Quick take | Footwear

June 18, 2018

Bata India

BUY

Better brands for better growth

CMP

`779

Target Price

`896

Bata India Ltd (BIL) is the largest footwear retailer in India, offering footwear,

Investment Period

12 Months

accessories and bags across brands like Bata, Hush Puppies, Naturalizer, Power, etc.

BIL’s ~70% revenue is derived from Men & Kids segment and balance from women’s

segment. BIL has over 1,400 Bata retail stores across India.

Stock Info

Sector

Footwear

Shift in trend towards the organized sector to propel growth: The Indian footwear

Market Cap (` cr)

10,276

industry is valued at `50,000-55,000, which is expected to grow at a CAGR of ~15%

Net Debt (` cr)

(2,575)

going ahead. One third of the industry is mainly dominated by the unorganized

Beta

0.9

52 Week High / Lo

833/511

sector. However, organized segment is expected to grow at a faster pace compared to

Avg. Daily Volume

40,298

the unorganized segment on the back of increase in household income and rising

Face Value (`)

BSE Sensex

35,626

brand consciousness amongst Indian consumers. This would be beneficial for branded

Nifty

10,816

players like Bata India.

Reuters Code

BATA.BO

Bloomberg Code

BATA.IN

Strong retail stores expansion plan to boost growth: Currently, the company has 1,400

retail stores, which includes owned and franchise model (mainly presence in metro

Shareholding Pattern (%)

cities). Further, over the last 3 years, the company has added 135 stores (net

Promoters

53.0

MF / Banks / Indian Fls

17.5

addition). Going forward, the company has plans to open 500 stores (already

FII / NRIs / OCBs

6.2

identified 435 cities) mainly in tier-II and tier-III cities over the next 4-5 years. We

Indian Public / Others

23.4

believe Bata is brand for masses, and this is a growth driving factor going ahead.

Abs.(%)

3m 1yr

3yr

New launches and higher ad spends to boost women’s segment: Currently, women’s

Sensex

2.3

17.7

51.7

M&M

9.6

44.3

34.0

footwear segment accounts for ~30% of Bata sales, which the company is targeting to

increase to ~40% over the 3 years. We believe that the company would achieve

strong growth going ahead mainly because of (a) Indian women footwear industry is

growing faster (20%+ growth p.a.), (b) new launches of products (recently launched

950+), and (c) increasing ad spends from 1% to 2.5-3%.

Higher sales of premium products to aid margins: Currently, BIL’s 40% sales come

from premium products like Hush Puppies, Power, Marie Clarie, etc. BIL has plans to

3-year price chart

increase premium product sales from current level of total revenue over next two

years.

900

800

Outlook and Valuation: We expect BIL to report net revenue CAGR of ~16% to

700

600

~`3,555cr over FY2018-20E mainly due increasing brand consciousness amongst

500

Indian consumers, new product launches, higher number of stores addition in tier - II

400

and III cities and focus on women’s segment (high growth segment). Further, on the

300

200

bottom-line front, we expect CAGR of ~19% to `311cr over the same period on the

100

back of margin improvement (increasing premium product sales). Thus, we initiate

coverage on Bata India with BUY recommendation and Target Price of `896.

Key Financials

Source: Company, Angel Research

Y/E March (` cr)

FY2017

FY2018

FY2019E

FY2020E

Net sales

2,474

2,634

3,063

3,555

% chg

2.1

6.5

16.3

16.0

Adj. Net profit

173

221

265

311

% chg

3.9

27.7

20.2

17.3

EBITDA margin (%)

10.4

13.3

13.5

13.7

EPS (`)

13.4

17.2

20.6

24.2

Amarjeet S Maurya

P/E (x)

58.0

45.4

37.8

32.2

022-39357800 Ext: 6831

[email protected]

P/BV (x)

7.6

6.7

5.9

5.1

RoE (%)

13.0

14.8

15.6

16.0

RoCE (%)

14.5

19.5

20.3

21.0

EV/Sales (x)

3.8

3.6

3.0

2.6

EV/EBITDA (x)

36.9

26.8

22.4

18.8

Source: Company, Angel Research Note: CMP as of June 15, 2018

Please refer to important disclosures at the end of this report

Bata India Ltd

Key investment arguments

Shift in trend towards the organized sector to propel growth: The Indian

footwear industry is valued at `50,000-55,000 and is mainly dominated by

the unorganized sector (accounting for

65-67% share). Industry reports

indicate that the footwear sector is expected to grow at a CAGR of ~15%

going ahead, within which, the organized segment is expected to grow at a

faster pace compared to the unorganized segment. Bata is in a sweet spot

owing to the increase in household income, shifting consumer behavior from

saving to spending, rising brand consciousness amongst Indian consumers

and penetration in tier - II and III cities by footwear companies. The share of

organized players is expected to improve from current levels, which would be

beneficial for branded players like Bata India.

Exhibit 1: Huge untapped opportunity for organised players

33%

67%

Organised

Unorganised

Source: Company, Angel Research

Strong retail store expansion plan to boost further growth: Currently, the company

has 1,400 retail stores, which includes owned and franchise model (mainly present

in metro cities). Further, over the last 3 years, the company has added 135 stores

(net addition). Going forward, the company has plans to open 500 stores (already

identified 435 cities) mainly in tier-II and tier-III cities over the next 4-5 years.

Opening of stores in the small cities, where the company does not have significant

presence, provides growth opportunity for BIL. Moreover, besides the new stores,

the company is also redesigning most of the existing stores with specific focus on

particular categories like sports, women, youth and even school shoes. We believe,

Bata is a brand for masses and this is a growth driving factor for the company.

Moreover, BIL has adopted the right strategy for expansion, which would aid the

overall growth for the company.

June 18, 2018

Bata India Ltd

Exhibit 2: Number of store additions

2,000

1,900

1,800

1,700

1,600

1,500

1,400

1,265

1,293

1,200

1,000

800

600

400

FY2016

FY2017

FY2018

FY2019E FY2020E FY2021E FY2022E FY2023E

Source: Company, Angel Research

New launches and higher ad spend to boost women’s segment: Currently,

women’s footwear segment accounts for ~30% of Bata’s sales, which the company

is targeting to increase to ~40% over the next 3 years. We believe that the

company would achieve strong growth going ahead mainly because of (a) Indian

women’s footwear industry is growing faster than overall footwear industry, which

registers 20%+ growth every year, (b) new product launches (recently launched

950+ products largely in women’s collection), and (c) increasing ad spends from

1% to 2.5-3% and also associating with brand ambassadors from Bollywood - Kriti

Sanon and Cricket

- Smriti Mandhana to support the launch of its new

internationally designed Red Label & Power collections.

Higher sales of premium products to aid margin: Currently, BIL’s 40% sales is

derived from premium products like Hush Puppies, Power, Marie Clarie, etc. The

company has plans to increase premium product sales from current level of total

revenue over the next two years. We believe that BIL would be able to achieve

strong growth in premium products on the back new collection launched, higher

number of stores additions and strong marketing spends, which would improve the

overall margin of the company going ahead.

June 18, 2018

Bata India Ltd

Outlook & Valuation: We expect BIL to report net revenue CAGR of ~16% to

~`3,555cr over FY2018-20E mainly due increasing brand consciousness amongst

Indian consumers, new product launches, higher number of stores addition in tier

- II and III cities and focus on women’s segment (high growth segment). Further,

on the bottom-line front, we expect CAGR of ~19% to `311cr over the same

period on the back of margin improvement (increasing premium product sales).

Thus, we Initiate Coverage on Bata India with BUY recommendation and Target

Price of `896.

Downside risks to our estimates

 Strong store expansion from competitors like Khadim, Relaxo could impact the

company’s sales growth

 Slowdown in economy could hurt the overall profitability of the company

Company Background

BATA India Ltd (BIL) is the largest footwear retailer in India, offering footwear,

accessories and bags across brands like Bata, Hush Puppies, Naturalizer, Power,

Marie Claire, Weinbrenner, North Star, Scholl, Bata Comfit and Bubblegummers

to name a few. Currently, the company’s ~70% revenue is derived from Men &

Kids footwear segment and balance from women’s segment. Its retails in over

1,290 Bata stores on bata.in and has thousands of multi-brand footwear dealer

stores pan-India.

June 18, 2018

Bata India Ltd

Consolidated Profit & Loss Statement

Y/E March (` cr)

FY2016

FY2017

FY2018

FY2019E

FY2020E

Net Sales

2,423

2,474

2,634

3,063

3,555

% chg

(10.1)

2.1

6.5

16.3

16.0

Total Expenditure

2,147

2,217

2,283

2,650

3,068

Raw Material

1,152

1,158

1,202

1,403

1,635

Personnel

261

273

296

349

412

Selling & Adm

345

356

362

460

533

Others Expenses

389

430

423

438

487

EBITDA

276

257

351

414

487

% chg

(17.3)

(6.8)

36.8

17.7

17.8

(% of Net Sales)

11.4

10.4

13.3

13.5

13.7

Depreciation& Amortisation

EBIT

197

192

291

345

408

% chg

(22.5)

(2.6)

51.6

18.6

18.4

(% of Net Sales)

8.1

7.8

11.0

11.3

11.5

Interest & other Charges

Other Income

101

(% of PBT)

34.2

19.7

14.9

13.9

12.9

Recurring PBT

297

234

337

396

464

% chg

(9.8)

(21.1)

44.1

17.4

17.3

Tax

117

131

153

(% of PBT)

26.7

32.0

34.6

33.0

PAT (reported)

217

159

221

265

311

Extraordinary Items

(14)

ADJ. PAT

166

173

221

265

311

% chg

(20.5)

3.9

27.7

20.2

17.3

(% of Net Sales)

6.9

7.0

8.4

8.7

8.8

Basic EPS (`)

12.9

13.4

17.2

20.6

24.2

Fully Diluted EPS (`)

12.9

13.4

17.2

20.6

24.2

% chg

(20.5)

3.9

27.7

20.2

17.3

June 18, 2018

Bata India Ltd

Consolidated Balance Sheet

Y/E March (` cr)

FY2016

FY2017

FY2018E FY2019E FY2020E

SOURCES OF FUNDS

Equity Share Capital

Reserves& Surplus

1,157

1,260

1,429

1,636

1,883

Shareholders Funds

1,221

1,324

1,493

1,701

1,948

Total Loans

Deferred Tax Liability

Total Liabilities

1,221

1,324

1,493

1,784

2,036

APPLICATION OF FUNDS

Gross Block

382

406

508

578

678

Less: Acc. Depreciation

138

199

267

346

Net Block

304

268

309

311

332

Capital Work-in-Progress

Investments

Current Assets

1,321

1,525

1,680

1,970

2,300

Inventories

685

714

765

898

1,052

Sundry Debtors

109

136

Cash

342

522

591

675

763

Loans & Advances

100

Other Assets

163

174

208

249

Current liabilities

512

599

597

681

785

Net Current Assets

809

926

1,084

1,289

1,515

Deferred Tax Asset

100

Mis. Exp. not written off

Total Assets

1,221

1,324

1,493

1,784

2,036

June 18, 2018

Bata India Ltd

Consolidated Cashflow Statement

Y/E March (` cr)

FY2016

FY2017

FY2018E FY2019E FY2020E

Profit before tax

297

234

337

396

464

Depreciation

Change in Working Capital

(41)

(88)

(122)

(137)

Interest / Dividend (Net)

(24)

(40)

Direct taxes paid

(108)

(65)

(117)

(131)

(153)

Others

Cash Flow from Operations

204

257

197

216

257

(Inc.)/ Dec. in Fixed Assets

(39)

(48)

(72)

(70)

(100)

(Inc.)/ Dec. in Investments

(75)

(181)

Cash Flow from Investing

(114)

(229)

(72)

(70)

(100)

Issue of Equity

Inc./(Dec.) in loans

Dividend Paid (Incl. Tax)

(42)

(45)

(51)

(58)

(64)

Interest / Dividend (Net)

197

(4)

Cash Flow from Financing

152

(56)

(62)

(68)

Inc./(Dec.) in Cash

132

180

Opening Cash balances

210

342

522

591

675

Closing Cash balances

342

522

591

675

763

June 18, 2018

Bata India Ltd

Key Ratios

Y/E March

FY2016

FY2017

FY2018E FY2019E FY2020E

Valuation Ratio (x)

P/E (on FDEPS)

31.9

31.8

28.3

24.7

21.4

P/CEPS

23.9

19.8

19.3

17.2

15.3

P/BV

4.6

4.0

3.6

3.2

2.9

Dividend yield (%)

0.7

0.8

0.9

1.0

EV/Sales

2.2

1.9

1.8

1.5

1.3

EV/EBITDA

19.3

18.9

15.8

12.9

10.8

EV / Total Assets

3.3

2.8

2.6

2.3

2.0

Per Share Data (`)

EPS (Basic)

27.0

27.1

30.4

34.8

40.1

EPS (fully diluted)

27.0

27.1

30.4

34.8

40.1

Cash EPS

35.9

43.5

44.7

50.0

56.2

DPS

5.9

6.0

6.7

7.7

8.8

Book Value

188.5

215.8

239.5

266.7

298.0

Returns (%)

ROCE

14.0

10.5

11.6

13.3

14.3

Angel ROIC (Pre-tax)

37.4

33.6

33.7

37.5

41.0

ROE

14.3

12.5

12.7

13.1

13.5

Turnover ratios (x)

Asset Turnover (Gross Block)

3.0

2.9

3.0

3.2

3.5

Inventory / Sales (days)

Receivables (days)

Payables (days)

Working capital cycle (ex-cash) (days)

(7)

Source: Company, Angel Research

June 18, 2018

Bata India Ltd

Research Team Tel: 022 - 39357800

E-mail: [email protected]

Website: www.angelbroking.com

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Disclosure of Interest Statement

Bata India

1. Analyst ownership of the stock

2. Angel and its Group companies ownership of the stock

3. Angel and its Group companies' Directors ownership of the stock

4. Broking relationship with company covered

Note: We have not considered any Exposure below ` 1 lakh for Angel, its Group companies and Directors

Ratings (Returns):

Buy (> 15%)

Accumulate (5% to 15%)

Neutral (-5 to 5%)

Reduce (-5% to -15%)

Sell (< -15%)

June 18, 2018