20 February 2015
Update | Sector: Consumer
Bata India
BSE Sensex
29,231
S&P CNX
8,834
CMP: INR1,299
TP: INR1,430 (+10%)
Buy
Near term weakness; structurally on the right track
Stock Info
Bloomberg
Equity Shares (m)
M.Cap. (INR b) / (USD b)
52-Week Range (INR)
1, 6, 12 Rel. Per (%)
Avg Val (INRm)/Vol ‘000
Free float (%)
Supply chain issues impacted growth during the quarter
BATA IN
64.3
83.5/1.3
1,495/998
-11/-6/-15
215/175
47.0
Financial Snapshot (INR Billion)
Y/E March 2015E 2016E 2017E
Sales
27.3 25.6 29.9
EBITDA
NP
EPS (INR)
EPS Gr. (%)
BV/Sh.(INR)
RoE (%)
RoCE (%)
Payout (%)
Valuations
P/E (x)
P/BV (x)
EV/EBITDA (x)
Div. Yield (%)
38.1
8.4
22.7
0.7
34.6
7.3
20.5
0.9
27.3
6.2
16.2
1.2
3.5
2.2
34.1
10.9
23.9
35.6
30.8
3.8
2.4
37.6
10.2
22.6
33.6
37.0
4.8
3.1
47.7
26.9
24.7
36.7
36.5
154.2 177.8 208.1
We recently interacted with Mr Ranjit Mathur, BATA’s CFO. The key takeaways are:
n
Revenue during 4QCY14 declined 3% led by issues faced with implementation of
SAP during the quarter and its integration with POSS (Bata’s proprietary
software). This impacted physical movement of goods from factories to stores.
n
Thus, even as October saw the revenue grow by 12%, sales nosedived during
November and December, impacted by supply issues across stores.
n
Margins during the quarter declined 600bp impacted by operating leverage, and a
100bp decline in gross margin due to lower leather shoes sales during 4Q.
n
Our channel checks suggest January has begun on a relatively stronger note, with
sales in stores we spoke to witnessing an average growth of ~8%. However,
supply chain issues continue to persist, which would be resolved by March 2015.
n
BATA soft launched its loyalty program during the quarter and plans to
implement it on a pan India basis in FY16. Similarly, it is an advanced stage to
launch its e-commerce mobile application, which is targeted in March 2015.
n
We believe BATA is structurally on the right track and will be a significant
beneficiary of a revival in discretionary demand. Maintain Buy with a target price
of INR1,430.
Supply chain issues impacted growth during the quarter:
BATA reported
overall revenue of INR5.3b (est. INR6.1b) marking a YoY de-growth of 3.1%.
During the quarter, BATA implemented SAP and due to problems faced with its
integration with POSS (BATA’s proprietary software), supply of goods to stores
was impacted. Thus, even as October saw the revenue grow by 12%, sales
nosedived during November and December, impacted by supply issues across
stores. EBITDA margin declined by 650bp from 18% in 4QCY13 to 11.4% in
4QCY14 (est. 17.7%), as the impact of operating leverage was felt on margins
(employee cost up by 250bp, rental costs up by 130bp, other expenses up by
180bp). Hence, PAT de-grew from INR591m in 4QCY13 to INR349m in 4QCY14
(est. INR712m), marking a de-growth of 40.9% YoY. BATA opened more than 50
new stores on net basis during the quarter, thus taking the total stores to 1,450.
*15 months year ended for 2015E
Demand revival on cards in FY16:
Our channel checks suggest January has
begun on a relatively stronger note, with sales in stores we spoke to witnessing
an average growth of ~8%. However, supply chain issues continue to persist.
BATA has hired external consultants to correct the problems faced with supply
chain and expects a resolution by March 2015. Company soft launched its
loyalty program during the quarter and plans to implement it on a pan India
basis in FY16. Similarly, it is an advanced stage to launch it e-commerce mobile
application, which is targeted in March 2015.
Valuation and view:
We lower the EPS estimates by 14%/7%/5% for
FY15E/16E/17E to reflect near-term issues with supply. With a massive
restructuring exercise, BATA has evolved from being a low growth, loss-making
company to one that can deliver on all key parameters – growth, profitability
and cash generation. We believe its three-year average P/E multiple of 31x
rightly reflects strong consumer franchise and growth potential. We value the
stock at INR1,430 (30x FY17E EPS of INR47.7). Maintain
Buy.
Niket Shah
(Niket.Shah@MotilalOswal.com); +91 22 3982 5426
Niket Shah
(Niket.Shah@MotilalOswal.com); +91 22 3982 5426
Atul Mehra
(Atul.Mehra@MotilalOswal.com); +91 22 3982 5417
Atul Mehra
(Atul.Mehra@MotilalOswal.com); +91
the Research Report.
Investors are advised to refer through disclosures made at the end of
22 3982 5417
Motilal Oswal research is available on
www.motilaloswal.com/Institutional-Equities,
Bloomberg, Thomson Reuters, Factset and S&P Capital.

Bata India
Supply chain issues impacted growth during the quarter
n
n
n
n
n
n
BATA reported overall revenue of INR5.3b (est. INR6.1b) as against INR5.5b in
4QCY13 marking a YoY de-growth of 3.1%.
Management indicated that Q4 performance has been affected by teething
problems relating to introduction of new supply chain IT systems.
During the quarter, BATA implemented SAP and due problems faced with its
integration with POSS (Bata’s proprietary software); supply of goods to stores
was impacted.
Thus, even as October saw revenues grow by 12%, sales nose-dived during the
months of November and December, impacted by supply issues across stores.
EBITDA margins declined by 650bps from 18% in 4QCY13 to 11.4% in 3QFY15
(est. 17.7%) impact of operating leverage was felt on margins (employee cost up
by 250bps, rental costs up by 130bps, other expenses up by 180bps).
Consequently PAT de-grew from INR591m in 4QCY13 to INR349m in 3QFY15
(est. INR712m) marking de-growth of 40.9% YoY. BATA opened more than 50
new stores on net basis during the quarter, taking total stores to 1450.
(INR Million)
FY15E
Var
4QE
(%)
6,082 -11.7%
9.7
5,003
1,078 -43.0%
17.7
(6.3)
165
2
120
1,031
0
1,031
320
31.0
712
712 -50.9%
20.3
11.7
E: MOSL Estimates
Exhibit 1:
Consolidated quarterly performance
Y/E December (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
2Q
4,954 6,221
9.2
8.7
4,297 5,246
657
975
13.3 15.7
136
154
3
3
74
85
592
903
0
17
592
886
198
289
33.5 32.6
394
597
394
608
2.6
-1.8
7.9
9.8
CY14*
3Q
4Q 5QE*
5,480 5,372 5,301
13.1
-3.1
7.0
4,844 4,758 4,581
636
614
720
11.6 11.4 13.6
155
185
140
3
6
6
106
75
80
584
499
655
0
0
0
584
499
655
194
149
216
33.2 29.9 33.0
390
349
439
390
349
439
3.8 -40.9 11.4
7.1
6.5
8.3
CY13
20,652
NM
17,433
3,218
15.6
592
13
315
2,928
107
2,821
919
32.6
1,903
1,975
NM
9.6
FY15E
27,266
NM
23,721
3,545
13.0
744
10
457
3,247
0
3,247
1,050
32.3
2,197
2,197
NM
8.1
Exhibit 2: Sales growth trend
Sales (In m)
29.9
23.5 27.6 21.2
20.6
Gr. (%)
16.5 13.8 18.0
11.8 13.6 14.3 8.9
9.2
8.7
13.1
-3.1
Source: Company, MOSL
20 February 2015
2

Bata India
Exhibit 3: Gross margin trend
Gross margins (%)
55.5
56.3
54.0
53.2
50.4
51.2
53.8
53.3
53.5
51.9
52.1
54.1
54.0
54.4
54.2
55.4
16.0
13.6
16.6
14.2
Exhibit 4: EBITDA margin trend (INR m)
EBITDA
16.5
14.7
15.8
EBITDA margins (%)
16.8
18.0
15.7
11.611.4
12.0
13.8
13.1
13.3
426 690 531 718 598 831 510 805 628 961 633 997 657 975 636 614
Source: Company, MOSL
Source: Company, MOSL
Exhibit 5: Employee cost as a % of sales (INR m)
Employee cost
14.6
11.9
11.9
9.7
11.3
11.4
9.4
% of sales
11.4
9.4
11.6
9.9
11.911.9
Exhibit 6: Rent cost as a % of sales
Rent (INR m)
13.4
% of sales
14.0
14.9
13.5
11.1
11.1
10.0
457 479 444 479 482 489 480 509 517 540 552 524 577 614 653 641
11.7
10.7
9.0
8.5
310 368 389 386 463 538 560 592 608 622 635 755 692 725 741 801
11.6
10.9
9.9
10.4
11.4
13.2
13.1
13.6
Source: Company, MOSL
Source: Company, MOSL
Exhibit 7: PAT trend (%)
PAT (INR m)
58.2
46.8
31.0
-67.1
360
410
304
451
527
320
509
384
619
376
591
394
608
390
28.4
5.3
13.0
6.6
YoY growth
17.6 17.3 16.2
2.6
-1.8
3.8
-40.9
349
Source: Company, MOSL
Demand revival on cards in FY16
n
n
n
Our channel checks suggest January has begun on a relatively stronger note,
with sales in stores we spoke to witnessing an average growth of ~8%.
However, supply chain issues continue to persist, which would be resolved by
March, 2015. BATA soft-launched its loyalty program during the quarter, and
plans to implement it on a pan-India basis in FY16.
Similarly, it is an advanced stage to launch it e-commerce application which is
targeted for launch in March, 2015.
20 February 2015
3

Bata India
Valuation and view
n
n
n
n
We lower the EPS estimates by 14%/7%/5% for FY15E/16E/17E to reflect near-
term issues with supply.
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
INR1,430 (30x FY17E EPS of INR47.7). Maintain
Buy.
Exhibit 9: BATA’s 3-year P/E band
9.5
8.0
34.8
P/B (x)
15 Yrs Avg(x)
Exhibit 8: BATA’s long period P/E band
60
45
30
15
0
Negative
Earnings
Cycle
26.3
P/E (x)
15 Yrs Avg(x)
7.5
6.5
5.0
3.5
2.0
0.5
3.6
Source: Company, MOSL
Source: Company, MOSL
Exhibit 10: Massive turnaround drives higher margins
EBITDA Margins (%)
15 15 16
15 16
Exhibit 11: Significant improvement in RoE
RoE (%)
54
25
18 22 21
27 26 24 23 25
6
3
(1)
(6)
7
9
12 13
13
4
12
(9) (27)
Source: Company, MOSL
Source: Company, MOSL
Exhibit 12: Growing free cash generation
Free cash generation (INR m)
Exhibit 13: Significant cash accretion on books
Net cash on books as a proportion of capital employed (%)
Source: Company, MOSL
20 February 2015
Source: Company, MOSL
4

Bata India
Story in charts
Exhibit 14: 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 15: 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 16: Segment-wise realizations (INR)
Leather
Rubber
444
Plastic
595
643
698
Exhibit 17: Employee cost to decline further (INR m)
Sales (INR m)
25.6 24.0
21.1
% of sales
500 541
318
363 355 382 377
17.6
15.5 14.1
185
138 148 157 166 175
91 100 100 108 116
103 119 124 138 153 186 218 229 243 255 274
12.1
10.6 10.3 11.5
10.8
10.7
Source: Company, MOSL
Source: Company, MOSL
Exhibit 18: Outsourcing v/s in-house production (%)
80.0%
60.0%
40.0%
20.0%
0.0%
Outsourced
Own production
Exhibit 19: Majority of footwear market is still unorganized
Organised,
40%
Unorganise
d, 60%
Source: Company, MOSL
Source: Company, MOSL
20 February 2015
5

Bata India
Financials and valuations
Income Statement (Consolidated)
Y/E December
Net Sales
Change (%)
Total Expenditure
EBITDA
Margin (%)
Depreciation
EBIT
Int. and Finance Charges
Other Income - Rec.
PBT bef. EO Exp.
EO Expense/(Income)
PBT after EO Exp.
Current Tax
Deferred Tax
Tax Rate (%)
Reported PAT
PAT Adj for EO items
Change (%)
Margin (%)
CY09
10,924
10.6
9,618
1,306
12.0
283
1,023
97
93
1,019
61
957
398
-66
34.6
626
666
8.1
6.1
CY10
12,588
15.2
10,945
1,642
13.0
332
1,310
77
142
1,376
15
1,361
547
-70
35.1
884
894
34.2
7.1
CY11
15,422
22.5
13,040
2,382
15.4
412
1,969
103
1,654
3,520
0
3,520
967
-31
26.6
2,584
2,584
189.2
16.8
CY12
18,425
19.5
15,675
2,750
14.9
514
2,236
10
301
2,526
0
2,526
907
-101
31.9
1,721
1,721
-33.4
9.3
CY13
20,652
12.1
17,433
3,218
15.6
592
2,627
13
315
2,928
101
2,828
1,156
-237
32.5
1,909
1,977
14.9
9.6
FY15E
27,266
32.0
23,721
3,545
13.0
744
2,801
10
457
3,247
17
3,230
1,050
0
32.5
2,180
2,192
10.9
8.0
FY16E
25,642
-6.0
21,796
3,846
15.0
671
3,176
8
411
3,578
0
3,578
1,163
0
32.5
2,415
2,415
10.2
9.4
(INR Million)
FY17E
29,914
16.7
25,125
4,789
16.0
736
4,053
7
493
4,540
0
4,540
1,475
0
32.5
3,064
3,064
26.9
10.2
Balance Sheet (Consolidated)
Y/E December
Equity Share Capital
Total Reserves
Net Worth
Total Loans
Capital Employed
Gross Block
Less: Accum. Deprn.
Net Fixed Assets
Capital WIP
Total Investments
CY09
643
2,716
3,358
300
3,659
3,793
2,454
1,340
33
169
CY10
643
3,285
3,928
762
4,690
4,232
2,659
1,573
3
124
7,218
4,069
306
1,389
1,455
4,540
3,308
1,233
2,678
4,690
CY11
643
5,083
5,725
194
5,919
5,028
2,817
2,211
81
0
7,203
3,913
314
1,240
1,736
3,917
2,588
1,329
3,285
5,919
CY12
643
6,348
6,990
0
6,990
5,636
3,202
2,434
181
0
8,236
4,621
449
1,877
1,289
4,305
3,507
798
3,931
6,990
CY13
643
7,756
8,399
0
8,399
6,039
3,556
2,483
237
0
10,419
5,827
509
2,557
1,526
5,421
4,531
891
4,998
8,399
FY15E
643
9,265
9,908
0
9,908
6,789
4,300
2,489
164
0
12,451
6,873
598
3,155
1,825
5,876
5,154
722
6,574
9,908
FY16E
643
10,786
11,429
0
11,429
7,539
4,970
2,568
154
0
13,616
6,073
562
4,627
2,354
5,591
4,635
956
8,026
11,429
(INR Million)
FY17E
643
12,732
13,375
0
13,375
8,289
5,706
2,582
179
0
16,495
7,038
656
5,934
2,867
6,563
5,371
1,192
9,932
13,375
Curr. Assets, Loans&Adv.
5,136
Inventory
3,468
Account Receivables
254
Cash and Bank Balance
573
Loans and Advances
841
Curr. Liability & Prov.
3,276
Account Payables
2,416
Provisions
860
Net Current Assets
1,860
Appl. of Funds
3,659
E: MOSL Estimates; *15 months year ended for 2015E
20 February 2015
6

Bata India
Financials and valuations
Ratios
Y/E December
Basic (INR)
EPS
Cash EPS
BV/Share
DPS
Payout (%)
Valuation (x)
P/E
Cash P/E
P/BV
EV/Sales
EV/EBITDA
Dividend Yield (%)
Return Ratios (%)
RoE
RoCE
Working Capital Ratios
Accumulated Dep/Gross Block (x)
Fixed Asset Turnover (x)
Inventory (Days)
Leverage Ratio (x)
Current Ratio
Interest Cover Ratio
Debt/Equity
CY09
10.4
14.8
52.3
3.0
36.0
125.4
87.9
24.9
7.6
63.7
0.2
21.0
31.5
1
3
115.9
1.6
11
0.1
CY10
13.9
19.1
61.1
4.0
33.8
93.4
68.1
21.3
6.6
50.4
0.3
24.5
34.8
1
3
118.0
1.6
17
0.2
CY11
40.2
46.6
89.1
6.0
17.3
32.3
27.9
14.6
5.3
34.6
0.5
53.5
68.3
1
3
92.6
1.8
19
0.0
CY12
26.8
34.8
108.8
6.0
26.0
48.5
37.4
11.9
4.4
29.7
0.5
27.1
39.3
1
3
91.5
1.9
217
0.0
CY13
30.8
40.0
130.7
6.5
25.8
42.2
32.5
9.9
3.9
25.1
0.5
25.7
38.2
0.6
3.4
103.0
1.9
202
0.0
FY15E
34.1
45.7
154.2
9.0
30.8
38.1
28.4
8.4
2.9
22.7
0.7
23.9
35.6
0.6
4.0
92.0
2.1
269
0.0
FY16E
37.6
48.0
177.8
12.0
37.0
34.6
27.1
7.3
3.1
20.5
0.9
22.6
33.6
0.7
3.4
86.5
2.4
382
0.0
FY17E
47.7
59.1
208.1
15.0
36.5
27.2
22.0
6.2
2.6
16.2
1.2
24.7
36.7
0.7
3.6
85.9
2.5
609
0.0
Cash Flow Statement (Consolidated)
Y/E December
NP/(Loss) before Tax & EO Items
Depreciation
Interest & Finance Charges
Direct Taxes Paid
(Inc)/Dec in WC
CF from Operations
EO Expense
CF from Operating incl EO
(inc)/dec in FA
Free Cash Flow
(Pur)/Sale of Investments
Others
CF from Investments
Interest Paid
Dividend Paid
Others
CF from Fin. Activity
Inc/Dec of Cash
Add: Beginning Balance
Closing Balance
E: MOSL Estimates
CY09
957
283
41
-345
-93
844
159
1,003
-437
566
-169
22
-583
-44
-160
-66
-220
199
374
573
CY10
1,361
332
8
-856
-335
510
79
588
-580
8
-771
499
-852
-7
-192
704
1,079
816
573
1,389
CY11
3,525
412
16
-908
-1,421
1,624
-1,427
197
-764
-567
200
615
51
-14
-256
-163
-398
-149
1,389
1,239
CY12
2,526
514
10
-788
-441
1,822
23
1,845
-833
1,012
-540
91
-1,282
-10
-446
531
75
637
1,240
1,877
CY13
2,829
591
13
-1,106
-609
1,717
107
1,824
-787
1,037
-515
120
-1,182
-13
-449
500
38
680
1,877
2,557
FY15E
3,230
744
10
-1,050
-979
1,956
0
1,956
-677
1,279
0
0
-677
-10
-671
0
-681
598
2,557
3,155
FY16E
3,578
671
8
-1,163
21
3,115
0
3,115
-740
2,375
0
0
-740
-8
-895
0
-903
1,472
3,155
4,627
(INR Million)
FY17E
4,540
736
7
-1,475
-599
3,207
0
3,207
-776
2,432
0
0
-776
-7
-1,118
0
-1,125
1,307
4,627
5,934
20 February 2015
7

Bata India
Corporate profile: Bata India
Company description
Backed by eight decades of operations, Bata enjoys
strong brand equity in India and is the market
leader with ~16% share in the organized footwear
segment. It has a strong distribution network of
1,418 stores comprising of 250 MEP stores (Market
Extension Programme), 450 K Stores, 31 exclusive
Hush Puppies, 28 SIS stores, 10 exclusive Footin
stores and balance being company-owned stores. It
also serves the non-retail segment (institutional
and defense through its urban wholesale division
with 180 large distributors and 30,000 direct
dealers spread across India.
Exhibit 20: Sensex rebased
Exhibit 21: Shareholding pattern (%)
Dec-14
Promoter
DII
FII
Others
53.0
9.9
20.0
17.2
Sep-14
53.0
9.2
20.6
17.2
Dec-13
53.0
10.8
18.8
17.4
Exhibit 22: Top holders
Holder Name
Fil Investments (Mauritius) Ltd
IDFC Premier Equity Fund
Fast Emerging Markets Fund
Morgan Stanley Asia (Singapore) PTE
% Holding
2.5
2.5
1.4
1.1
Note: FII Includes depository receipts
Exhibit 23: Top management
Name
Uday Khanna
Kumar Nitesh
Rajeev Gopalakrishnan
Designation
Chairman
Managing Director
Managing Director & CEO
Exhibit 24: Directors
Name
Uday Khanna*
Kumar Nitesh
Rajeev Gopalakrishnan
Akshay Chudasama*
Name
Jorge Carbajal
Jack G N Clemos
Ranjit Mathur
Anjali Bansal*
*Independent
Exhibit 25: Auditors
Name
S R Batliboi & Co LLP
Mani & Co
Type
Statutory
Cost Auditor
Exhibit 26: MOSL forecast v/s consensus
EPS
(INR)
FY15
FY16
FY17
MOSL
forecast
34.1
37.6
47.7
Consensus
forecast
38.3
41.1
52.0
Variation
(%)
-10.9
-8.4
-8.2
20 February 2015
8

Bata India
NOTES
20 February 2015
9

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