Niket Shah
(Niket.Shah@MotilalOswal.com); +91 22 3982 5426
Investors are advised to refer through disclosures made at the end of the Research Report

Bata India
Revenues in-line; SSS up 10% YoY
Net sales grew 13.6% YoY to INR5.72b (v/s our estimate of INR5.82b), primarily
driven by volume growth of 2% YoY, higher realizations and better product mix.
Same store sales (SSS) grew 10% YoY in value terms and 2-3% YoY in volume
terms – a positive surprise.
Bata opened 37 stores and closed/remodeled 15-20 stores in 1HCY13. It plans to
open 90-100 new stores in CY13, which should help drive growth.
To increase brand recall and educate consumers on the new offerings, company
has hired DDB Mudra for advertisement and marketing initiatives. Bata plans to
do a prime time television, radio and print campaign in 2HCY13 and expects to
spend ~1.5-2% of sales on advertisements, going forward.
Sales and growth trend
Source: Company, MOSL
Store count to increase to ~1,500 by CY14
CY05
No of stores
New stores
Closed
1,174
40
60
CY06
1,172
37
39
-2
CY07
1,173
67
66
1
CY08
1,165
62
70
-8
CY09
1,161
69
73
-4
CY10
1,209
108
60
48
CY11
1,259
146
96
CY12 CY13E CY14E
1,388
189
60
1,438
100
50
1,488
100
50
Number of net store addition
50
129
50
50
Source: Company, MOSL
EBITDA margin surprises positively, driving PAT
EBITDA margin expanded 30bp YoY to 16.8% (v/s our estimate of 16%), driven
by 50bp YoY gross margin expansion and 30bp YoY reduction in employee cost,
though rent increased by 20bp YoY and other expenses increased by 50bp YoY.
The management continues to see headroom for margin expansion over the
next 2-3 years.
The 20bp YoY increase in rent to 10.9% of sales was significantly lower than our
estimate of 12%. The management was able to keep rent under control by
focusing on opening more stores on revenue sharing basis and by negotiating
with existing store owners.
Adjusted PAT grew 17.6% YoY to INR619m (v/s our estimate of INR599m).
27 July 2013
2

Bata India
Employee cost as percentage of sales to decline
Rent as percentage of sales under control
Source: Company, MOSL
Source: Company, MOSL
Plant modernization and premiumization to drive up margins
Bata’s gross margin expanded 50bp in 1HCY13, primarily on account of
reduction in raw material cost and focus on premiumization.
The company plans to spend ~INR500m on plant modernization, which should
help improve productivity and throughput, in turn aiding margin expansion.
Post plant modernization, throughput should increase by 15-20%, with no major
increase in opex cost, in our view.
We believe Bata might begin in-house manufacturing of some of the products it
outsources. Capacity addition will help Bata to meet demand for value-added
products in the leather segment, aiding further improvement in margins.
EBITDA margin trend
Gross margin trend
Source: Company, MOSL
Source: Company, MOSL
Valuation and view
Given Bata’s strong franchise, improved merchandise, strong balance sheet, and
improving growth visibility, we believe that its premium valuations are justified.
We revise our margin assumptions upwards, resulting in ~2% upgrade in our
earnings estimates for CY13 and CY14.
Maintain Buy, with a target price of INR1,036 (26x CY13E EPS of 39.8).
27 July 2013
3

Bata India
Merchandise improved; focus on growth now
Takeaways from management meet
We met Bata India’s top management and Bata Shoe Organization’s Global CEO, Mr
Jack Clemons at the inauguration of the largest
Bata
store in India – a 20ksf store in
Thane (suburban Mumbai). We returned with greater conviction in the company’s
growth strategy and our positive view on the stock is strengthened post our
interactions with the management.
“Our vision is to provide trendy and fashionable footwear at affordable price
points.” -
Mr Jack Clemons, CEO, Bata Shoe Organization
“We will continue to focus on volume growth going forward. There is great
opportunity for Bata in safety footwear. Also, going forward, India could become an
export hub for Bata Shoe Organization.” -
Mr Uday Khanna, Non Executive Chairman,
Bata India
“Bata has now got the right designs for each segment and category, across price
points; will focus on advertisements to educate the masses. We are opening large
format stores, as they help to achieve better display of merchandise across
segments and price points. A 20,000sf store in Dhaka, Bangladesh, is delivering
annual revenues in excess of USD5m.” -
Mr Rajeev Gopalkrishnan, MD, Bata India
(Before joining Bata India, Mr Gopalkrishnan was MD of Bata Bangladesh)
“We expect 8-10% same store sales growth over the next two years. Margins are
likely to sustain at ~15%. Ladies and kids segments should grow at ~25%. We
continue to see strong growth in Hush Puppies and Dr Scholl.” -
Mr Ranjit Mathur,
CFO, Bata India
India’s largest
Bata
store spread across 20,000sf, offering over 2,500 designs unveiled
Having recently opened a 12,000sf store in Chennai and a 10,000sf store in Ahmedabad, Bata India opened its
largest store of 20,000sf in Viviana Mall, Thane, Mumbai. The mall started on 27 June 2013, has 1msf of
saleable area and attracts 60,000-70,000 footfalls on weekends and 35,000-40,000 footfalls on weekdays.
The store has on display, brands like
Bata, Ambassador, Mocassino, Comfit, Hushpuppies, Dr Scholl, North
Star, Power, Naturalizers, Bubblegummers
and
Angry Birds.
The store is company-operated, with store employees on Bata India’s payroll. The rent for the store is on
revenue-sharing basis.
Our view:
We were positively surprised by the trendy merchandise, the designs and colors, and the affordable
price range of INR450-8,000. We believe Bata has come a long way in terms of designs, price points and value-for-
money that its products offer. We came away from the store visit, with greater confidence in Bata’s ability to
increase market share across segments and grow at a faster pace in the ladies and kids segments. We believe
opening of large format stores is the right strategy, as it helps to display footwear across segments and price
points.
27 July 2013
4

Bata India
Bata India: an investment profile
Company description
Bata, a 51% subsidiary, is the largest company for BSO
for sales pairs and the second largest in revenue (15%
of BSO revenues). Company went public in 1973 and
changed its name to Bata India Ltd. It has cornered
~16% market share in the organized sector and almost
99% of revenue is from the domestic market, with
exports accounting for the balance.
Bata India has a retail network of 1,388 stores spread
across 500 cities, which gives it a reach/coverage that
no other footwear company can match, and employs
more than 7,000 people. Company also has 16
wholesale depots spread across the country, with more
than 30,000 dealers. It sells more than 50m pairs of
shoes every year and also serves 150,000 customers
every day.
Investment risks
Increase in leather prices.
Slowdown in economy.
Increase in lease rentals.
Recent developments/ triggers to watch
Rent as % of sales and number of stores opening.
Utilization of cash on balance sheet.
Valuation and view
Key investments arguments
Strong brand + aggressive store expansion to drive
market share.
Increased contribution from women and child
segment to drive growth.
Premiumization and plant modernization to drive
gross margins higher
Given
Bata’s
strong
franchise,
improved
merchandise, strong balance sheet, and improving
growth visibility, we believe that its premium
valuations are justified. We revise our margin
assumptions upwards, resulting in ~2% upgrade in
our earnings estimates for CY13 and CY14.
Maintain
Buy,
with a target price of INR1,036 (26x
CY13E EPS of 39.8).
Target price and recommendation
Current
Price (INR)
878
Target
Price (INR)
1,036
Upside
(%)
18.0
Reco.
Buy
EPS: MOSL forecast v/s consensus (INR)
MOSL
Forecast
CY13
CY14
31.5
39.8
Consensus
Forecast
34.0
41.3
Variation
(%)
-7.4
-3.6
Shareholding pattern (%)
June-13
Promoter
Domestic Inst
Foreign
Others
52.0
11.5
19.2
17.3
Mar-12
52.0
10.2
20.2
17.6
June-12
52.0
12.7
18.6
16.7
Stock performance (1-year)
27 July 2013
1

Bata India
Financials and valuation
27 July 2013
2

Bata India
NOTES
27 July 2013
3

Bata India
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27 July 2013
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