Bata - MoST.txt

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Initiating Coverage | 3 June 2013Sector: Consumer


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Bata India

Bata India: All the right steps

Page No.

Summary ........................................................................................................ 3-4Story in charts.................................................................................................... 5A foreign brand's success story in India ........................................................... 6Massive restructuring - Bata's recipe for success ........................................ 7-8Post restructuring, focus on aggressive growth ........................................ 9-10Strong retail presence set to strengthen further .................................... 11-12Outsourcing, K Stores expansion to check employee cost ..................... 13-16Gross margin expansion on the cards ...................................................... 17-19

Strong brand, to scale up with focused branding ................................... 20-21Indian footwear industry .......................................................................... 22-24Global footwear industry .......................................................................... 25-26Financial outlook ....................................................................................... 27-28Valuation and view .......................................................................................... 29Key risks ............................................................................................................ 30Management details .............................................................

........................... 31Financials and valuation .......................................................

.................... 32-33

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3 June 2013Update | Sector: Consumer

Bata India

BSE SENSEX S&P CNX

19,610 5,939 CMP: INR811 TP:INR975Buy

Bloomberg BATA IN

Equity Shares (m) 64.3

M.Cap. (INR b)/(USD b) 52.1/0.9

52-Week Range (INR) 989/688

1,6,12 Rel. Perf. (%) 5/-13/-29

Financial summary (INR b)

Y/E December 2013E 2014E 2015E

Sales 21.1 25.0 29.6

EBITDA 3.1 3.8 4.7

NP 2.0 2.5 3.2

EPS (INR) 30.7 39.0 49.2EPS Gr. (%) 14.8 26.8 26.2BV/Sh.(INR) 131.4 161.1 199.8EV/Sales (x) 2.3 1.9 1.5

RoE (%) 25.6 26.7 27.3RoCE (%) 37.8 39.3 40.1

Valuation

P/E (x) 26.4 20.8 16.5P/BV (x) 6.2 5.0 4.1

EV/EBITDA (x) 15.9 12.5 9.8Divid. Yield (%) 0.9 1.0 1.1

Shareholding pattern (%)

As on Mar-13 Dec-12 Mar-12

Promoter 52.01 52.01 52.01

Dom. Inst 10.24 10.19 14.02

Foreign 20.2 20.43 17.12Others 17.56 17.37 16.85


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Stock performance (1 year)

All the right steps

Expect strong earnings and growth visibility

.....Restructuring leads to sales CAGR of 14.7% over CY05-12, with EBITDA and PAT growthof 47.6% and 51.6%......Focus on aggressive growth by expanding presence in Tier II, III cities andrural India......Outsourcing, K Stores expansion to contain employee cost; Margins set to increase......Bata India (BATAIN) trades at a PE of 26.4x/20.8x/16.5x CY13E/14E/15E EPS.We valuethe stock at 25x CY14E EPS and arrive at a target price of INR975, with a Buy rating.

Strong brand + aggressive store expansion to drive market share

Backed by eight decades of operation, Bata enjoys strong brand equity in Indiaand is the market leader with ~16% share in the organized footwear segment. Ithas a strong distribution network of 1,388 stores comprising of 250 MEP stores(Market Extension Programme), 450 K Stores, 31 exclusive Hush Puppies, 28 SISstores, 10 exclusive Footin stores and balance being company-owned stores. Italso serves the non-retail segment (institutional and defence through its urbanwholesale division with 180 large distributors and 30,000 direct dealers spreadacross India. It plans to open 100 new large format stores (3,000 sq ft) every yearover the next two years (75% to be K stores), which include adding 15-20 exclusive

Hush Puppies stores and 10-15 Footin stores which will drive growth and marketshare gain.

Focus on retail segment - the right strategy going forward

Bata derives ~85% of revenue through retail networks, 14.2% from non-retailchannels (dealers/institutional/industrial sales) and balance 0.8% throughexports. Over the last six years, retail segment posted 20% CAGR, exports 5.6%and the wholesale business growing at 2.2% over CY06-12. Company realizes 40%of revenue from South India and the North, East and Western regions contribute20% each. About 80-90% of the retail revenue is from Tier I and II cities, presentinga huge opportunity to tap rural and semi-urban markets, which are mainly service

dthrough dealer networks. Bata has been present in towns with a population of500,000 and above and plans to expand to 400 plus cities, with a population ofmore than 100,000, to improve presence in Tier III and rural markets through thewholesale division.

Increased contribution from women and child segment to drive growth

To increase the contribution from women and child footwear segments, Bata


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increased the display area for both segments across all stores, complimented bylaunching newer trendy designs under brands like Marie Claire, Hush Puppies,North Star etc. This improved the contribution of high margin women's segmentfrom 25% in CY08 to ~35% in CY12. Also, to increase child segment contributionfrom 8-9% of sales to 12-13% over the next few years, it recently in-licensed theAngry Birds trade mark from Rovio and is selling 10,000 pieces a week.


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Bata India

Premiumization to drive sales per store

Company intends to increase sales per store by improving value mix with a focusonthe high margin leather segment that includes accessories such as ladies bags, caps,belts among others. With parent Bata Shoe Organization (BSO) enjoying 20% marketshare worldwide in the industrial shoes segment, Bata plans to leverage the expertiseand technology in India for industrial and defence shoes. The defence sector requires12m footwear every year, which is supplied by unorganized players, thus providinggreater scope for an organized player like Bata. Company recently got a large orderfrom the Indian Air Force.

Gross margin expansion on the cards

To improve margins, Bata phased out INR69/pair rubber Hawaiians' (a low margin)

and shifted to Sunshine range (INR199-399) with better margins. It increased focuson high value products within the leather segment such as Hush Puppies (growingat40%). Leather contribution is set to increase from 72% of sales in CY12 to 76% goingforward, thereby improving margins. Bata's plans to increase contribution fromaccessories segment (60% gross margin) comprising of belts, ladies bag, wallets,caps from 5% in CY12 to 10% over few years. It launched a programme from FY13 tomodernize three factories (Patna, Batanagar and Bangalore) over FY13-15, with atotal capex of INR500m, and expects to improve gross margin by 500bp.

Massive restructuring places Bata on a strong footing

Bata scripted a successful turnaround story in 2005, post three consecutive years oflosses. Key initiatives were: 1) revamp of retail operations from CY05-12 by opening718 new large format stores, remodeling of 296 stores and closure of 524 cash-drainstores, 2) extended working hours and keeping stores open on Sundays lead to salesimprovement, 3) drastic reduction in employee headcount (9,631 in CY05 to 5,162in

CY12) by providing voluntary retirement and option to move to K Stores format and4) outsourcing labor-intensive operations to prune costs.

Valuation and view

We estimate Bata's revenue would increase by ~17% and net profit by ~22.5% overCY12-15E. It has a strong balance sheet, with cash of INR1.9b and healthy returnratios of 27% RoE and 39% RoCE in CY12. With limited capex of INR2b over the nex


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tthree years, we believe the company will generate free cash flow in excess of INR5.9bover CY13-15E. All these factors make a strong case for re-rating. At CMP of INR811,Bata trades at a PE of 26.4x/20.8x/16.5x CY13E/14E/15E EPS. We value the stock at 25xCY14E EPS and arrive at a target price of INR975, with a Buy rating.

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Bata India

Story in charts All the right steps#1 Realization across segment on uptrend driven byprice increases and change in product mix.

#2 Increase in outsourcing to reduce employee costpercentage sales further.

#3 Incremental demand in leather footwear to bemet through outsourcing.

#4 Increase in rubber segment outsourcing toimprove margins going forward.#5 Focus to improve revenue/store to lead tooperating leverage and better margins.#6 Outsourcing in volume terms expected toincrease further, thereby improving margins.

#1 Segment-wise realizations #2 Employee cost percentage sales to improve further

#3 Outsourcing in leather to continue going forward #4 Outsourcing in rubber andcanvas to increase going forward

#5 Revenue per store on an increasing trend (INR m) #6 Outsourcing v/s inhouse

Source: Company/MOSL

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Bata India

A foreign brand's success story in India

Bata, a 51% subsidiary, is the largest company for BSO for sales pairs and the secondlargest in revenue (15% of BSO revenues).It has cornered ~16% market share in the organized sector and almost 99% of revenue isfrom the domestic market, with exports accounting for the balance.Bata sells 50m pair of shoes every year serving 1.5lac customers everyday.Bata Shoe Organization (BSO) is a large shoemaker that traces its history back to 1894and a Czech cobbler named Tomas Bata. With more than 30,000 employees, 5,000international retail stores and a presence in over 90 countries and five continents.Bata, a 51% subsidiary, is the largest company for BSO for sales pairs and the secondlargest 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 sectorand almost 99% of revenue is from the domestic market, with exports accounting forthe balance. Company receives guidance and managerial support for its functionsincluding purchase, manufacturing and training of managers from BSO for a technicalfee of 1.5% of gross revenue.

Bata India has a retail network of 1,388 stores spread across 500 cities, whichgives ita reach/coverage that no other footwear company can match, and employs morethan 7,000 people. Company also has 16 wholesale depots spread across the countr

y,with more than 30,000 dealers. It sells more than 50m pairs of shoes every yearandalso serves 150,000 customers every day. Bata has the widest footwear retail networkin India, with 40% exposure in South India and 20% each in other three regions.

Company has capacity to manufacture 64m pairs of shoes across five plants located atBatanagar, Faridabad, Bangalore, Patna and Hosur supported by two tanneries forleather supply in Bihar and West Bengal. Although global brands such as Adidas andReebok are trying to catch up with India's young urban population, Bata figures

as thefirst choice for footwear across India for all age groups.

Bata's brands in India

Bata sells a wide range of footwear in canvas, rubber, leather and plastic catering tomasses. Company has licensed brands (Hush Puppies and Dr Scholl, licensedrespectively from Wolverine Worldwide and Dr Scholl's) besides those of its parent


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(Power, Marie Claire and Bubblegummers).

It has also built brands like Weinbrenner, North Star, Bubblegummers, Ambassador,Comfit, Mocassino and Wind India. For the women's segment, Bata's popularitycontinues to grow with the trendy Marie Claire range. The youth focused brand NorthStar and specialty outdoor brand Weinbrenner present new trendy designs with anincreased focus on casual styles. The new dress shoe collection under its famousAmbassador and Mocassino brands has seen significant demand.

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company lost on sales, which led to higher inventory build-up. Hence, it extendedthe shopping hours and augmented its shoe line, including women and children'scollection. These initiatives enabled Bata to revitalize the brand and establishas oneof the largest footwear retail plays in India.

complimented by mega store facelift led to turnaround

During CY05-12, Bata added 718 stores, closed down 524 and remodeled 296, thustaking the total stores count to 1,388 from 1,174 in CY05. Hence, the share of revenuefrom retail segment also increased from 67.3% in CY05 to 85% in CY12. The restructuringhelped it to post sales CAGR of 14.7% over CY05-12, with EBITDA and PAT growth of47.6% and 51.6% respectively.

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Bata India

Revamping operations from CY05-CY09

CY05 CY06 CY07 CY08 CY09 CY10 CY11 CY12No of stores 1,174 1,172 1,173 1,165 1,161 1,209 1,259 1,388New stores 40 37 67 62 69 108 146 189Closed 60 39 66 70 73 60 96 60Remodelled 78 40 38 40 20 30 50

Source: Company, MOSL

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Bata India

Post restructuring, focus on aggressive growth

To expand presence in Tier II, III cities and rural India

Bata has a strong distribution network of 1,388 stores comprising of 250 MEP stores, 450K Schemes, 31 exclusive Hush Puppies, 28 SIS, 10 exclusive Footin and balance beingcompany-owned stores.Over the last three to four years, Bata focused to open large format stores withaninternational layout and size of 3,000 sq ft and close down stores with less than 1,000 sqft area or turnover below INR5m.It plans 100 new large format stores (3,000 sq ft) every year over the next twoyears,which include adding 15-20 exclusive Hush Puppies and 10-15 Footin stores. Around 7075%

of new openings will be in K Stores format.Company realizes 40% of its revenue from South India, while the North, East andWesternregions contribute 20% each.Large format stores - mantra for aggressive growth going forward

With the company on a strong footing, we believe management plans to focus onaggressive growth. Over the last three to four years, Bata increased its focus to openlarge format stores with international layout and a size of 3,000 sq ft and alsoclosedown shops with less than 1,000 sq ft area or turnover below INR5m. Over the las

tfour years, it closed smaller shops and relocated to a larger format in the samelocality.We believe the large format stores will help display the shoe line collection acrosssegments and various brands. This not only helps to be a one-stop solution for brandslike Bata, Hush Puppies, Marie Claire, Ambassador, Power etc, but leads to efficientinventory management.

What are K Stores?

K Stores denote commission stores. To encourage entrepreneurship, Bata introducedK Stores two to three years ago. Under this scheme, existing employees are encouragedto become entrepreneurs by enrolling for franchisee operations. Company providessupport for location, retail space, rent, furniture, stocks and promotional materials,while the agent bears all employee costs associated with it. In return, the K Store


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agent gets a commission of 7-8% depending on the turnover, which is much lowerthan the cost of employee for a company-owned store which stands at 10-12%, therebyleading to ~200bp margin improvement. Of the 100 new store additions planned overnext two years, management guided that 70-75% would be K Stores, which shouldhelp to improve margins.

Strong distribution network

Bata has 1,388 stores comprising of 250 MEPs, which is akin to the franchisee modelwhere dealers buy from Bata on cash-and-carry basis and no inventory is owned bythe company, 450 K Stores, 31 exclusive Hush Puppies, 28 SIS, 10 exclusive Footin andthe balance being company-owned stores. It also sells over 15m pair of shoes through16 depots and 150 large distributors, thus catering to more than 30,000 wholesaledealers.

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Bata India

to improve through aggressive store expansions

Company plans to open 100 new stores every year over the next two years, whichinclude adding 15-20 exclusive Hush Puppies and 10-15 Footin stores. Around 70-75%will be under K Stores format. Management guided that all new Bata stores will be inthe large format of 3,000 sq ft, with mapping of high street location to increase marketshare. It also plans to open flagship stores of 1,000 sq ft in major metros andexpandthe concept, store-in-store for Hush Puppies and aggressively add Footin stores(significant success in Thailand) in the affordable fashion category targeted for youth.It will focus on footwear with price points of INR400-1,000 with new inventory everythree to four months, thereby improving asset turnover.

Bata has a 10,000 sq ft store in Ahmedabad and Mumbai and plans to expand, goingforward. These stores have a premium ambience, wide variety of footwear and

accessories and elements like child play area. Company plans to open a 20,000 sqftstore in Mumbai and other metros, going forward. A 20,000 sq ft store in Dhaka(Bangladesh) is delivering annual revenue in excess of USD5m.

To expand presence in Tier II, Tier III cities and rural India

Bata increased brand penetration in smaller markets such as Ahmedabad, Coimbatore,Jaipur, Trichy, Lucknow, Ujjain, Dhanbad, Nagpur, Hubli and Patiala among others. Sofar it was present in towns with a population of 500,000 and above. Company plans to

expand to 400 plus cities with a population of more than 100,000 to improve presencein Tier III and rural markets through the wholesale division. This will not onlyimprovepenetration but also reduce rent cost as Tier II and III markets would have a lowerrent compared to T ier I. Bata plans to penetrate smaller cities and rural marketsthrough its dealer network, which is currently at over 30,000. Company realizes40%of revenue from South India, while North, East and Western regions contribute 20%each.

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Bata India

Strong retail presence set to strengthen further

Non-retail segment, a scalable business model

Bata derives ~85% of its revenue through retail networks, 14.2% from non-retailchannels(dealers/institutional/industrial sales) and the balance through exports.About 80-90% of the retail revenue is from Tier I and II cities, presenting a huge opportunityto tap rural and semi-urban markets, which are mainly serviced through dealer networks.Plan to increase sales per store by improving value mix by focusing more on thehigh-margin leather segment that includes accessories such as ladies bags, caps and beltsamong others.With BSO enjoying 20% market share worldwide in the industrial shoes segment, Ba

taplans to leverage on the expertise and technology in India for industrial and defenceshoes.Strong retail presence - a sustainable growth model

Bata derives ~85% of its revenue through retail networks, 14.2% from non-retailchannels (dealers/institutional/industrial sales) and balance through exports. About80-90% of the retail revenue is generated from Tier I and II cities, presentinga hugeopportunity to tap rural and semi urban markets, which are mainly serviced through

dealer networks. We believe with increased penetration in Tier II and III segments,Bata will be able to grow in excess of 20% over the next three to four years intheretail segment, which contributes 85% to its revenue.

Retail continues to drive growth

Bata CY05 CY06 CY07 CY08 CY09 CY10 CY11 CY12Retail 4,769 5,301 6,164 7,138 9,020 10,400 12,860 15,660Exports 69 108 94 101 78 118 169 150Wholesale 2,245 2,293 2,417 2,631 1,826 2,070 2,393 2,615Total revenues 7,083 7,702 8,675 9,870 10,924 12,588 15,422 18,425

% of salesRetail 67.3 68.8 71.1 72.3 82.6 82.6 83.4 85.0Exports 1.0 1.4 1.1 1.0 0.7 0.9 1.1 0.8Wholesale 31.7 29.8 27.9 26.7 16.7 16.4 15.5 14.2% growthRetail 11.2 16.3 15.8 26.4 15.3 23.7 21.8Exports 56.5 -13.0 7.4 -23.1 51.5 43.9 -11.5Wholesale 2.1 5.4 8.9 -30.6 13.3 15.6 9.3

Source: MOSL


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Focus to increase sales per store to drive top line growth

With plans to open 100 large format stores over CY13-14, the focus is to increaserevenue per store, going forward. Management expects to achieve it by improvingthe value mix of stores, with more focus on the high margin leather segment thatincludes accessories such as ladies bags, caps and belts among others. Company'sthrust on Hush Puppies is a part of this strategy. Bata plans to increase the display ofwomen and child footwear across all stores given these segments are growing at afaster rate. All these measures would lead to an increase in sales per store, thusdriving growth and margins.

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Bata India

Revenue per store on an increasing trend (INR m)


Non-retail segment - scalable business model

Bata's non-retail segment comprises of urban wholesale, industrial and safety,institutional sales and e- commerce.

Urban wholesale: The division sells over 15m pair of shoes through 16 depots, 180large distributors, with more than 30,000 dealers on pan India basis. Bata sellsmorethan 49m pairs of shoes every year and also serves 150,000 customers per day. Itplansto add more direct dealers in this segment to increase penetration in Tier III and ruralareas.

Industrial and safety segment: The division caters to industries like constructi

on,steel, power etc, with special product features like impact and heat resistance,oilresistance and use of lightweight materials. With BSO enjoying 20% market shareworldwide in the industrial shoes segment, Bata plans to leverage on the expertiseand technology in India. A first time launch of a product with PU-rubber sole forchemicals and smelter industry in 1QCY13 has been well-received.

Institutional sales: Institutional sales focus on the special requirements of defenseand paramilitary forces, hospitality, airlines, retail, construction, hospitals,

miningand other industries. Based on the expertise and technical knowhow from BSO, Batahas installed new machines at its Batanagar plant to manufacture safety footwearrequired by defence, mining and other industries. It recently got a large orderfromIndian Air Force. The defence sector requires 12m footwear a year, which is suppliedby unorganized players, thus providing greater scope for an organized player likeBata.

Store level performance measurement

Bata keeps a strict vigil on performance of each store. It sets a target of 10%PBT in thefirst year from a new large format store. The finance team meets the retail operationsteam on a monthly basis to determine the list of stores that consistently underperform.A remedial plan is devised for such stores, which includes renegotiating with the


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concerned landlord for store rentals or reorganization of merchandise within thestore. The store is kept under observation for a few months and is closed if there is nosatisfactory improvement.

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Bata India

Outsourcing, K Stores expansion to check employee cost

Expect capacity utilization to fall but margins to increase

With employee expenses up to 25.6% of sales in CY05, Bata took the twin steps torationalize costs by closing certain businesses which were more labor-intensiveandincrease outsourcing.Employee headcount was pruned from 9,631 in CY05 to 5,162 in CY12 by providing VRS,translating to significant savings in employee cost from 25.6% in CY05 to 10.6%in CY12.Launch of K Stores 3.5 years ago for ex-Bata employees helped to reduce employeecostas a K Store agent is paid 6-8% of turnover as commission, compared to 11-12% ofsales asemployee cost if taken by the company on its books, thus leading to a saving of

300bp.Contribution from outsourcing increased from 23.2% of sales and 46.7% of cost ofgoodssold (COGS) in CY05 to 32.7% and 69.4% in CY12. This mix is likely to improve asincrementaldemand going forward will be met through outsourcing, thus improving margins.Employee cost to remain under check

A key cost component for footwear manufacturers is employee cost, given the labor-intensive nature of the business. With employee expenses mounting to 25.6% ofsales in CY05, management took the twin steps to rationalize costs. Company clos

edcertain lines of business which were more labor-intensive and had limited scopeforautomation and began to outsource them. It outsourced labor-intensive lines ofoperation such as cutting, threading and stitching, and only critical manufacturingprocesses were retained in-house, including leather selection, sole manufacture,design, cutting and finishing. The jobs retained by Bata were machine work and lesslabor-intensive. To facilitate these changes, management offered a VRS to affectedblue collar and white collar employees. Hence, the headcount was pruned from 9,6

31in CY05 to 5,162 in CY12, translating to significant savings in employee cost, whichreduced to 10.6% in CY12.

Focus to open more K Stores to reduce employee cost

To reduce employee cost further, Bata is setting up more outlets in the form ofKStores since the past 3.5 years. Given that a K Store agent is paid 6-8% of turn


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over ascommission, compared to 11-12% of sales as employee cost if taken by Bata on itsbooks, the savings on this count can improve margin by ~2% per K Store.

Hence, we expect employee cost to further reduce from 10.6% of sales in CY12 to9.4% in CY15E as outsourcing as a percentage of sales increases and management'sguidance to open 70-75% of 100 large format stores over the next two years in Kformat stores.

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Bata India

Reduction in employee count Expect further improvement in employee cost % of sales

Source: Company, MOSLIncrease presence through online sales

To improve customer service, company introduced home delivery of shoes. Customerscan now place orders for any footwear which they are unable to find in a store and getit home delivered at no extra cost. Bata derives less than 1% of its sales online.Company recently tied up with online portals like Jabong, Snapdeal, India Times,Rediff, Junglee, etc., to attract potential customers online. etc. Any significant increasein the contribution of online sales will lead to meaningful improvement in marginsdue to negligible cost, as compared to sales through retail stores.

Outsourcing - a key fitness mantra

Outsourcing of certain manufacturing operations has been a key component of Bata'sbusiness reorganization strategy. As mentioned earlier, outsourcing increasedsignificantly from 23.2% of sales and 46.7% of COGS in CY05 to 32.7% and 69.4% inCY12. We expect outsourcing to increase significantly, thereby lowering the costofproduction and improving margins. From CY05, it outsourced labor-intensive jobsand retained machine operation, thus utilizing installed capacity to the fullest. Thisimplies the incremental increase in volume was met through outsourcing.

Outsourced percentage of total volumes sold on an increasing trend


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Bata India

Outsourcing as a percentage of sales for leather increased from 23% in CY05 to 45% inCY11, while outsourced proportion for rubber and canvas increased from 9% in CY05to 59% in CY11 in volume terms. Bata outsources 100% of its plastic footwear andaccessories requirements. The strategy going forward is to raise outsourcing ofcheaperitems such as rubber, canvas and plastic footwear and manufacture high value-addedleather footwear in-house. Hence, we expect capacity utilization to further reduceacross segments as most employees will shift to K Stores format, albeit leadingtohigher margins.

Company guided that with the likely opening of 100 stores every year, the incrementaldemand for footwear will be met through increased outsourcing across segments.We believe this move will not only help Bata to increase margins but also focuson its

brand strategy and improve the mix of women and child segment.

Falling capacity utilization suggests increase in outsourcing

CY01 CY02 CY03 CY04 CY05 CY06 CY07 CY08 CY09 CY10 CY11Installed capacity (m pairs)Leather and other footwear 20.3 20.3 20.3 20.3 20.3 20.3 20.3 20.3 20.3 20.3 20.3Rubber and canvas footwear 42.5 42.5 42.5 42.5 42.5 42.5 42.5 42.5 42.5 42.5 42.5Finished Leather from hides 1.6 1.6 1.6 1.6 1.6 1.6 1.6 1.6 1.6 1.6 1.6Total installed capacity 64.4 64.4 64.4 64.4 64.4 64.4 64.4 64.4 64.4 64.4 64.4Production (m pairs)

Leather and other footwear 10.7 11.8 10.8 9.6 10.6 9.5 9.3 9.5 13.5 14.4 13.6Rubber and canvas footwear 20.2 24.9 21.7 20.9 20.5 16.8 16.4 15.7 12.6 8.0 6.6Finished Leather from hides 0.8 0.8 0.6 0.5 0.5 0.3 0.3 0.2 0.2 0.1 0.1Total production 31.7 37.5 33.2 31.0 31.6 26.6 25.9 25.4 26.3 22.6 20.3Capacity utilization (%)Leather and other footwear 52.9 58.2 53.3 47.2 52.1 46.8 45.9 46.7 66.9 71.0 67.0Rubber and canvas footwear 47.6 58.6 51.1 49.3 48.3 39.6 38.5 36.9 29.6 18.9 15.6Finished Leather from hides 48.7 47.7 39.8 33.1 30.0 20.3 16.8 14.4 11.5 8.1 6.9Total 49.3 58.2 51.5 48.2 49.1 41.4 40.3 39.4 40.9 35.0 31.6Quantative details (m pairs)

Rubber/Canvas FootwearOpening 7.9 6.2 7.0 6.2 5.6 6.0 6.1 5.6 4.9 5.1 5.0Purchase 8.9 2.5 0.2 1.8 2.5 0.1 3.2 2.6 4.2 7.7 9.6Production 20.2 24.9 21.7 20.9 20.5 16.8 16.4 15.7 12.6 8.0 6.6Sales 30.9 26.7 22.8 20.3 22.6 16.9 20.0 19.0 16.6 15.8 16.2Closing Stock 6.2 7.0 6.2 8.6 6.0 6.1 5.6 4.9 5.1 5.0 5.1Leather & Leather Look alike FootwearOpening 6.9 5.9 8.7 10.1 8.1 9.4 9.1 10.1 8.2 8.0 7.5Purchase 4.9 4.6 9.0 6.2 4.4 5.9 6.4 6.8 5.9 8.8 12.2Production 10.7 11.8 10.8 9.6 10.6 9.5 9.3 9.5 13.5 14.4 13.6


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Sales 16.6 13.7 18.4 20.8 13.7 15.7 14.7 18.2 19.6 23.7 24.6Closing Stock 5.9 8.7 10.1 5.1 9.4 9.1 10.1 8.2 8.0 7.5 8.7Plastic FootwearOpening 2.1 2.1 2.4 2.0 2.4 2.5 2.0 2.8 2.3 2.4 2.2Purchase 12.2 12.2 10.5 10.4 10.6 10.3 9.7 9.8 9.4 8.6 7.3Sales 12.2 11.9 10.9 10.0 10.6 10.7 9.0 10.3 9.3 8.8 8.1Closing Stock 2.1 2.4 2.0 2.4 2.5 2.0 2.8 2.3 2.4 2.2 1.4


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Bata India

Segment-wise outsourcing contribution (m pairs)

CY01 CY02 CY03 CY04 CY05 CY06 CY07 CY08 CY09 CY10 CY11LeatherOpening stock 6.9 5.9 8.7 10.1 8.1 9.4 9.1 10.1 8.2 8.0 7.5Add :- Purchases 4.9 4.6 9.0 6.2 4.4 5.9 6.4 6.8 5.9 8.8 12.2Less :- Closing stock 5.9 8.7 10.1 5.1 9.4 9.1 10.1 8.2 8.0 7.5 8.7Total purchase of traded goods (Leather) 5.9 1.9 7.6 11.2 3.1 6.2 5.4 8.7 6.0 9.3 11.0Leather sales 16.6 13.7 18.4 20.8 13.7 15.7 14.7 18.2 19.6 23.7 24.6Outsourced (%) 35 14 41 54 23 40 37 48 31 39 45Rubber and canvasOpening stock 7.9 6.2 7.0 6.2 5.6 6.0 6.1 5.6 4.9 5.1 5.0Add :- Purchases 8.9 2.5 0.2 1.8 2.5 0.1 3.2 2.6 4.2 7.7 9.6Less :- Closing stock 6.2 7.0 6.2 8.6 6.0 6.1 5.6 4.9 5.1 5.0 5.1Total purchase of traded goods 10.6 1.8 1.0 -0.7 2.0 0.1 3.6 3.3 4.0 7.7 9.5(rubber and canvas)Rubber and canvas sales 30.9 26.7 22.8 20.3 22.6 16.9 20.0 19.0 16.6 15.8 16.2Outsourced (%) 34 7 5 -3 9 0 18 18 24 49 59PlasticOpening stock 2.1 2.1 2.4 2.0 2.4 2.5 2.0 2.8 2.3 2.4 2.2

Add :- Purchases 12.2 12.2 10.5 10.4 10.6 10.3 9.7 9.8 9.4 8.6 7.3Less :- Closing stock 2.1 2.4 2.0 2.4 2.5 2.0 2.8 2.3 2.4 2.2 1.4Total purchase of traded goods 12.2 11.9 10.9 10.0 10.6 10.7 9.0 10.3 9.3 8.8 8.1Plastic sales 12.2 11.9 10.9 10.0 10.6 10.7 9.0 10.3 9.3 8.8 8.1Outsourced (%) 100 100 100 100 100 100 100 100 100 100 100


Outsourcing in leather to continue going forward (m pairs) Outsourcing in rubber, canvas to rise going forward (m pairs)


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Bata India

Gross margin expansion on the cards

Betting big on women and child segment

To increase the contribution from women and children footwear segment, Bata enhancedthe display area at all stores and launched trendy designs under various brands.Thus,women's segment contribution rose from 25% in CY08 to ~35% in CY12.It increased focus on high-value products in the leather segment with a thrust on HushPuppies (growing at 40%), thereby improving its mix from 62.8% of sales in CY05to 72%in CY12. The mix is likely to improve to 76% of sales, thus improving margins.Bata plans to increase the contribution from accessories (belts, ladies bag, wallets, caps)segment from 5% in CY12 to 10% over the next few years. Accessories segment hasthe

highest gross margin of 60%, with 100% outsourcing model.Company launched a programme from FY13 to modernize three factories (Patna, Batanagarand Bangalore) over FY13-15, with a total capex of INR500m. This is likely to improvegross margin by 500bp, according to the management.Betting big on women and child segment

The women's category is largely unorganized in India. As per industry data, close to86% is unorganized, compared to the organized global nature of the segment. Thus,

seizing the opportunity and with BSO's technical expertise, Bata over the last fouryears improved its designs and collections. To increase the contribution from womenand child footwear segment, it enhanced the display area for the segment acrossallstores and launched trendy designs under brands like Marie Claire, Hush Puppies,North Star etc. Management stated that the designs/collections for women at itsIndian stores match those at its stores in Singapore, Thailand or the US.

Revenue break-up - CY12


These measures improved the contribution of high margin women's segment from25% in CY08 to ~35% in CY12. To increase the contribution from children's segmentfrom 8-10% of sales to 12-13% over the next few years, Bata recently in-licensedtheAngry Birds trade mark from Rovio, which is selling 10,000 pairs a week. The collection


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is an assortment of rubber thongs, slippers range along with school shoes and socks.Management expects the women and child segment to grow at a faster pace (25%30%growth) than men's footwear, thereby increasing gross margin.

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Bata India

Lower margin products discontinued...

In CY05, ~65.4% of volumes was driven by low margin rubber/canvas and plasticfootwear segment, mainly low value slippers, where lower price point was the maindriver for demand compared to brand pull. Thus, realization within rubber/canvasand plastic stood at INR86 and INR96 respectively in CY05, compared to INR309 forleather footwear. Company phased out the INR69/pair rubber Hawaiians', where itincurred a small loss and shifted to the Sunshine range (INR199-399) with colorfuldesigns. Now, these account for better margins and are sold throughout the year,compared to earlier monsoon sales.

Segment-wise realizations (INR/per pair)


...Focus on premiumization

Post CY05, however, Bata focused to increase the share of higher value products.Theleather segment had higher margins, compared to rubber/canvas and plastic segment.Within leather segment, thrust was on Hush Puppies (growing at 40%), therebyimproving its mix from 34.5% of total volumes and 62.8% in value in CY05 to 55.1% and72% respectively in CY12. We expect the mix to improve to 74% of revenue in CY15E,thus increasing gross margin.

Increase in mix of high value leather segment Plastic segment gross margin


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Bata India

Greater focus on high margin accessories segment

Over the last three years, Bata focused to increase the proportion of revenue fromaccessories segment. This segment has the highest gross margin of 60%, with 100%outsourcing model. Revenue pie for accessories (belts, ladies bag, wallets, caps)increased from 2.7% in CY05 to 5% in CY12. We expect revenue from accessories toincrease to 7.5% by CY15E, thus driving gross margin. Management plans to increasethe share of non-footwear segment from 5% in CY12 to 10% over the next few years.

Benefit from plant modernization - icing on the cake

The technology in Bata's factories is relatively obsolete and hence it makes highergross margin through outsourced manufacturing, compared to in-house. Companylaunched a programme from FY13 to modernize three factories over FY13-15, with a

total capex of INR500m. In the first year, it will focus on the Patna facility,Batanagar inWest Bengal (sports wear and sandals) in the second year, and lastly Bangalore (schoolshoes, Hush Puppies). Under the modernization programme the company has plansto install state of art plant and machinery and plans to improve throughput andproductivity and hence, management expects overall gross margin to improve by500bp over the next three years.

Global support gives an edge over peers

Bata has seamless access to the benefits of technical research and innovative

programmes of BSO from the Global Footwear Services for which it paid a fee ofINR179m during CY12. Company continues to receive guidance and managerial supportfor functions, including store layout, marketing, shoe line, upgradation of factories,training of managers and guidance from senior-most managers of the group. Thetechnical collaboration, which expired on December 31, 2010, has been renewed for10 years.

GST, a game changer

As per the Financial Budget 2012, the rate of excise duty has been increased to

12%.The concessional rate of excise at 5% for footwear with retail price exceeding INR250and up to INR750 per pair has been withdrawn and the abatement has been reducedfrom 40% to 35%. The effective rate is one of the highest and puts the footwearindustry almost at par with luxury goods and products where the government expectsto curb consumption, such as tobacco. Footwear industry is paying maximum taxesamounting to 24% (excise 8%, VAT 13% (average) and service tax and others 3%). We


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believe with the introduction of Goods and Services Tax (GST) (both central andstate),overall cost will decline to 16-18% and result in significant savings.

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Bata India

Strong brand, to scale up with focused branding

Presence across price points to hedge against recessionary environment

Backed by eight decades of operation, Bata enjoys strong brand equity in India and is themarket leader with ~16% share in the organized footwear segment.Company's ad spends as percentage of sales fell from 1.7% in CY08 to 0.8% in CY12.However, to increase brand recall and educate consumers on the new offerings, ithashired DDB Mudra for advertisement and marketing initiatives.Bata is present across price points starting INR199 to INR7,000. With a presenceacrossprice points and brands, we believe Bata is hedged against the risk of down-trading in arecessionary environment.Strong brand franchise and market leader

Backed by eight decades of operation, Bata enjoys strong brand equity in India and isthe market leader with ~16% share in the organized footwear segment. Due to abusiness restructuring, it lost market share over the last few years. However, with thecompany on a strong footing and focus on aggressive growth, we believe it is poisedto gain a significant market share, going forward.

Focus on advertisement to enhance brand pull

Bata traditionally advertised through local stores, and as it was well-known, di

d notadvertise nationally. Ad spends as a percentage of sales declined from 1.8% in CY08 to0.9% in CY12. To increase brand recall and educate consumers on the new offerings,company has hired DDB Mudra for advertisement and marketing initiatives. Bata plansto do a prime time television, radio and print campaign in 2HCY13 and expects tospend ~1.5-2% of sales on advertisements, going forward.

Ad spends as percentage of sales to increase (INR m)Source: Company, MOSL

Presence across price points to hedge against recessionary environment

With the growth of premium segment, Indian footwear market, that traditionally hasbeen price driven, is slowly evolving into a quality and fashion conscious industry.Bata straddles at both ends of this spectrum and in between (comfort and value-topremium).Among them, it covers all metros, mini metros and every town with apopulation of half a million or more. Company sells footwear from price points o


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fINR199-7,000. We believe the presence across price points and brands hedges it againstthe risk of down-trading in a recessionary environment.

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Bata India

Portfolio pyramid


Improvement in inventory days to improve working capital going forward

Bata over the years has been focusing to improve its working capital days, especiallyon the inventory front. It had increased stores timings on weekdays and also onSundays, thereby leading to an increase in footfalls. Currently, company has a wellorganized logistics team at Gurgaon which controls the distribution process andensuresthat footwear of the right size is available at the right time and place acrossthecountry. Due to these, inventory days improved from 266 in CY08 to 179 in CY12.

To support and deliver growth projections, company is strengthening its supply chainthrough restructuring and consolidation of the regional distribution centre spac

e,introduction of modern infrastructure and new technologies, reduction in producttransit lead-times and faster and more frequent deliveries to stores. We expectanimprovement in the distribution process through greater use of technology inputstotrack the changes in consumer tastes, preferences and shopping trends. Bata hasalready restructured five regional distribution centers (RDCs) and expects benefits ofthe same going forward, thus leading to an improvement in inventory days byadditional 15 days.

Cashing out of real estate to focus on core business

Bata had a cumulative 309 acres of land in Batanagar, Kolkata. It transferred the excess262 acres to a special purpose vehicle (SPV) called Riverbank Developers Pvt Ltd(RDPL)to build an integrated township. SPV was owned equally by Bata and CalcuttaMetropolitan Group (CMGL). In 1QCY10, company restructured the agreements withrevised terms for development of the modern integrated township at Batanagar toensure faster development of the project and maintain its focus only on core business.The revision was completed in 1QCY11 and as part of the restructuring, Bata soldits

investment and rights in the joint development agreement and made a gain ofINR1.09b. Also, it would receive 0.324m sq ft (~160 flats) from the JV amountingto~INR1.3-1.5b. We have not factored any gain from real estate in our target price.

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Bata India

Indian footwear industry

Per capita consumption of footwear in India on the rise

According to Assocham, the Indian footwear industry is pegged at INR240b and isexpectedto reach ~INR387b by 2015, marking a CAGR of 17.3% over CY12-15.While Indian footwear industry is dominated by men's segment comprising of 55%,womenat 30% and child at 15% respectively, globally women's segment comprises of 60%of theoverall market.Women's footwear market in Indian remains mostly untapped, with nearly 80-90% salesin the unorganized market, thus providing huge opportunity for organized playerslikeBata.

The men's segment is growing at 10-12%, while women and child segments are increasingat 20% per annum.According to Assocham, the Indian footwear industry is pegged at INR240b and isexpected to reach ~INR387b by 2015, marking a CAGR of 17.3% over CY12-15. Onlineshoe shopping is a significant segment that is fast emerging and accounts for ~8% ofthe overall industry and is expected to reach ~20% by 2015. Globally, women's segmentcomprises of 60% of the overall footwear market, and the Indian footwear industry is

dominated by men's segment comprising of 55%, women at 30% and child at 15%respectively. Women's footwear market in Indian remains mostly untapped with 8090%sales being in the unorganized market, with a focus on colors and designs than oncomfort and durability.

Women's footwear segment growing at a faster rate than men

The men's segment is growing at 10-12%, while women and child segments are growingat 20% per annum. Thus, share of men's footwear is likely to decline to 48% andwomen and child footwear segments' contribution is likely to increase to 35% and

17% respectively. Casuals comprise of 60% of the footwear market, with the balancecontributed by sports, formal and semi formal footwear.

Average annual spend on men's footwear higher than women

As per Images-AC Neilson study, the average annual spending on men's footwear is~INR2,300 (with 29% of the household spend on an average or below INR1,000 and


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another 36% of the purchases are in the range of INR1,001-2,000). Average annualspending on women footwear is ~INR1,300 (with more than 50% of purchases at orbelow INR1,000 and another 40% of purchases in the range of INR1,001-2,000).

Indian footwear market is categorized in Economy - prices below INR750 (USD17),Value - prices between INR750 and INR1,500 (USD17-34), Premium - prices betweenINR1,500 and INR3,000 (USD34-70), Super Premium - prices more than INR3,000 (USD70and above). The share of Economy and Value segments up to INR1,500 (USD34) is~INR230b (USD5.1b).

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Bata India

Per capita consumption of footwear in India on the rise

India is the world's second largest footwear producing country, second to Chinaandthe third largest market. Even though the per capita shoe consumption in India hasrisen from 1.4 pairs a year in 2004 to 2.5 pairs per year in 2012, it is still much below theaverage per capita pair consumption of 5.5 in developed countries. With increasingconsumption, growing popularity of online shopping, higher affordability and risingincome level, per capita footwear consumption is expected to rise to 3.5 from thepresent 2.5 by FY15E.

Driven by larger penetration to Tier II and III cities and a growing rural market, variouspremium footwear brands are foraying into India's non-metro markets that holdgrowth potential and account for ~55% of the overall footwear industry. With changing

lifestyles and increasing affluence, domestic demand for footwear in Tier II andIII isexpected to grow at a faster pace than urban India.

In the non-leather footwear segment, there is huge demand for slippers as it ischeap,convenient and suits the needs of rural consumer as it can be used as multi purposefootwear. Rural India accounts for ~60% of slippers manufactured in the Indian footwearmarket.

Organized v/s unorganized footwear Total retail market size

Note: Assumed currency rate at INR50/USD for 2010 andINR55/USD for 2012 and 2015.

Source: Assocham, MOSLShare of verticals in overall and organized retailTotal retail FY12 Organized retail FY12Verticals Market size share Market size share(INR b) (%) (INR b) (%)Food and grocery 16,342 66.2 390 2.4Apparel 2,727 11.1 563 20.6Consumer durables, mobile and IT 1,358 5.5 320 23.6home dcor and furnishing 1,014 4.1 60 5.9

beauty , personal and healthcare 1,238 5.0 160 12.9Pharmacy 298 1.2 30 10.1Jewellery, watches and e ye care 940 3.8 130 13.8Footwear 605 2.5 98 16.2Books and music 149 0.6 16 10.7Total 24,671 1,767

Source: CSO, NSSO, Assocham

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Bata India

Organized footwear retailing, comprises 16% of the industry, is growing at double theindustry growth rate on account of : 1) growing presence of organized players inTierI and II cities where consumption power remains high, 2) expanding and continuouslygrowing women and child sections (women at 40% and child 10% of industryrespectively). With rising urbanization and better education levels among women,there has been a marked increase in women workforce, thus creating demand forbranded footwear, 3) rising online shopping (8% of industry at INR20b) among 20-35age group. Market leaders Bata and Relaxo are even looking at opening dedicatedstores for women/children in the future. Bata's e-commerce business is less than1%of its total revenue, which it intends to grow faster. Company recently tied upwithonline portals like Jabong, Snapdeal, India Times, Rediff, Junglee etc to attract potentialcustomers online.

Segment-wise breakup of footwear industry Geographical-wise contribution to footwear industry


Transforming from manual to automated manufacturing systems

The footwear sector has matured from the level of manual manufacturing methodsto automated systems. Many units are equipped with in-house design studiosincorporating state-of-the-art CAD systems having 3D shoe design packages that areintuitive and easy to use. Many Indian factories have also acquired the ISO 9000

, ISO14000 and SA 8000 certifications.

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Bata India

Global footwear industry

Asia continues to be the powerhouse of footwear industry

The global footwear market was worth ~USD182.2b in 2011 and is expected to reachUSD223.6b in 2015, clocking a CAGR of 5% from 2011 to 2015.Worldwide production of footwear reached 21b pairs in 2011, with India's share pegged~13%.Asia pacific region holds ~42% of overall market share in value terms.The worldwide production of footwear reached 21b pairs in 2011, with India's sharepegged ~13%. Asia continues to be the powerhouse of footwear industry, with anoverall share close to 90%. Seven Asian countries figure among the world's top 10producers, a list in which China's leadership is undisputable. Brazil is the onl

y non-Asian country among the top five producers. China is the world's largest marketforfootwear in terms of quantity, closely followed by the US and India. Low cost ofproduction, abundant availability of raw material, ever evolving retail ecosystem,buying patterns and a huge consumption market are certain basic features that setapart the Indian footwear market. According to Assocham, the global footwear marketwas worth ~USD182.2b in 2011 and is expected to reach USD223.6b in 2015 (USD211.5b

in 2018), clocking a CAGR of 5% from 2011 to 2015. Asia pacific region holds ~42% of theoverall market share in value terms.

Global footwear market share breakup production-wise

Global footwear market share breakup consumption-wise

Source: World footwear year book 2012

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Bata India

World share percentage of top 10 countries in production World share percentageof top 10 countries in consumption ofof footwear footwear

Source: World footwear yearbook 2102, MOSL

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Bata India

Financial outlook

Top line to post 17% CAGR over CY12-15E

We estimate Bata's sales will increase from ~INR18.4b in CY12 to INR29.6b by CY15E, aCAGR of 17%, primarily driven by strong growth in women, children and accessoriessegment. Also, retail (contributes 85% to revenue) has been posting a CAGR of 20%over CY06-12 and is likely to grow at 20% over CY13-15E primarily driven by 100newlarge format stores addition.

Revenue growth trend (INR m)Source: Company, MOSLMargins to improve going forward

We assume Bata's EBITDA will increase from ~INR2.7b in CY12 to INR4.74b by CY15E, aCAGR of 20%. We expect margins to improve from 14.9% in CY12 to 16% in CY15E

primarily driven by an increase in value-added products in favor of high-end leatherproducts, increased share of higher margin women, child and accessories segment,increase in outsourcing as a percentage of revenue and modernization of plants.

EBITDA margins set to improve going forward (INR m)


PAT CAGR of 22.5% over CY12-15E

Given top line of 17% CAGR over CY12-15E driven by 100bp margin expansion, weexpect PAT to post 22.5% CAGR over CY12-15E. We also expect depreciation and interestto remain subdued as the company focuses on outsourcing model and generates freecash flow of INR5.7b over CY13-15E.

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Bata India

PAT growth to be higher driven by better margins (INR m)


Bata India: 1-year going forward P/E Bata India: 1-year going forward P/BV


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Bata India

Valuation and view

We estimate Bata's revenue would increase by 17% and net profit by 22.5% over CY1315E.Given the strong brand with 16% market share in the organized footwear market,strong distribution network, focus on aggressive growth, improvement in marginprofile, transformation into fashion footwear retailer, we believe Bata has strongearnings and growth visibility. It has a strong balance sheet, with cash of INR1.9b andhealthy return ratios of 27.1% RoE and 39.3% ROCE in CY12. With limited capex ofINR2b over CY13-15E, we believe the company will generate free cash flow in excessof INR5.9b over CY13-15E. All these factors make a strong case for re- rating. At CMP ofINR810, Bata trades at a PE of 26.4x/20.8x/16.5x CY13E/14E/15E EPS. We value thestockat 25x CY14E EPS and arrive at a target price of INR975, with a Buy rating.

Key assumptions

Sales (Volumes) CY06 CY07 CY08 CY09 CY10 CY11 CY12 CY13E CY14E CY15ELeather and other footwear 15.7 14.7 18.2 19.6 23.7 24.6 27.0 28.9 31.6 34.5Rubber and canvas footwear 16.9 20.0 19.0 16.6 15.8 16.2 15.0 14.3 13.9 13.5Plastic footwear 10.7 9.0 10.3 9.3 8.8 8.1 7.0 6.3 6.0 5.8Total 43.3 43.7 47.5 45.5 48.3 48.8 49.0 49.4 51.5 53.9Volume Growth (%)Leather and other footwear -2.7 -6.4 23.6 7.7 20.9 3.6 10.0 7.0 9.5 9.0Rubber and canvas footwear -16.0 18.6 -5.0 -12.6 -5.1 2.5 -7.2 -5.0 -2.5 -2.5Plastic footwear 1.5 -16.4 14.7 -9.4 -5.6 -8.2 -13.3 -10.0 -5.0 -2.5Total -7.5 0.9 8.7 -4.1 6.0 1.1 0.4 0.9 4.2 4.6Realization (INR/Pair)Leather and other footwear 318 363 355 382 377 444 500 550 605 666

Rubber and canvas footwear 103 119 124 138 153 186 218 229 252 277Plastic footwear 91 100 100 108 116 138 148 157 166 176Average 178 197 207 237 256 308 363 407 459 515Realization Growth (%)Leather and other footwear 2.8 14.4 -2.3 7.7 -1.3 17.7 12.7 10.0 10.0 10.0Rubber and canvas footwear 19.0 15.5 4.5 11.5 10.3 22.0 17.1 5.0 10.0 10.0Plastic footwear -1.4 10.3 0.0 7.7 7.9 19.0 7.0 6.0 6.0 6.0Average 8.1 11.0 5.1 14.3 8.1 20.2 18.1 12.1 12.6 12.2Gross sales (INR m)Leather and other footwear 4,992 5,345 6,454 7,486 8,933 10,891 13,500 15,890 19,139 22,948Rubber and canvas footwear 1,736 2,378 2,360 2,300 2,406 3,008 3,270 3,262 3,4983,752

Plastic footwear 974 897 1,029 1,004 1,023 1,117 1,036 988 995 1,029Accessories, Garments & Others 214 253 233 313 393 619 938 1,313 1,773 2,304Sale -Sundry Store/R.M./Scrap 16 20 34 15 13 11 14 18 22 28Income from Repair Shop/Chiro. 16 14 13 9 2 0 1 1 1 1Total gross sales 7,948 8,908 10,123 11,126 12,771 15,646 18,759 21,471 25,428 30,061Growth (%)Leather and other footwear 0.0 7.1 20.8 16.0 19.3 21.9 24.0 17.7 20.5 19.9Rubber and canvas footwear 0.0 37.0 -0.8 -2.6 4.6 25.0 8.7 -0.2 7.3 7.3Plastic footwear 0.0 -7.8 14.7 -2.5 1.9 9.2 -7.3 -4.6 0.7 3.3


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Accessories,Garments & Others 0.0 18.5 -7.8 34.1 25.7 57.4 51.5 40.0 35.0 30.0Total top line growth 0.0 12.1 13.6 9.9 14.8 22.5 19.9 14.5 18.4 18.23 June 2013


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court in 2009 on Bata's rights on Sparx and the outcome is still pending. Sparxbrand'scontribution to revenue is very low for Bata and hence the impact would beinsignificant if the court's verdict goes in favor of Relaxo.

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Bata India

Management details

Mr Uday Khanna - Chairman & Independent Director

Mr Uday Khanna is currently the President of the Bombay Chamber of Commerce &Industry and non-executive Chairman of Lafarge India and Bata India. He also serveson the boards of Castrol India Ltd, Pfizer Ltd and Coromandel International Ltd.MrKhanna was the Managing Director & CEO of Lafarge India from July 1, 2005 to July2011.

Mr Rajeev Gopalakrishnan - Managing Director

He joined Bata Shoe Organization (BSO) in 1990 and has since been associated tilldate. Mr Gopalakrishnan has an experience of 22 years in retail/wholesale and runningcompany operations and has been the Director - Wholesale Channels, Sales &Marketing with Bata International - Canada and Vice-President of Bata India in R

etailOperations and Wholesale Division. Prior to that he was working as the ManagingDirector of Bata Bangladesh for a year and before that as Managing Director forBataThailand for three years when he turned around the company to a healthy position.

Mr Ranjit Mathur - Director Finance

Mr Ranjit Mathur is a finance professional with over 19 years of experience. Most ofhis experience has been with Unilever, where the last position he held was of Category

Finance Director for Foods in Asia and Africa based out of South Africa. BeforejoiningBata India, Mr Mathur was the Head of Finance at Dow Corning in India.

Mr Jack G. N. Clemons - Non-Executive Director

Mr Jack Clemons is the Group Chief Executive Officer (CEO) of Bata Shoe Organization(BSO). Mr Clemons joined Bata in 2006 and served for a number of years as GroupChief F inancial Officer (CFO) and President of Bata brands. Mr Clemons has lived andworked in Europe, Asia, North America and Australia and currently teaches strategic

finance and corporate governance at various European Business Schools, includingEPFL and HEC Geneva.

Mr Jorge Carbajal - Non-Executive Director

Mr Jorge Carbajal is the President of Bata Emerging Markets (BEM), responsible forthe overall business operations in Asia, Africa and Latin America regions. He has held


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various senior positions in different Bata companies in Latin America starting withChief F inance Officer and Group F inance Officer (Mexico, Bolivia & Ecuador) and inAsia Pacific regions (Sri Lanka and Malaysia as Managing Director).

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Bata IndiaFinancials and ValuationConsolidated - Income Statement (INR Million)Y/E December CY11 CY12 CY13E CY14E CY15ENet Sales 15,422 18,425 21,149 25,047 29,611Change (%) 22.5 19.5 14.8 18.4 18.2Total Expenditure 13,040 15,675 18,040 21,207 24,873EBITDA 2,382 2,750 3,109 3,840 4,738Margin (%) 15.4 14.9 14.7 15.3 16.0Depreciation 412 514 571 619 672EBIT 1,969 2,236 2,538 3,221 4,066Int. and Finance Charges 103 10 8 7 5Other Income - Rec. 1,654 301 376 470 587PBT bef. EO Exp. 3,520 2,526 2,905 3,684 4,648PBT after EO Exp. 3,520 2,526 2,905 3,684 4,648Current Tax 967 907 930 1,179 1,487Deferred Tax -31 -101 0 0 0Tax Rate (%) 26.6 31.9 32.0 32.0 32.0Reported PAT 2,584 1,721 1,976 2,505 3,160PAT Adj for EO items 2,584 1,721 1,976 2,505 3,160Change (%) 189.2 -33.4 14.8 26.8 26.2Net Profit 2,584 1,721 1,976 2,505 3,160No of fully diluted sh. (Mn - FV: INR10) 64.3 64.3 64.3 64.3 64.3

Adj EPS 40.2 26.8 30.7 39.0 49.2E quit y Di vi d e n d 386 386 450 514 578Corporate Dividend Tax 62 62 72 82 93Corp Div Tax (%) 16.0 16.0 16.0 16.0 16.0Dividend per Share 6 6 7 8 9Total Div Payout (INR m) 447.1 447.1 521.8 596.4 670.9Payout (%) 17.3 26.0 26.4 23.8 21.2

Consolidated - Income Statement (INR Million)

Y/E DecemberEquity Share CapitalTo ta l Res e r ves

Net WorthTotal LoansCapital EmployedCY116435,0835,7251945,919CY126436,3486,990

06,990CY13E6437,8028,44408,444CY14E643


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9,71010,353010,353CY15E64312,20012,843012,843Gross BlockLess: Accum. Deprn.Net Fixed AssetsCapital WIP5,0282,8172,211815,6363,2022,4341816,1363,773

2,3631276,8864,3922,4951507,6365,0632,5731783 June 2013Curr. Assets, Loans&Adv. 7,203Inventory 3,913

Account Receivables 314Cash and Bank Balance 1,240Loans and Advances 1,736Curr. Liability & Prov. 3,917Account Payables 2,588Provisions 1,329Net Current Assets 3,285Appl. of Funds 5,919E: MOSL Estimates; * Adjusted for treasury stocks8,2364,6214491,877

1,2894,3053,5077983,9316,9909,8575,0225792,712


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1,5434,3463,7805665,5108,44412,1995,7146184,0211,8474,9354,2856507,26410,35315,4216,5317305,7752,3855,7735,038735

9,64812,84332


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Bata India

Financials and Valuation

Ratios

Y/E December CY11Basic (INR) *EPS 40.2Cash EPS 46.6BV/Share 89.1DPS 6.0Payout (%) 17.3Valuation (x) *P/ECash P/EP/BVEV/SalesEV/EBITDADividend Yield (%)Return Ratios (%)RoE 53.5RoCE 68.3

Working Capital RatiosAsset Turnover (x) 2.6Inventory (Days) 92.6Debtor (Days) 7Leverage Ratio (x)Current Ratio 1.8Debt/Equity 0.0* Adjusted for treasury stocksConsolidated - Cash Flow StatementY/E December CY11Net Profit / (Loss) Before Tax 3,525Depreciation 412Interest & Finance Charges 16

Direct Taxes Paid -908(Inc)/Dec in WC -1,421CF from Operations 1,624EO Expense -1,427CF from Operating incl EO 197(inc)/dec in FA -764(Pur)/Sale of Investments 200Others 615CF from Investments 51Interest Paid -14Dividend Paid -256Others -163CF from Fin. Activity -398

Inc/Dec of Cash -149Add: Beginning Balance 1,389Closing Balance 1,239CY1226.834.8108.86.026.030.3


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-44600-446-8-5220-5308361,8772,712CY14E CY15E39.0 49.248.6 59.6161.1 199.88.0 9.023.8 21.220.8 16.516.7 13.65.0 4.11.9 1.612.5 9.81.0 1.126.7 27.3

39.3 40.12.4 2.383.3 80.59 92.5 2.70.0 0.0(INR Million)CY14E CY15E3,684 4,648619 6727 5-1,179 -1,487-445 -630

2,685 3,2080 02,685 3,208-773 -7770 00 0-773 -777-7 -5-596 -6710 0-603 -6761,309 1,7542,712 4,021

4,021 5,7753 June 2013 33


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Disclosure of Interest Statement Bata India

1. Analyst ownership of the stock No2. Group/Directors ownership of the stock No3. Broking relationship with company covered No4. Investment Banking relationship with company covered NoAnalyst Certification

The views expressed in this research report accurately reflect the personal views of the analyst(s) about the subject securities or issues, and no part of the compensation of the research analyst(s) was, is, orwill be directly or indirectly related to the specific recommendations and views


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