10 December 2014
Update | Sector: Consumer
Bata India
BSE Sensex
27,797
S&P CNX
8,341
CMP: INR1,278
TP: INR1,500
Buy
Rightly positioned for recovery in consumer demand
Stock Info
Bloomberg
Equity Shares (m)
52-Week Range (INR)
1, 6, 12 Rel. Per (%)
M.Cap. (INR b)
M.Cap. (USD b)
Newer sales channels to drive growth
BATA IN
64.3
1,413/895
3/-5/-6
82.1
1.3
We recently met Mr Ranjit Mathur, BATA’s CFO. Our key takeaways:
n
Near-term demand outlook remains weak, prompting BATA to defer price hikes.
n
BATA plans to implement SAP, which will help in better inventory management
and demand forecasting. It has recently soft-launched its loyalty program and
expects to launch its e-commerce platform and mobile app before March 2015.
n
Ongoing plant modernization will help improve throughput and efficiencies.
Taking initiatives to tide over near-term demand weakness:
The
Financial Snapshot (INR Million)
Y/E March 2015E 2016E 2017E
Net Sales
28,188 26,490 30,480
EBITDA
Adj PAT
EPS (INR)
Growth (%)
BV/Sh. (INR)
P/E (x)
P/BV (x)
th
4,087 4,095 5,041
2,558 2,583 3,234
39.8
N.A.
N.A.
N.A.
40.2
N.A.
N.A.
N.A.
50.3
25.2
25.4
5.8
159.9 186.2 219.1
management highlighted that demand during the Diwali season was subdued.
Also, near-term demand outlook remains muted. Hence, BATA does not plan to
take any price increase currently. It has soft-launched its loyalty program and
plans to implement a comprehensive loyalty program in FY16. This, the
management believes will increase consumer stickiness and generate better
footfalls. BATA is also looking at implementing SAP before March 2015, which
will help in better inventory management and demand forecasting. It has also
launched a new range of accessories like glares, women’s leggings, and
premium shoe care products, which should drive growth in the accessories
segment. The management expects plant modernization at Kolkata and Patna
to be completed shortly, which should improve its throughput and efficiencies.
*15 months year ended for 2015E
Price as on 9 December 2014
Shareholding pattern (%)
As on
Sep-14
Promoter
53.0
DII
9.2
FII
20.6
Others
17.2
Jun-14 Sep-13
53.0
52.0
9.3
12.2
21.2
17.9
16.6
17.9
New sales channels to drive up growth in FY16:
BATA plans to launch its e-
commerce mobile application in January 2015. It will provide a ‘block and pick-
up’ facility, which will help consumers to block a product through the website
or app and then go to the store and buy it. Also, pricing on its online platform
will be same as in stores to avoid cannibalization. BATA will continue to sell
products through third party e-commerce players (Flipkart, Snapdeal, etc) but
will ensure no product overlap with own stores. This will ensure traditional
channel pricing is not at a disadvantage. The e-commerce channel will initially
offer select brands like
Bata, Hush Puppies
and
Marie Claire.
The management
will monitor the performance of its franchisee model and scale it up gradually.
Note: FII Includes depository receipts
3QFY15 results below expectations:
Revenue grew 13.1% to INR5.5b, in line
Stock Performance (1-year)
Bata India
Sensex - Rebased
1,600
1,400
1,200
1,000
800
with our estimate, primarily driven by spillover of sales from 2Q due to delay in
rainfall. Same store sales (SSS) grew 7% and balance growth was driven by new
store openings. EBITDA margin declined 150bp to 11.6%, primarily due to
higher employee cost (strong hiring across segments like e-commerce,
marketing and retail) and higher rent outgo (70-80 store additions). PAT grew
4% to INR390m, lower than our estimate of INR498m.
Valuation and view
:
We downgrade our EPS estimates by 12% for FY16 and 9%
for FY17 to reflect near-term weakness in demand. With a massive restructuring
exercise, BATA has evolved from being a low growth, loss-making company to
one that can boast on all key parameters – growth, profitability and cash
generation. We believe its three-year average P/E multiple of 31x rightly
reflects BATA’s strong consumer franchise and growth potential. We value the
stock at INR1,500 (30x FY17E EPS of INR50.3). Maintain
Buy.
Niket Shah
(Niket.Shah@MotilalOswal.com); +91 22 3982 5426
Atul Mehra
(Atul.Mehra@MotilalOswal.com); +91 22 3982 5417
Investors are advised to refer through disclosures made at the end of the Research Report.

Bata India
Taking initiatives to tide over near-term demand weakness
n
n
n
n
n
The management highlighted that demand during the Diwali season was
subdued. Also, near-term demand outlook remains muted. Hence, BATA does
not plan to take any price increase currently.
It has soft-launched its loyalty program and plans to implement a
comprehensive loyalty program in FY16. This, the management believes will
increase consumer stickiness and generate better footfalls.
BATA is also looking at implementing SAP before March 2015, which will help in
better inventory management and demand forecasting.
It has also launched a new range of accessories like glares, women’s leggings,
and premium shoe care products, which should drive growth in the accessories
segment.
The management expects plant modernization at Kolkata and Patna to be
completed shortly, which should improve its throughput and efficiencies.
New sales channels to drive up growth in FY16
n
n
n
n
BATA plans to launch its e-commerce mobile application in January 2015. It will
provide a ‘block and pick-up’ facility, which will help consumers to block a
product through the website or app and then go to the store and buy it. Also,
pricing on its online platform will be same as in stores to avoid cannibalization.
BATA will continue to sell products through third party e-commerce players
(Flipkart, Snapdeal, etc) but will ensure no product overlap with own stores. This
will ensure traditional channel pricing is not at a disadvantage.
The e-commerce channel will initially offer select brands like
Bata, Hush Puppies
and
Marie Claire.
BATA will roll out other brands (Dr
Scholl's, Bubblegummers,
Power, Weinbrenner, Ambassador, Comfit, Mocassino, Wind India,
etc) over two
years.
The management will monitor the performance of its franchisee model and
scale it up gradually.
Exhibit 1: BATA’s e-commerce platform
Source: Company, MOSL
10 December 2014
2

Bata India
Valuation and view
n
n
n
n
We downgrade our EPS estimates by 12% for FY16 and 9% for FY17 to reflect
near-term weakness in demand.
We believe BATA’s investments in new sales channels – franchisee model in tier-
2/3 cities and launch of e-commerce model are steps in the right direction.
With a massive restructuring exercise, BATA has evolved from being a low
growth, loss-making company to one that can boast on all key parameters –
growth, profitability and cash generation.
We believe its three-year average P/E multiple of 31x rightly reflects BATA’s
strong consumer franchise and growth potential. We value the stock at
INR1,500 (30x FY17E EPS of INR50.3). Maintain
Buy.
Exhibit 3: BATA’s 3-year P/E band
40
32.8
24.7
35
30
25
20
PE (x)
Median(x)
Peak(x)
Min(x)
Avg(x)
Exhibit 2: BATA’s long period P/E band
60
45
30
15
0
Negative
Earnings
Cycle
P/E (x)
15 Yrs Avg(x)
26.1
23.6
Source: Company, MOSL
Source: Company, MOSL
Exhibit 4: Massive turnaround drives higher margins
EBITDA Margins (%)
15 15 16 15 15 17
Exhibit 5: Significant improvement in RoE
RoE (%)
54
25
18 22 21
27 26 27 23 25
6
3
(1)
(6)
7
9
12 13
4
12
(9) (27)
Source: Company, MOSL
Source: Company, MOSL
Exhibit 6: Growing free cash generation
Free cash generation (INR m)
Exhibit 7: Significant cash accretion on books
Net cash on books as a proportion of capital employed (%)
Source: Company, MOSL
10 December 2014
Source: Company, MOSL
3

Bata India
3QFY15 results below expectations
n
n
n
n
Revenue grew 13.1% to INR5.5b, in line with our estimate, primarily driven by
spillover of sales from 2Q due to delay in rainfall.
Same store sales (SSS) grew 7% and balance growth was driven by new store
openings.
EBITDA margin declined 150bp to 11.6%, primarily due to higher employee cost
(strong hiring across segments like e-commerce, marketing and retail) and
higher rent outgo (70-80 store additions).
PAT grew 4% to INR390m, lower than our estimate of INR498m.
(INR Million)
FY15E
Var
3QE
(%)
5,450
0.5%
12.5
4,660
790
-19.5%
14.5
(2.9)
160
2
110
738
0
738
240
32.5
498
498
-21.7%
32.6
9.1
E: MOSL Estimates
Exhibit 8:
Consolidated quarterly performance
(INR m)
1Q
Net Sales
4,538
YoY Change (%)
11.8
Total Expenditure
3,910
EBITDA
628
Margins (%)
13.8
Depreciation
131
Interest
2
Other Income
69
PBT before EO expense
564
Extra-Ord expense
0
PBT
564
Tax
180
Rate (%)
32.0
Reported PAT
384
Adj PAT
384
YoY Change (%)
6.6
Margins (%)
8.5
*15 months year ended for 2015E
CY13
2Q
3Q
5,725 4,844
13.6
14.3
4,764 4,212
961
633
16.8
13.1
141
156
2
2
78
89
895
563
0
0
895
563
276
187
30.8
33.2
619
376
619
376
17.6
17.3
10.8
7.8
4Q
5,544
8.9
4,547
997
18.0
164
6
78
905
107
798
276
34.6
522
591
16.2
10.7
1Q
4,954
9.2
4,297
657
13.3
136
3
74
592
0
592
198
33.5
394
394
2.6
7.9
FY15E
2Q
3Q
6,221 5,480
8.7
13.1
5,246 4,844
975
636
15.7
11.6
154
155
3
3
85
106
903
584
17
0
886
584
289
194
32.6
33.2
597
390
608
390
-1.8
3.8
9.8
7.1
FY15E
4QE
6,098
10.0
5,031
1,067
17.5
165
2
120
1,020
0
1,020
316
31.0
704
704
19.0
11.5
5QE
5,449
10.0
4,714
736
13.5
140
2
80
674
0
674
222
33.0
451
451
14.6
8.3
28,188
na
24,101
4,087
14.5
744
10
457
3,789
17
3,789
1,226
32.4
2,563
2,563
na
9.1
Exhibit 9: Sales growth trend
27.6
21.2
16.5
13.8
29.9
Sales (In m)
18.0
11.8
Gr. (%)
23.5
20.6
13.6 14.3
8.9
9.2
13.1
8.7
Source: Company, MOSL
10 December 2014
4

Bata India
Exhibit 10: Gross margin trend
Gross margins (%)
55.5
56.3
54.0
53.2
50.4
51.2
53.8
53.353.5
54.1
54.0
51.9
54.4
54.2
52.1
426 690 531 718 598 831 510 805 628 961 633 997 657 975 636
Exhibit 11: EBITDA margin trend (INR m)
EBITDA
16.6
16.5
16.0 14.2
14.7
12.0
13.6
EBITDA margins (%)
18.0
16.8
15.7
15.8 13.8
13.3
13.1
11.6
Source: Company, MOSL
Source: Company, MOSL
Exhibit 12: Employee cost as a % of sales (INR m)
Employee cost
14.6
11.1 11.9 11.1 11.9 9.7 11.3 10.0 11.4
% of sales
11.4
11.6
11.9
Exhibit 13: Rent cost as a % of sales
Rent (INR mn)
10.4 9.0
11.4 10.7
13.2 11.6
13.4
% of sales
13.5
13.1 13.6 14.0
11.7
10.9
9.4
9.4
9.9
9.9 8.5
457 479 444 479 482 489 480 509 517 540 552 524 577 614 653
310 368 389 386 463 538 560 592 608 622 635 755 692 725 741
Source: Company, MOSL
Source: Company, MOSL
Exhibit 14: PAT trend (%)
46.8
58.2
31.0
-67.1
360
410
304
451
527
320
509
384
619
376
591
394
608
390
PAT (INR m)
28.4
5.3
13.0
YoY growth
17.6
17.3
16.2
6.6
2.6
-1.8
3.8
Source: Company, MOSL
10 December 2014
5

Bata India
Story in charts
Exhibit 15: Revenue per store on an increasing trend
Retail revenues (INR m)
Revenue per store (INR m)
10.2
7.8
5.3
6.1
8.6
11.3
12.5
Exhibit 16: Revenue mix from women and kids to increase (%)
Accessories
and
others, 10
Kids, 10
Mens, 45
Womens 35
6,164
CY07
7,138
CY08
9,020
CY09
10,400
CY10
12,860
CY11
15,660
CY12
17,761
CY13
Source: Company, MOSL
Source: Company, MOSL
Exhibit 17: Segment-wise realizations (INR)
Leather
Rubber
444
Plastic
590
637
691
Exhibit 18: Employee cost as a percentage of sales to
decline further (INR m)
25.6 24.0
Sales
21.1
17.6
15.5 14.1
12.1
10.610.3 10.8
% of sales
500 541
363 355 382 377
318
157 166 175 185
108 116 138 148
91 100 100
103 119 124 138 153 186 218 229 243 255 274
10.3
10.0
Source: Company, MOSL
Source: Company, MOSL
Exhibit 19: Outsourcing v/s in-house production (%)
80.0%
60.0%
40.0%
20.0%
0.0%
Outsourced
Own production
Exhibit 20: Majority
unorganized
of
the
footwear
market
is
still
Organised,
40%
Unorganise
d, 60%
Source: Company, MOSL
Source: Company, MOSL
10 December 2014
6

Bata India
Financials and valuations
Income statement
Net Sales
Change (%)
EBITDA
EBITDA Margin (%)
Depreciation
EBIT
Interest
Other Income
Extraordinary items
PBT
Tax
Tax Rate (%)
Reported PAT
Adjusted PAT
Change (%)
*15 months year ended for 2015E
Year End Dec
2011
2012
15,422
18,425
22.5
19.5
2,382
2,750
15.4
14.9
412
1,969
103
1,654
0
3,520
936
26.6
2,584
2,584
189.2
514
2,236
10
301
0
2,526
805
31.9
1,721
1,721
-33.4
2013
20,652
12.1
3,218
15.6
592
2,627
13
315
101
2,828
919
32.5
1,909
1,977
14.9
(INR Million)
Year End March
2015E
2016E
2017E
28,188
26,490
30,480
N.A.
N.A.
15.1
4,087
4,095
5,041
14.5
15.5
16.5
744
3,343
10
457
17
3,772
1,226
32.5
2,546
2,558
N.A.
671
3,425
8
411
0
3,827
1,244
32.5
2,583
2,583
N.A.
736
4,305
7
493
0
4,792
1,557
32.5
3,234
3,234
25.2
Balance sheet
Share Capital
Reserves
Net Worth
Debt
Total Capital Employed
Gross Fixed Assets
Less: Acc Depreciation
Net Fixed Assets
Capital WIP
Current Assets
Inventory
Debtors
Cash & Bank
Loans & Adv, Others
Curr Liabs & Provns
Curr. Liabilities
Provisions
Net Current Assets
Total Assets
*15 months year ended for 2015E
Year End Dec
2011
2012
643
643
5,083
6,348
5,725
6,990
194
0
5,577
6,547
5,028
5,636
2,817
3,202
2,211
2,434
81
181
7,203
8,236
3,913
4,621
314
449
1,240
1,877
1,736
1,289
3,917
4,305
2,588
3,507
1,329
798
3,285
3,931
5,577
6,547
2013
643
7,756
8,399
0
8,399
6,039
3,556
2,483
237
10,419
5,827
509
2,557
1,526
5,421
4,531
891
4,998
8,399
(INR Million)
Year End March
2015E
2016E
643
643
9,632
11,320
10,274
11,963
0
0
10,247
11,963
6,789
7,539
4,300
4,970
2,489
2,568
169
159
12,951
14,278
7,059
6,246
618
581
3,449
5,097
1,825
2,354
6,016
5,723
5,294
4,767
722
956
6,935
8,555
10,379
11,963
2017E
643
13,437
14,079
0
14,079
8,289
5,706
2,582
183
17,237
7,092
668
6,610
2,867
6,604
5,412
1,192
10,633
14,079
E: MOSL Estimates
10 December 2014
7

Bata India
Financials and valuations
Ratios
Year End Dec
2011
2012
Basic (INR)
EPS
Cash EPS
Book Value
DPS
Payout (incl. Div. Tax.)
Valuation(x)
P/E
Cash P/E
Price / Book Value
EV/Sales
EV/EBITDA
Dividend Yield (%)
Profitability Ratios (%)
RoE
RoCE
Turnover Ratios (%)
Fixed Asset Turnover (x)
Inventory (No. of Days)
*15 months year ended for 2015E
40.2
46.6
89.1
6.0
17.3
31.8
27.4
14.3
5.3
34.0
0.5
53.5
68.3
26.8
34.8
108.8
6.0
26.0
47.7
36.7
11.7
4.4
29.2
0.5
27.1
39.3
2013
30.8
40.0
130.7
6.5
25.8
41.5
32.0
9.8
3.9
24.7
0.5
25.7
38.2
Year End March
2015E
2016E
2017E
39.8
51.4
159.9
9.0
26.3
N.A.
N.A.
N.A.
N.A.
N.A.
0.7
N.A.
N.A.
40.2
50.6
186.2
12.0
34.6
N.A.
N.A.
N.A.
N.A.
N.A.
0.9
N.A.
N.A.
50.3
61.8
219.1
15.0
34.6
25.4
20.7
5.8
2.5
15.0
1.2
24.8
36.9
3.1
92.6
3.3
91.5
3.4
103.0
4.2
91.4
3.5
86.1
3.7
84.9
Cash flow statement
OP/(Loss) before Tax
Depreciation
Interest
Direct Taxes Paid
(Inc)/Dec in Wkg Cap
Extraordinary items (net)
CF from Op. Activity
(Inc)/Dec in FA & CWIP
(Pur)/Sale of Invt
Others
CF from Inv. Activity
Inc / (Dec) in Debt
Interest Paid
Divd Paid (incl Tax)
CF from Fin. Activity
Inc/(Dec) in Cash
Add: Opening Balance
Closing Balance
*15 months year ended for 2015E
Year End Dec
2011
2012
3,525
2,526
412
514
16
10
-908
-788
-1,421
-441
-1,427
23
197
1,845
-764
-833
200
-540
615
91
51
-1,282
35
0
-14
-10
-256
-446
-398
75
-149
637
1,389
1,240
1,239
1,877
2013
2,829
591
13
-1,106
-609
107
1,824
-787
-515
120
-1,182
0
-13
-449
38
680
1,877
2,557
(INR Million)
Year End March
2015E
2016E
3,772
3,827
744
671
10
8
-1,226
-1,244
-1,045
28
0
0
2,255
3,290
-682
-740
0
0
0
0
-682
-740
0
0
-10
-8
-671
-895
-681
-903
892
1,648
2,557
3,449
3,449
5,097
2017E
4,792
736
7
-1,557
-565
0
3,412
-774
0
0
-774
0
-7
-1,118
-1,125
1,513
5,097
6,610
E: MOSL Estimates
10 December 2014
8

Bata India
NOTES
10 December 2014
9

Disclosures
Bata India
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