Edelweiss Professional Investor Research
Long Term Recommendation
Bata India Ltd. The Growth Sprint…
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Sangeeta Tripathi Research Analyst [email protected]
CMP INR: 1255
Rating: BUY
Target Price INR1500
Upside: 20%
Bloomberg: BATA:IN
52-week
range (INR): 1283 / 674
Share in issue (cr): 13
M cap (INR cr): 16,123
Avg. Daily Vol.
BSE/NSE :(‘000): 1079
Promoter
Holding (%) 52.96
Date: 16th January2019
Bata, India’s largest footwear retailer, we believe is at an inflection point driven by: a) rejig of top management; b) parent company’s sharpened focus on the India market; and c) management’s potent cost rationalisation initiatives. Furthermore, with an eye on bolstering its brand’s strength and perception among young consumers, Bata has: i) overhauled its product range; ii) revitalised visual displays; and iii) reworked its brand communication strategy. This, we believe, will boost footfalls & conversion and spur same store sales growth. Bata’s earnings are estimated to post 28% CAGR over FY08-21 driven by: a) 14.7% revenue CAGR over FY18-21E; and (b)390bps margin expansion over FY18-21E led by improvement in gross margins & operating leverage. Moreover, the asset-light business model is estimated to result in core RoCE expanding to 42.4% in FY21 from 32.8% currently. Over the long term, given its pole position and management’s potent initiatives to get its mojo back, Bata is likely to post industry leading growth, margins and efficiency hence, we initiate with ‘BUY’ and target price of INR 1,500.
Market leader and a one-stop footwear destination Bata is a strong brand in India’s footwear retail market with a formidable pan-India distribution retail network aggregating 1,400 plus stores encompassing 3 mn sq ft retail space. The company is present across 550-600 towns & cities and offers products across price points, segments and categories. Based on the strength of its distribution, product portfolio, width and assortment, Bata is far ahead of peers at the national level and serves as a one-stop footwear destination. Entering virtuous growth phase driven by confluence of macro and company-driven initiatives We believe: (a) parent’s sharpened focus on India operations; (b) rejig of management & operations with clear focus on brand rejuvenation, product portfolio re-orientation & cost rationalisation; (c) marked improvement in merchandising, brand communication & customer engagement; and (d) increased thrust on technology, will lead to Bata clocking industry-leading growth. Hence, we estimate it to post 14.7% revenue and 28% earnings CAGR over FY18-21. Solid balance sheet coupled with revival of growth to propel RoCE and free cash generation Bata has a strong balance sheet with zero debt and cash constituting ~35% of the overall balance sheet. With growth revival, followed by marked improvement in margin (estimate 250 bps operating profit margin improvement over FY18-21), the core RoCE is likely to expand to 42.4% by FY21 from 32% currently. Over the next 3 years, we estimate Bata to generate an aggregate of INR 670 cr free cash. Outlook and valuations: High quality proxy to play robust footwear demand; initiate with ‘BUY’ We believe that a high quality consumer brand in the growing fast fashion footwear category taking all the right initiatives to drive growth, improve brand strength and propel earnings is likely to trade akin to the leader in the consumer space, thus assign 42x PER multiple to FY21 earnings to arrive at our medium term price target of INR 1,500. Further this high quality consumer brand has all the potent ingredients in place for further surprise on growth levers, which we believe makes it a compelling compounding story to be played over long term time frame
Year to March FY18 FY19 FY20E FY21E
Revenues (INR Cr) 2,641 2,968 3,450 3,984
Rev growth (%) 6.7 12.4 16.2 15.5
EBITDA (INR Cr) 351 484 593 685
PAT (INR Cr) 221 312 391 462
EPS (INR) 17.2 24.3 30.4 36.0
EPS Growth (%) 26.3 41.1 25.3 18.4
P/E (x) 72.7 51.5 41.1 34.7
P/B (x) 10.4 8.7 7.1 5.9
RoCE 23.8% 27.6% 28.6% 28.0%
Core RoCE (ex cash) 32.4% 40.6% 42.6% 42.4%
RoAE (%) 16.1% 18.7% 18.9% 18.6%
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Table of Contents
Structure ............................................................................................................................. 3
Business Value Drivers ........................................................................................................ 5
Focus Charts 1 ..................................................................................................................... 6
Focus Charts 2 ..................................................................................................................... 7
I. Bata: Market leader with products across categories and segments .............................. 8
II. Bata in the right cycle; making right moves resulting in revival of its growth phase ..... 10
III. Asset-light balance sheet + improved margin to lead to strong core RoCE expansion 24
IV. Competitive positioning ................................................................................................ 25
Outlook and Valuations ...................................................................................................... 27
Business Overview ............................................................................................................. 16
Key Management ............................................................................................................... 16
Timeline .............................................................................................................................. 18
Financials ............................................................................................................................ 30
Edelweiss Professional Investor Research
Structure
Structure
Bata India Ltd
Orient Electric Ltd
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Bata is estimated to clock 28% earnings CAGR over FY18-21E. This will be driven by double-digit revenue growth (led by management’s initiatives to drive footfalls, conversion and thereby improve same store sales) and cost optimization measures for overheads that are estimated to lead to 390bps margin expansion to 17.2% by FY21E from 13.3% in FY18.
28% PAT CAGR will be driven by healhty reveue growth (aided by 8-9% same store
sales growth), premium offerings and sharpened focus on cost optimisation
Bata has a strong balance sheet with 35% in cash. Bolstered by robust business mometum and asset-light model, the free cash is enviaged to increase. Core RoCE is estimated to expand to 42.4% in FY21 from 32.8% in FY18
A market leader in the fast-growing
footwear category with potent initiatives and on growth threshold,
we expect Bata to trade at a premium. Assigning 42xFY21 PER we
arrive at target price of INR1,500
FY18 FY19 FY20E FY21E FY18 FY19 FY20E FY21E PER FY21E EPS CMP/Target
Revenue 2,641 2,968 3,450 3,984 ROE (%) 16% 18.7% 18.9% 18.6% 42x 36 1500
EBITDA margin
13.3 16.3 -17.2 17.2 Core ROCE
(%) 32.4% 40.6% 42.6% 42.4%
PAT 221 312 391 462
EPS growth of 28% over FY18-FY21 FY21E – core RoCE of 42.4% 42x FY21EPS of 36
Upside of 20%
Edelweiss Professional Investor Research
Structure
Structure
Bata India Ltd
Orient Electric Ltd
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Price Target INR 1500 Based on revenue CAGR of 14.7%, EBITDA margin of 17.2% and applying PER at 42x FY21E
Bull Case
Market leader on the
cusp of revival and
growth curve to trade
at 50x FY21E earnings
INR 1800 Based on revenue CAGR of 14.7%, EBITDA margin of 18% and applying P/E multiple of 50x
Base Case
Bata valued at 42X
FY21E; discount to
leaders
INR 1500 Based on revenue CAGR of 14%, EBITDA margin of 17.2% and applying PEG of 1.8x (implied
PER at 42x FY21E)
Bear Case
Bata to trade at a
steep discount to
consumer staples at
32x FY21
INR 950 Based on revenue CAGR of 11%, EBITDA margin of 15% and applying P/E of 32x FY21E
Edelweiss Professional Investor Research
Business Value Drivers
Business Value Drivers
Bata India Ltd
Orient Electric Ltd
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Sustainability Bata is one the oldest players in India’s footwear segment and has successfully navigated various business & economic cycles over the years. Despite increased competition, the company has retained its pole position and currently commands 14-15% share of the overall organised footwear market.
Disproportionate Future
We envisage Bata to clock industry-leading growth driven by: a) rejig of top management; b) parent company’s sharpened focus on the India market; and c) management’s cost rationalisation initiatives.
Business Strategy & Planned Initiatives
With an eye on bolstering its brand’s strength and perception among young consumers, Bata has: i) overhauled its product range; ii) revitalised visual displays; and iii) reworked its brand communication strategy. This, management believes, will boost footfalls & conversion and spur same store sales growth.
Near-Term Visibility
Bata’s earnings are estimated to post 28% CAGR over FY08-21 driven by: a) 14.7% revenue CAGR over FY18-21E; and (b) 390bps margin expansion over FY18-21E led by cost rationalisation & operating leverage. Moreover, the asset-light business model is estimated to result in core RoCE expanding to 42.4% in FY21 from 32.8% currently.
Long-Term Visibility
Over the long term, given Bata’s leadership and management’s potent initiatives to get back its mojo, the company’s performance is likely to grow in line with the industry at ~14-15%, along with superior RoCE and high free cash generation.
Near Term Risk Inventory mismanagement on account of SKU and new product introduction, risk of new merchandise failing to appeal to younger customers.
Long Term Risk Exit of key managerial personnel, lack of focus.
Focus Charts
Investment Hypothesis
Edelweiss Professional Investor Research
Bata India Ltd
Orient Electric Ltd
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Part I: Story in a Nutshell
Footwear consumption growth in a sweet spot
Indian footwear – INR 55,000 crore industry; expected to grow at CAGR of 15% over FY17-20
Bata India – Strong distribiution moat ; presence across 1400 stores in 550 cities
Spread across price points and category; best play Bata’s increased focus on high growth Women and Kids
category to drive growth
12.7
15
FY14-17 FY17-20
Bata
Relaxo
Metro
KhadimLiberty
Mirza
-200
0
200
400
600
800
1000
1200
1400
1600
1800
0 100 200 300 400 500 600 700
No
. od
EB
O's
Cities Presence (Reach)
Hush PuppiesAmbassadorClarks
NikeAdidasPuma
SundropsNaturalizerClarks
Hush PuppiesDr. SchollSundropsClarks
Dr. SchollClarks
WeinbrennerWoodland
BataMocassinoMetro
BataBata comfitNorth StarRed TapeMetro
PowerReebok
Marie ClaireNorth StarCatwalk
BataBata comfitCatwalkMetro
Bata
BataLiberty
RelaxoSparxLiberty
Bata & I
SandakRelaxoLiberty
BubblegummersFootinLibertyRelaxo
Men’s formal Men’s casual/comfort
Sports Women’s fashion
Women’s casual/comfort
Youth/Kids Trekking/Outdoor
Premium(>Rs 3,000)
Mid-premium(Rs 1,500)-3,500)
Value/Mass segment(< 1,500)
11.4%
17.8%
23.6%
Mens Womens Kids
Bata IndiaGrowth Engine
Revamp product offerings Increased Marketing SpentEnhanced Instore customer
experienceFocus on High Growth
Categories
Red Label CollectionCasual Collection
Premium Offerings
Kirti SanonSmriti Mandhana
Sushant Singh Rajput
Larger Stores/Stores in High Footfall Areas
Enhanced Ambiance
WomenKids
Sports
Higher Footfalls = Higher Conversion = Higher SSG
Focus Charts
Investment Hypothesis
Edelweiss Professional Investor Research
Bata India Ltd
Orient Electric Ltd
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Part II Bata’s potent initiatives to revitalise business bound to spur growth All efforts on brand rejevenutation, visual merchandising and customer engagemnet to result in double digit revenue
ahead
Series of efforts undertaken to bring swagger back to Bata.. ..EBITDA margin to improve on back of growth and Operating
leverage ahead
Strong balance sheet; with 40% in cash ..and robust core RoCE; likley to grow further
Source: Edelweiss Professional Investor Research
3%2%
9%
22%
14%
10.61%
15%
23%
19%
3%
11%
4%
11%
2%
6%
13%
16%15%
FY04 FY05 FY06 FY7 FY8 FY9 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19E FY20 FY21
Sales Growth Trend
6 years of double digit growth
Impacted by micro + Macro challenges
Trending towards growth
Lack of traction in same store sales growth (SSSG)
Reduced focus on wholesale channel
High cost of retail expansion
E-Commerce strategy missing
Operating margin pressures
Is Bata India important to be parent?
Merchandise lacking novelty
Brand Fatigue
Not up to the mark Retail Experience
Addressing the opportunity through B2B distribution model
Increase revenue base from non-rental avenues
Manage channel conflict and focus on it as a growth channel
Rationalize rental cost, negotiate existing rentals, re calibrate store size, etc.
Control Overheads
Focus from the Global leadership
Commitment on India business
Importance to Global business
Identified and Addressing
Identified and Addressing
Identified and Addressing
No Concrete strategy yet
Identified and Addressing
Work in Progress
Identified and Addressing
Identified and Addressing
Identified and Addressing
Identified and Addressing
Operational Factors/Plan of Action StatusThe Problem Statement
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4
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13.30%17.2%
2.50%0.20%
1.70%
-0.80%
0.30%FY
18
OP
M
Gro
ss P
rofi
t M
argi
n
Emp
loye
e C
ost
Ren
tal
Sale
s &
Dis
trib
uti
on
spen
t
Oth
er O
verh
ead
s
FY2
1 O
PM
0.0%
10.0%
20.0%
30.0%
40.0%
50.0%
-
100
200
300
400
500
600
700
FY15 FY16 FY17 FY18
Cash and Bank % cash to balance sheet size
25.6% 26.9%
32.4%
40.6%42.6% 42.4%
FY16 FY17 FY18 FY19E FY20E FY21E
Edelweiss Professional Investor Research
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Investment Hypothesis
Investment Hypothesis
Bata India Ltd
Orient Electric Ltd
(I) Bata: Market leader with products across categories and segments In the fast-growing INR 23,000 crore branded footwear segment, Bata is the market leader with
~14-15% share. The company is present in the value for money as well premium categories, which
cumulatively constitute ~40% of the total market.in this focused segment, Bata is the market leader
with ~20% market share. The segment of mid to premium products wherein Bata is present is
growing at a higher pace than the overall footwear market , presenting opportunity to Bata to
benefit from with its increased focus
a. Bata India – Strong distribution moat ; presence across 1400 stores in 550-600 cities Bata India is the only player in the organized footwear space with an exclusive EBO led model of
1400 stores, spread across 550-600 towns and cities. We believe this exclusive owned distribution
spread is the greatest moat of the company.
EBO a cut above MBO-focused model
EBO MBO
Product exclusivity Competition from other products
Pricing power Price comparisons
Control over brand communication Dealer driven push
Helps build brands in the long run Only creates reach with limited capex
Market Leader With Widest Reach
Source: Edelweiss Professional Investor Research
b. Bata India – Widest offerings- across price points and categories
Bata offers a wide range of products across categories and segments including men, women and
kids. Presence across price points insulates the company during down turn.
Bata
Relaxo
Metro
KhadimLiberty
Mirza
-200
0
200
400
600
800
1000
1200
1400
1600
1800
0 100 200 300 400 500 600 700
No
. od
EB
O's
Cities Presence (Reach)0 500 1000 1500
Bata
Khadim
Metro
Liberty
Relaxo
Adidas
Puma
Nike
Catwalk
Clarks India
Aldo
Charles & Keith
No of Stores
Edelweiss Professional Investor Research
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Investment Hypothesis
Investment Hypothesis
Bata India Ltd
Orient Electric Ltd
Bata is present across categories and across price points
Source: Edelweiss Professional Investor Research
Hush PuppiesAmbassadorClarks
NikeAdidasPuma
SundropsNaturalizerClarks
Hush PuppiesDr. SchollSundropsClarks
Dr. SchollClarks
WeinbrennerWoodland
BataMocassinoMetro
BataBata comfitNorth StarRed TapeMetro
PowerReebok
Marie ClaireNorth StarCatwalk
BataBata comfitCatwalkMetro
Bata
BataLiberty
RelaxoPowerSparxLiberty
Bata & I
SandakRelaxoLiberty
BubblegummersFootinLibertyRelaxo
Men’s formal Men’s casual/comfort
Sports Women’s fashion
Women’s casual/comfort
Youth/Kids Trekking/Outdoor
Premium(>Rs 3,000)
Mid-premium(Rs 1,500)-3,500)
Value/Mass segment(< 1,500)
Edelweiss Professional Investor Research
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Investment Hypothesis
Investment Hypothesis
Bata India Ltd
Orient Electric Ltd
(II) Bata in the right cycle; making right moves resulting in revival of its growth
phase Starting its journey from 1931; as a manufacturer of branded footwear; Bata has witnessed
series of ups and down in its journey and has successfully sailed through. The company
has scripted a strong turnaround every time faced with challenges and problems and
currently is the largest footwear retailer. Over FY15-18; in the last three years time frame
the company has grappled with various internal and external issues. With improving macro
environment towards consistent growth and addressing of internal problems, we believe
Bata is now at a cusp of strong earnings revival , which is likely to unfold in the profits and
returns ahead.
3%2%
9%
22%
14%
10.61%
15%
23%
19%
3%
11%
4%
11%
2.1%
5.6%
12.6%
16.2%15.5%
0%
5%
10%
15%
20%
25%
-
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
4,500
FY03 FY04 FY05 FY06 FY7 FY8 FY9 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19E FY20E FY21E
NetSales % growth
0
-6
3
67
9
1213
15 16 15 15
1211 11
13
16
1717
-10
-5
0
5
10
15
20
-100
0
100
200
300
400
500
600
700
800
FY03 FY04 FY05 FY06 FY7 FY8 FY9 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19E FY20E FY21ECore Operating profit opm (%)
Restructuring
undertaken, VRS
under taken and
increasing
consumer focus
Strong double digit growth
result of efforts and initiative
undertaken also resulting in
marked improvement in OPM
from 2.6% in FY06 to 16% in
FY13
Weak economy +
company grappling
with internal issues
like inventory, weak
product profile and
low consumer
engagement
Series of efforts
undertaken from improved
product, increased
customer engagement,
increased marketing spent
and slew of cost
rationalization drive to
yield results ahead..
Edelweiss Professional Investor Research
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Investment Hypothesis
Investment Hypothesis
Bata India Ltd
Orient Electric Ltd
(a) Rejig at the top level with enhanced focus from the parent
Over the past 24-36 months, Bata India has been gaining marked Importance in the global parent’s
portfolio with Mr. Thomas Archer Bata (Global Chief Marketing Officer) ) visiting India multiple
times for store launches and other events. This is led by strong growth opportunity presented by
the Indian market; by end FY19; Bata India would emerge as the largest market of Bata global. To
drive on this robust growth and get Bata India into the fashion index, it has inducted talent at the
top level to drive growth
Name Designation Profile
Alexis Nasard Global CEO
Currently, Alexis Nasard is the CEO of Bata global and comes with 24 years’ experience in the consumer goods business and six years’ experience in Heineken. He heads the business since August 2016. This is for the first time that Thomas Bata has inducted some body from outside to lead the company. The current CEO has visited India a couple of times and has maintained that India is one of the most important markets for Bata.
Sandeep Kataria CEO
Sandeep Kataria was inducted and elevated to CEO’s position at the India level in order to drive the brand’s equity strength, improve customer engagement and marketing quotient to contemporise the brand’s image. Sandeep Kataria has strong academic background (IIT Kanpur+ XLRI Jamshedpur) and rich experience in the consumer industry. His previous assignments include Vodafone India, Yum brands and Unilever. He was inducted as country manager in August 2017 and within three months was elevated to the CEO’s office to handle revenue growth and brand rejuvenation.
Ram Kumar Gupta Executive Director Finance and CFO
The CFO Mr. Ram Kumar Gupta (R.K. Gupta) has rejoined Bata. He has been associated with the company since 1986 and has worked in different positions. In August 2015, he was Director-Finance, before he relocated to Kenya as Director- Finance of Bata Shoe Kenya. R.K. Gupta is one of the key people involved in Bata’s major restructuring over 2005-12. Post rejoining Bata, despite macro setbacks like demonetisation and GST hitting the entire domestic consumption space, R.K. Gupta has managed to undertake a slew of cost rationalisation initiatives which have led to earnings growth.
Rajeev Gopalakrishnan
President of Asia South at Bata India Limited
Rajeev Gopalakrishnan has been President of Asia South at Bata India since August 1, 2017, and serves as its Managing Director. He served as the CEO and Managing Director of Bata India from October 1, 2011 to August 1, 2017. He has been associated with Bata since the start of his career and has served in various positions including Managing Director of Bata Bangladesh. He holds a Bachelor of Engineering (Mechanical) degree from the University of Kerala.
Deepak Chakravarty Head Visual Merchandising & Retail Marketing
Design graduate from New Delhi- 1998 Batch ; Has worked in senior position across industry with over 20 years’ experience His experience includes working in companies like ITC and Adidas group as head merchandising
Anand Narag VP Marketing
Anand Narag has been roped in from Reliance Jio. He will be taking care of marketing and customer service/loyalty at Bata. His mandate is to drive footfalls in stores and create clutter-breaking campaigns. He will also be closely looking at customer behaviour to strengthen the brand—customer interactions and hence drive category business. Anand Narag has over two decades of experience and has worked with big companies such as Nokia, Huawei Technologies, Bharti Airtel and Comverse.
Edelweiss Professional Investor Research
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Investment Hypothesis
Investment Hypothesis
Bata India Ltd
Orient Electric Ltd
(b) Revitalising the brand
Over the past 18-24 months, Bata has identified the problem areas and has been addressing them
to drive revenue and profitability. We list below details of the same and our view.
The problem and the company’s solution
Lack of traction in same store sales growth (SSSG)
Reduced focus on wholesale channel
High cost of retail expansion
E-Commerce strategy missing
Operating margin pressures
Is Bata India important to be parent?
Merchandise lacking novelty
Brand Fatigue
Not up to the mark Retail Experience
Addressing the opportunity through B2B distribution model
Increase revenue base from non-rental avenues
Manage channel conflict and focus on it as a growth channel
Rationalize rental cost, negotiate existing rentals, re calibrate store size, etc.
Control Overheads
Focus from the Global leadership
Commitment on India business
Importance to Global business
Identified and Addressing
Identified and Addressing
Identified and Addressing
No Concrete strategy yet
Identified and Addressing
Work in Progress
Identified and Addressing
Identified and Addressing
Identified and Addressing
Identified and Addressing
Operational Factors/Plan of Action StatusThe Problem Statement
1
2
3
4
5
6
Edelweiss Professional Investor Research
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Investment Hypothesis
Investment Hypothesis
Bata India Ltd
Orient Electric Ltd
(i) Improved /enhanced product offerings – Despite being a strong brand with sturdy quality
image, Bata remained largely a non stylish and a fuddy duddy brand in the Indian context. The
aspirational quotient both on the product and the brand image was lacking, Over the last 24-
36 months , lot of effort has undergone to change this image and make the brand more trendy
, stylish and palatable to the younger and the millennial audience The complete revamp of
offerings in each category (Men, Women, Kids and sports) is done to woo the consumers along
with keeping the pricing equation intact.
It has refreshed its products in various categories – In power it has launched power walking
collection with memory foam, trendy power shoes for women.
It introduced new stylish range of ladies footwear under the new collection naming the same as
the Red label collection
Under the Hush puppies brand, further premiumization and range is being added towards higher
price points
New launches in the youth oriented spaces under its brands like Power, Weinbrenner, Footin etc
Edelweiss Professional Investor Research
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Investment Hypothesis
Investment Hypothesis
Bata India Ltd
Orient Electric Ltd
(ii) Brand building to spur revenue growth
Revamped marketing - For any consumer brand, in order to drive mind share along with
wallet share of the consumer, it is imperative to continuously engage the consumer with
its products, communication and aspirational quotient. FMCG/ consumer facing
companies spent a substantial amount of their revenue, which drives revenue growth for
the company.
Historically seen that Over FY06-12, Bata posted revenue CAGR of 15.4% driven by increased
branding and new store addition aggression. It was during this period that the company’s
advertising and marketing spends increased substantially. Its advertisement spends averaged 1.5%,
which was pivotal in driving footfalls and conversion at the store level.
However, over FY13-Y17, Bata under-invested in brand building and communication—ad spends
largely remained range bound at 0.9-1.0% of sales. But, over the past 12-18 months, the company
has made efforts to improve its marketing quotient along with improvement in product offerings—
advertisement cost to sales increased from less than 1.0% to 1.5% in FY18.
Bata’s advertisement spent is increasing
Source: Edelweiss Professional Investor Research
For 9MFY19, Bata has spent around INR 50 crores (2-2.5%) of its revenue towards advertisement
and brand building, which has resulted in strong footfalls and better conversion, visible in the last
six months revenue performance. For Q3FY19, Bata reported a Same store Sales growth of 12%.
Enthused by the response on the revamped positioning,, the company has upped its ante further
and for FY20, it aims to increase its advertisement and brand building spent to around 3%, to further
drive revenue, and enhance its brand image.
1.7%1.7%
1.3%1.4%
1.1%
0.9%
0.7%
1.0% 1.0% 1.0%
1.5%
0.0%
0.2%
0.4%
0.6%
0.8%
1.0%
1.2%
1.4%
1.6%
1.8%
2.0%
0
5
10
15
20
25
30
35
40
45
FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY15 FY16 FY17 FY18
(IN
R c
r)
Advertisment Ad to sales
Investment in brand, results in
Under investment in brands
Edelweiss Professional Investor Research
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Investment Hypothesis
Investment Hypothesis
Bata India Ltd
Orient Electric Ltd
Bata’s spent on advertising still lower than other discretionary players- Increase to propel
growth (Percentage to Revenue)
Source: Edelweiss Professional Investor Research
It has roped in bollywood actress Kirti Sanon as its brand ambassador for fashion forward women’s
footwear. It has also appointed Smriti Mandhana (India’s youngest woman cricketer) as the
ambassador for its sports brand Power. In men’s footwear, while the company is still largely known
for its formal range, the shifting trend in favour of casual footwear has led to the company
improving its range in the latter; to communicate the same, it has roped in bollywood actor Sushant
Rajput as brand ambassador.
Kiriti Sanon- Surpisingly Bata TVC
Sushant Rajput – Casual collection Smirit Mandhana- Power collection
2.0 1.8
2.8 3.0 3.4
3.8 3.9 4.4 4.7 4.8
BA
TA
TREN
T
TITA
N
MET
RO
ASI
AN
PA
INTS
HA
VEL
LS
SHEE
LA F
OA
M
REL
AX
O F
oo
twea
r
AB
FRL
JUB
ILA
NT
FOO
DW
OR
KS
Edelweiss Professional Investor Research
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Investment Hypothesis
Investment Hypothesis
Bata India Ltd
Orient Electric Ltd
(iv) Improved instore consumer expereince to enhance brand image and drive growth -
Bata India over last 2-3 years has been working on improving its instore expereince right from
opening bigger stores, opening stores in high footfall areas like malls/ High streets.Over FY16-18, it
has added 165 stores, while in the same period it has also closed smaller stores (~1,000 sq ft.
The bigger stores provide a complete range of products, further with enhanced visual merchandise
and improved product placement the store and the shopping experience improves manifold for a
customer. All this aids to higher revenue and better margins
It aims to continue its expansion spree and has guided to add around l 100 stores. Of these, ~50
will be company owned & operated and balance 50 will follow the new franchisee store model
which Bata is exploring to reach out in tier 3 & 4 towns and cities.,
Along with opening new stores, it would also continue to renovate existing stores and improve
layouts with the objective of increasing same store sales growth.
By FY21, we expect Bata to reach 1575 stores with an aggregate 3.4mn sqft area
Source: Edelweiss Professional Investor Research
We believe, Bata’s efforts to: (a) improving product portfolio; (b) enhance visual merchandising,
look & feel of its stores; and (c) improvement in communication & marketing layout, will boost
footfalls & higher conversion and lead to double digit revenue growth.
2.4
3.0
3.4 12351295
1400 14451510
1575
-
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
0
200
400
600
800
1000
1200
1400
1600
1800
FY16 FY17 FY18 FY19E FY20E FY21E
(No
. of
Sto
res)
Overall Total Retail space (mn sq ft)
Edelweiss Professional Investor Research
17
17
Investment Hypothesis
Investment Hypothesis
Bata India Ltd
Orient Electric Ltd
Larger stores with improved layout and premium merchandise
Edelweiss Professional Investor Research
18
18
Investment Hypothesis
Investment Hypothesis
Bata India Ltd
Orient Electric Ltd
v) Focusing on high growth categories to drive growth
Women share to increase to 35% in next three years
Currently, while women’s footwear constitutes ~30-35% of the overall market, men’s
constitutes ~55-60%. However, the former category is growing at ~18-20%, almost 2x the latter.
Thus, it becomes imperative for any footwear player to focus on the ~INR 20,000 crore
women’s footwear segment.
Source: Edelweiss Professional Investor Research
This segment contributes 26% to Bata’s revenue as the company was largely focused on the men’s
segment. Over the past three years, it has started focusing on this category and aims to take its
share to 35%. We believe this strategy, underpinned by appropriate customer engagement, better
products and wise pricing, will fetch rich returns.
Kids category focus to drive growth
Around 18% of India’s population falls between 0 and 14 years and currently this (kids)
category forms ~9% of the total footwear market, which is highly unorganised. Shift to
formalisation of this segment is expected to drive strong growth for this category. Industry
estimates peg the kids category to grow at the fastest pace of ~23.6% over FY17-20. Kids’
overall share in the footwear segment is estimated to increase to 11%.
Bata is focusing on this huge market with its Bubblegummer brand and expects strong traction
from this category. Kids contribute less than 9% to Bata’s revenue, which it envisages to
increase to ~11%.
11.4%
17.8%
23.6%
Mens Womens Kids
Women and kids category to grow at faster pace
Edelweiss Professional Investor Research
19
19
Investment Hypothesis
Investment Hypothesis
Bata India Ltd
Orient Electric Ltd
Exclusive 2 kids stores in Banaglore
Marked increase in the space dedicated towards kids
Edelweiss Professional Investor Research
20
20
Investment Hypothesis
Investment Hypothesis
Bata India Ltd
Orient Electric Ltd
Sharpening focus on sportswear category to Power growth
INR 8,000 crore sports and athleisure category growing in double digits: The sports and athleisure
category in India is growing in strong double digits. Though a formal size and estimates are not
available, industry sources peg the market at INR 8,000 crore, constituting ~20% of the overall
footwear market. This segment is dominated by global players with Adidas leading the pack with
INR 1,100 crore (for FY18) revenue. Though Bata was present in this category through its franchisee
Power brand, focus on the category was missing. With growth in the category and rising domination
of global players, Bata has rejuvenated its focus on its Power brand.
Exploiting sports category via brand Power: Currently, the Power brand contributes ~10% to Bata’s
overall revenue. With swift growth in the category coupled with the company’s focus to take the
brand out of Bata stores to an exclusive format is likely to propel Power’s growth. In order to
resonate with the youth and sport enthusiasts, Bata has roped in Indian women cricket batsman
Smriti Mandhana as its brand ambassador.
Using online channel to expand reach, coverage and growth: Another notable trend in India’s
footwear industry is the spectacular growth in the online segment. The sportswear category has
embraced this distribution channel to the hilt. Currently, the online channel contributes ~20-22%
to total sports footwear sales. Initially, the company was in denial mode and hence lost revenue
and market share to the fast growing online mode. Over the last 18 months, the company has
focused on the online mode and now all its products are available across all market place model –
Amazon, Flipkart, Jabong and also it has its own exclusive online portal. The sports category has
highest online share at the industry level (at 18-20%), while Bata currently has only less than 3% of
the revenue from this mode, the growth potential is high with focus and leverage on this
distribution mode.
Exclusive formats: Sensing the opportunity in the category, Bata has enlarged its collection of
Power offerings for men, women and kids. Also, to create a brand identity & uniqueness in line with
its strategy of Hush Puppies, it is planning to open exclusive Power stores as well as those that will
display the entire width and depth of the product.
Exclusive Power stores
Edelweiss Professional Investor Research
21
21
Investment Hypothesis
Investment Hypothesis
Bata India Ltd
Orient Electric Ltd
Power to contribute 18-20% to turnover in next five years: With this mix of well placed strategy
and positive macros, we expect brand Power to grow in higher double digits and double its share
from current 10% to ~18% over the ensuing five years.
Top Sports Footwear brands in India (INR Cr) Geographical presence
Source- RoC; industry estimates
We estimate Bata to post 14.7% revenue CAGR over FY18-21 driven by high single digit same store
sales growth and an annual 60 new store additions.
Bata India: expected to grow at CAGR of 14.7% over FY18-21E
Source: Edelweiss Professional Investor Research
1,100 1,000 900
500 300
Adidas Puma Nike Reebok Power
800
450360
250 250
Bata Power Adidas Puma Nike Reebok
Bata IndiaGrowth Engine
Revamp product offerings Increased Marketing SpentEnhanced Instore customer
experienceFocus on High Growth
Categories
Red Label CollectionCasual Collection
Premium Offerings
Kirti SanonSmriti Mandhana
Sushant Singh Rajput
Larger Stores/Stores in High Footfall Areas
Enhanced Ambiance
WomenKids
Sports
Higher Footfalls = Higher Conversion = Higher SSG
(15.0)
(10.0)
(5.0)
-
5.0
10.0
15.0
20.0
-
1,000
2,000
3,000
4,000
5,000
FY16 FY17 FY18E FY19E FY20E FY21E
(%)
(IN
R c
r)
Net Sales % growth
Edelweiss Professional Investor Research
22
22
Investment Hypothesis
Investment Hypothesis
Bata India Ltd
Orient Electric Ltd
Premiumization trend to result in higher gross margin
Over the years, shopping preferences of consumers have changed from price sensitive to fashion
quotient. Bata’s positioning has always been of a sturdy, but low fashion quotient brand. The
company has now consciously changed this perception with trendier and much more fashionable
merchandise. Towards this end, it has exited value category of footwear (MRP < 200; in plastic and
rubber categories) and entering high fashion and premium products.
Brand wise revenue mix (%) Price wise revenue mix (%)
Source: Edelweiss Professional Investor Research Within each category and sub segment, Bata is moving towards the premium range and has vacated
the low end of the market. Currently the premium portfolio contributes around 30% to the company
revenue and with increasing focus in driving growth for this segment, the share is likely to reach
45% in the next three years time frame .
The premium collection for Bata is Hush Puppies, Naturalizer, European Collection, Power
International Range and North Star. Bata has also entered collections of casual, daily wear, sports
and outdoor categories for the 10-14 year age group.
Premium product portfolio helps push the brand quotient on one hand with better connect with
spending millennial class, while on the other hand it leads to higher gross margin and thereby
propels overall margin in higher orbit.
A continuous focus on the premium segment, has resulted in Bata’s per pair realisation growing at
a CAGR of 7.7% from INR 485 per pair in FY15 to INR 562 in FY18, and we expect the same to increase
by 8-10% further in the ensuing years to reach around INR 660 by FY21
Further towards this drive, we expect this to impact gross profit margin positively. Historically as
well, Bata’s gross profit margin has improved from 52.5% in FY16 to 55.9% in FY18 (expansion of
340bps over four years). We believe, the trend is likely to sustain with further aggression and hence
estimate the company to post 56.7% gross margin by FY21.
Source: Edelweiss Professional Investor Research
Bata, 70
Hush Puppies, 10
Power, 10
Acessories, 10
30%
20%
27%
20%INR 1500+
INR 1000+ - 1500
INR 500+- 1000
INR > 500
485
526
562
FY16 FY17 FY18
Improving Average Realization (INR per pair)
Edelweiss Professional Investor Research
23
23
Investment Hypothesis
Investment Hypothesis
Bata India Ltd
Orient Electric Ltd
Source: Edelweiss Professional Investor Research
Cost rationalisation efforts to result in huge operating leverage benefits
Despite clocking 54% plus gross margin, Bata’s current operating margin is ~13%. For FY18, ~40%
of the total cost is largely fixed. Rentals and employees are major fixed costs for Bata constituting
13.3% and 11.2% of revenue, respectively. Evaluation of discretionary and retail players indicates
that this ratio of rentals to revenue is extremely high for Bata.
Bata’s rental remain high visa-vis other retailers…providing scope for improvement
Source: Edelweiss Professional Investor Research
However, we expect it to improve on: (a) improvement in sales per sq ft; (b) renegotiation of lease
rentals across stores; (c) rationalisation of store size to improve store economies; and (c)
renegotiation with suppliers. These efforts to rationalise overheads coupled with the ongoing
premiumisation drive will positively impact margin.
We estimate Bata’s operating profit margin to expand by 390 bps over the ensuing 9 quarters to
17.2% by FY21.
Journey of operating profit margin from 13.3% in FY18 to 17.2% in FY21E
Source: Edelweiss Professional Investor Research
52.553.2
54.2
55.9 56.056.7 56.7
FY16 FY17 FY18 9MFY19 FY19E FY20E FY21E
Expanding Gross margins (%)
4.4%
7.5% 7.6%
10.1% 10.8%12.1%
13.7%
V-Mart Metro Future Retail Future Lifestyle JubilantFoodworks
Trent Bata
13.3%
17.2%
2.50%0.20%
1.70%
-0.80%
0.30%
FY18OPM Gross ProfitMargin
Employee Cost Rental Sales &Distribution
spent
OtherOverheads
FY21 OPM
Edelweiss Professional Investor Research
24
24
Investment Hypothesis
Investment Hypothesis
Bata India Ltd
Orient Electric Ltd
(III) Asset-light balance sheet + improved margin to lead to strong core RoCE
expansion Bata, over the years, has evolved from a manufacturing-cum-retailer in to a mid-premium retail
branded player. It has taken a conscious decision to reduce its presence in manufacturing, thereby
creating an asset-light business model.
Currently, ~60-65% of the products sold at Bata are outsourced, resulting in better asset turns and
also margin improvement. Going forward we expect Bata’s EBITDA margin to improve from 13.3%
in FY18 to 17.2 % in FY21E.
With improvement in margin, we estimate Bata’s core RoCE to jump from 32.8% in FY18 to 42% by
FY21
Source: Edelweiss Professional Investor Research
Strong operating cash flow generation ahead to provide scope for inorganic expansion- Driven
by strong margin expansion and stable working capital cycle, Bata is expected to generate strong
operating cash flows ahead, we expect the company to post an aggregate free cash flow of INR
670 crore over FY18-21E. This strong operating cash flow generation along with already high cash
in the books (around INR 600 crore) further strengthens Bata balance sheet. By FY21, we expect
Bata’s cash on books to almost double from present INR 600 crore to INR 1100 crore, thereby
providing it an opportunity to expand via acquisition or takeover.
FY15 FY16 FY17 FY18 FY19 FY20 FY21
Net profit 200 159 175 221 312 391 462
Add: Depreciation 79 79 65 60 67 77 88
Gross cash flow 279 238 240 281 379 467 550
Less: Changes in W. C. 77 113 226 93 209 103 114
Operating cash flow 202 125 14 188 170 365 436
25.6% 26.9%32.4%
40.6% 42.6% 42.4%
FY16 FY17 FY18 FY19E FY20E FY21E
Edelweiss Professional Investor Research
25
25
Investment Hypothesis
Investment Hypothesis
Bata India Ltd
Orient Electric Ltd
IV. Competitive positioning
Resilient performance even during downturns
Source: Edelweiss Professional Investor Research
Source: Edelweiss Professional Investor Research
-20%
-10%
0%
10%
20%
30%
40%
50%
Bata Relaxo Khadim Metro Mirza Liberty Adidas
FY13 FY14 FY15 FY16 FY17 FY18
54.5 54
38
55
47.8 45.7
41.5
Bata Relaxo Khadim Metro Mirza Liberty Adidas
Amongst the best Gross Margins; likely to improve (%)
13.4
15.4
10.3
15.3
Bata Relaxo Khadim Metro
Scope for improvement in operating margin (%)
Edelweiss Professional Investor Research
26
26
Investment Hypothesis
Investment Hypothesis
Bata India Ltd
Orient Electric Ltd
Well placed on RoCE to EBITDA profile; with scope for improvement
Source: Edelweiss Professional Investor Research
BataRelaxo
Khadim
Metro
0%
2%
4%
6%
8%
10%
12%
14%
16%
18%
15% 20% 25% 30% 35% 40%
EBIT
DA
Mar
gin
RoCE
Edelweiss Professional Investor Research
Outlook and Valuation
Outlook and Valuations
Bata India Ltd
Orient Electric Ltd
27
27
We initiate coverage on Bata India with “Buy” recommendation and TP of INR 1500, entailing 20%
upside based on current market price. Our TP is based on 42x FY21 EPS of INR 36. We belevie that
Bata being a market leader in the fast growing footwear category with right intervention, strong
ROCE and strong balance sheet with 40% cash is at the cusp of growth is likely to trade at in line
with the other leading consumer plays.
Relative Valuation
Company M-cap (INR cr)
Diluted EPS (INR) P/E( x) EV/EBITDA(x) ROCE
FY18E FY19E FY20E EPS CAGR FY18-20
FY18E FY19E FY20E FY18E FY19E FY20E FY18E FY19E FY20E
Havell's India 43073 11.2 13.9 17.3 24.1 63.1 50.8 41.0 40.8 32.7 26.5 28.1 31.5 34.9
Asian Paints 133674 21.1 24.2 29.6 18.5 68.8 60.1 49.0 43.4 39.0 32.0 34.3 34.6 37.5
Pidilite Industries 55680 19.0 19.2 23.7 11.6 59.7 59.3 47.9 42.3 39.5 32.2 36.2 33.8 35.5
Jubilant Foodworks 17167 15.6 24.6 29.6 37.5 83.0 52.7 43.9 37.5 27.2 22.4 33.0 42.5 41.8
Titan Company 92241 12.6 16.3 20.3 26.8 84.6 65.4 52.6 57.2 44.6 35.9 34.0 36.8 38.7
Aditya Birla Fashion and Retail
16836 1.5 3.4 5.3 86.7 137.7 61.4 39.5 38.8 25.4 19.5 7.0 15.0 19.2
Avenue Supermarts Limited
91385 12.9 15.4 20.3 25.3 111.6 93.7 71.2 66.3 54.1 41.6 25.6 28.0 29.8
Trent LTD 11069 2.6 5.5 7.7 71.1 130.1 61.5 44.4 57.9 40.9 30.7 10.4 13.0 15.4
Median 26.0 83.8 60.7 46.2 42.8 39.3 31.4 30.5 32.7 35.2
Bata India 16127 17.2 24.3 30.4 33.0 73.0 51.7 41.3 38.4 28.7 22.9 32.4 40.6 42.6
Key Risks Exit of key management personnel: Exit of senior management (Mr. Sandeep Kataria and
senior management employees like R.K. Gupta ) is a key risk for Bata as it has played an
important role in turning around the company over the past 3 years.
Intense competition: Bata may face intense competition from existing players in the form of
aggressive pricing, increased spending on marketing & distribution, launch of improved
products with attractive features, etc. Furthermore, entry of large international companies in
the footwear segment can lead to intense competition in the industry in the future.
Slowdown in economy: Rise in disposable incomes is a key driver of consumer discretionary.
Hence, any slowdown in the economy could pose downside risk to Bata’s earnings.
Edelweiss Professional Investor Research
Business Overview
Business Overview
Bata India Ltd
Orient Electric Ltd
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Company Description Bata, India’s largest footwear retailer, has been operating in the Indian subcontinent for around 9 decades with a retail
network of 1,400 stores across 550 cities, entailing 3 mn sq ft retail space. It has 5 manufacturing plants at West Bengal, Bihar,
Karnataka and Tamil Nadu.
Bata is a part of Bata Shoe Organization (BSO) that has presence in 70 countries and operates through 3 business units—Bata
India is the largest entity of the BSO in terms of pairs sold and will overtake Italy in FY19 in terms of revenue (currently Italy is
the largest revenue market for BSO).
BSO provides access to the technical research and innovative programmes of Global Footwear Services, Singapore. This
arrangement is currently valid up till 2021 and Bata pays 1% as a technical charge for the same.
Business Model The company retails shoes across all price points via its own EBO network of 1,300 plus stores. It manufactures as well as outsources products that it retails.
Strategic Positioning It has pan-India presence and strong brand equity in the minds of its target consumers.
Competitive Edge Wide product portfolio—men, women as well as kids, with store presence in key geographies.
Financial Structure Strong balance sheet, with zero debt on books and ~35% plus of the balance sheet in cash.
Key Competitors Relaxo, unorganised players.
Industry Revenue Drivers
Increasing per capita consumption of footwear along with premiumisation trend.
Shareholder Value Proposition
The company is likely to clock EPS of INR 30.4for FY20E. At valuation of 42x FY21E, we arrive at target price of INR1500 which offers an upside of 20% from the current level.
Edelweiss Professional Investor Research
Timeline
Timeline
Bata India Ltd
Orient Electric Ltd
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29
Major Milestones
1931 1971 2002 2011 2012 2013 2015 2016 2017 2018
1931: Incorporated in
Kolkata as Bata Shoes
Co. Batanagar plant
was the first footwear
manufacturing facility
to receive ISO 9001
certification
1971: Public issue and name
was changed to Bata
India Limited
2002: Massive operational
restructuring initiated –
closed down cash
drain stores, employee
VRS, technology
upgradation,
outsourcing etc
2011: Restructuring nearly
complete; focus shifts
to aggressively
opening large format
destination stores and
EBO’s for certain
scalable sub-brands
2012:• Achieved annual sales of
50 mn pairs
2013:• General slowdown and the online
slaughter and weak product portfolio
impacted the performance
2015: The company tried
to change the inventory
tracking system from
traditional basis to SAP
module, the changeover
had problem, resulting in
higher inventory pile up
and lower sales
2016:• Rejig at the
management level
was done to fix on
the inventory
problem; which was
resolved
2017: Further restructuring towards
new management, cost
rationalization efforts continued
2018• Marked change in the product,
positioning, pricing and
communication undertaken to cater
to the evolving young generation
Edelweiss Professional Investor Research
Financials
Financials
Bata India Ltd
Orient Electric Ltd
30
30
Year to March (INR cr) FY17 FY18 FY19E FY20E FY21E
Income from operations 2,474 2,641 2,968 3,450 3,984
Direct costs 1,158 1,209 1,306 1,494 1,725
Employee costs 273 296 329 380 438
Renal expenses 357 362 365 414 478
Other expenses 408 423 484 569 657
Total operating expenses 2,196 2,290 2,484 2,857 3,299
EBITDA 278 351 484 593 685
Depreciation and amortisation 65 60 68 77 87
EBIT 213 291 416 516 598
Interest expenses 4 4 4 4 4
Other income 46 51 53 70 97
Profit before tax 255 337 465 582 691
Provision for tax 75 116 153 192 228
Core profit 180 221 311 390 463
Extraordinary items -22 0 0 0 0
Profit after tax 158 221 311 390 463
Minority Interest 0 0 0 0
Share from associates 0 0 0 0
Adjusted net profit 180 221 311 390 463
Equity shares outstanding (mn) 13 13 13 13 13
EPS (INR) basic 14 17 24 30 36
Dividend per share 4 4 4 4 4
Dividend payout (%) 29 23 17 13 11
Common size metrics- as % of net revenues
Year to March FY17 FY18 FY19E FY20E FY21E
Operating expenses 88.8 86.7 83.7 82.8 82.8
Depreciation 2.6 2.3 2.3 2.2 2.2
Interest expenditure 0.2 0.2 0.1 0.1 0.1
EBITDA margins 11.2 13.3 16.3 17.2 17.2
Net profit margins 7.3 8.4 10.5 11.3 11.6
Growth metrics (%)
Year to March FY17 FY18 FY19E FY20E FY21E
Revenues 2.1 6.7 12.4 16.2 15.5
EBITDA 2.3 4.3 8.5 15.0 15.5
PBT 14.9 32.3 37.8 25.3 18.7
Net profit (27.3) 39.8 41.0 25.3 18.7
EPS 25.9 23.0 41.0 25.3 18.7
Edelweiss Professional Investor Research
Financials
Financials
Bata India Ltd
Orient Electric Ltd
31
31
Balance sheet (Standalone)
As on 31st March FY18 FY19E FY20E FY21E
Equity share capital 64 64 64 64
Reserves & surplus 1,481 1,793 2,183 2,646
Shareholders funds 1,545 1,857 2,248 2,710
Long Term Borrowing - - -
Short Term Borrowing - - -
Minority interest - - -
Other Liabilties - - -
Sources of funds 1,545 1,857 2,248 2,710
Gross block 485 585 685 785
Depreciation 293 373 453 533
Net block 192 212 232 252
Capital work in progress 14 14 14 14
Total fixed assets 206 226 246 266
Intangible Assets
Deferred tax assets 105 105 105 105
Inventories 762 829 964 1,113
Sundry debtors 89 98 113 131
Cash and equivalents 636 659 867 1,135
Loans and advances 188 207 228 251
Other current assets 105 115 132 152
Total current assets 1,780 1,908 2,305 2,782
Sundry creditors and others 657 554 639 735
Provisions
Total CL & provisions 657 554 639 735
Net current assets 1,123 1,355 1,665 2,048
Uses of funds 1,545 1,857 2,247 2,710
Book value per share (INR) 120 144 175 211
Cash flow statement
Year to March FY18 FY19E FY20E FY21E
Net profit 221 312 391 462
Add: Depreciation 60 67 77 88
Add: Deferred tax
Add: Others 0 0 0
Gross cash flow 281 379 467 550
Less: Changes in W. C. 93 209 103 114
Operating cash flow 188 170 365 436
Less: Capex 83 100 100 100
Free cash flow 105 70 265 336
Edelweiss Professional Investor Research
Financials
Financials
Bata India Ltd
Orient Electric Ltd
32
32
Ratios
Year to March FY17 FY18 FY19E FY20E FY21E
ROAE (%) 13% 16% 19% 19% 19%
ROACE (%) 21% 24% 28% 29% 28%
Current ratio 3 3 3 4 4
Debtors (days) 10 10 11 12 12
Inventory (days) 104 103 102 102 102
Payable (days) 68 79 65 65 65
Cash conversion cycle (days) 46 34 48 49 49
Debt/EBITDA
Debt/Equity
Adjusted debt/Equity
Valuation parameters
Year to March FY17 FY18 FY19E FY20E FY21E
Diluted EPS (INR) 14.0 17.2 24.3 30.4 36.0
Y-o-Y growth (%) 25.9 23.0 41.1 25.3 18.4
CEPS (INR)
Diluted P/E (x) 101.7 72.7 51.5 41.1 34.7
Price/BV(x) 12.1 10.4 8.7 7.1 5.9
EV/Sales (x) 6.3 5.8 5.2 4.4 3.7
EV/EBITDA (x) 48.0 38.4 28.7 22.9 19.1
Diluted shares O/S 12.9 12.9 12.9 12.9 12.9
Basic EPS 14.0 17.2 24.3 30.4 36.0
Basic PE (x) 101.7 72.7 51.5 41.1 34.7
Dividend yield (%) 0.32 0.32 0.32 0.32 0.32
Edelweiss Professional Investor Research
Financials
Financials
Bata India Ltd
Orient Electric Ltd
33
33
I. India favourably placed to ride on the consumption boom.
Source: Edelweiss Professional Investor Research
India’s per capita consumption as well as per capita spent on footwear is low, and with the growth
in the per capita GDP, the per person consumption along with the per pair spent on footwear is
likely to grow.
Indian footwear industry estimated to grow in mid-teens over medium term
Industry estimates peg the overall footwear industry at INR 55,000 crore, having clocked 12.7%
CAGR over the past five years and estimated to clock 15% CAGR till FY20. Within the industry, while
men’s category is likely to grow at 11.4%, women’s category is expected to grow at a faster clip of
17.8%; kids segment is estimated to register 23% CAGR over the ensuing three years.
India
Indonessia
China
Mexico
UK
Brazil
USA
0.0
1.0
2.0
3.0
4.0
5.0
6.0
7.0
8.0
9.0
- 10,000 20,000 30,000 40,000 50,000 60,000 70,000
Pe
r C
apit
a C
on
sum
pti
on
(N
o. o
f p
airs
)
Per capita GDP (USD)
Footwear consumption remain low in India
0
10
20
30
40
50
-
10,000
20,000
30,000
40,000
50,000
60,000
70,000
India Indonessia China Mexico UK Brazil USA
Spen
t p
er p
air
in U
S$
Per
cap
ita
GD
P (
US$
)
...And per spent on footwear is low
Per capita GDP Spent per pair
Edelweiss Professional Investor Research
Financials
Financials
Bata India Ltd
Orient Electric Ltd
34
34
Footwear Industry expected to grow in mid teens Women and kids category to grow at faster pace
Source: Edelweiss Professional Investor Research
The women’s and kids composition in the footwear category is likely to increase from present level of 37%/ 9% to around 41%/11%
by FY20.
Source: Edelweiss Professional Investor Research
The share of branded footwear in India is estimated to jump to 50% by FY20 from 42% currently led
by: (a) penetration of existing brands in tier 2 & smaller cities; (b) existing international premium
brands expanding their presence via launch of new stores; (c) deepening reach of mid & economy
brands to tier 2-3 towns & cities; and (d) demand shift from unbranded to branded.
The urban segment constitutes ~67% and within the urban cluster, top 8 cities that constitute
metros contribute ~40% to total revenue; tier 1 & 2 cumulatively contribute the next 40% of the
urban share. Broadly based on these estimates, Metro + tier 1 & 2 cities together contribute ~55-
60% to the overall footwear market and the same is estimated to have higher organised share.
Category and price point wise, around 45% of the footwear is sold at >INR 500 and the same is
growing at a higher rate than the mass footwear category (in higher single or lower double digit);
higher price point footwear is growing in double digits.
12.7
15
FY14-17 FY17-20
11.4%
17.8%
23.6%
Mens Womens Kids
Men, 54%Women, 37%
Kids, 9%
Footwear industry
break-up -2020, 0%
Men, 48%
Women, 41%
Kids, 11%
Edelweiss Professional Investor Research
Financials
Financials
Bata India Ltd
Orient Electric Ltd
35
35
Breakup of Footwear Market by Price Point
Source: Edelweiss Professional Investor Research
Footwear segment: Key trends
Rising trust in branded footwear: Though the market share of branded and non-branded footwear
in India has remained almost the same till date, brand consciousness has increased significantly. A
fast-growing economy and a rising number of affluent consumers have pushed India into the league
of most brand conscious countries globally. However, most consumers prefer a price point ranging
between INR 999 and INR 4,999 in national and international brands.
Growing opportunities in women’s segment: Though women’s footwear has only 30% market
share currently, its growth rate is double that of the men’s segment. Men’s category is expected to
grow at 10% ; while women is expected to grow at 20% for the next 3-5 years time frame
Omni-channel retailing: Retailers have started venturing in omni-channel retailin are trying in-store
marketing solutions such as beacons to enrich the shopping experience and are finding ways to
bridge the gap between offline and digital channels. In addition to engaging users on the digital
platform and influencing their merchandising decisions, many retailers are using platform not just
to showcase products, but to actually sell them. The same goes for mobile phones. Companies are
using the small screen to not just ‘get in front’ of customers (i.e., through geo-fencing and mobile-
enabled sites but also for parts of the customer journey, including order fulfilment, payments, and
loyalty.
Source: Edelweiss Professional Investor Research
Premium
(3000+)
Micl
(1000-3000)
Economy
(800-1000)
Mass<600
54%
30%
10%
6%
% Share, ValuePrice Segments
(Avg. Selling Price at Retail Stores in INR)
36
810 11
13
2013 2014 2015 2016 2017 2018
Online Contribution
Edelweiss Professional Investor Research
36
36
Bata India Ltd
Orient Electric Ltd
Edelweiss Broking Limited, 1st Floor, Tower 3, Wing B, Kohinoor City Mall, Kohinoor City, Kirol Road, Kurla(W)
Board: (91-22) 4272 2200
Vinay Khattar
Head Research
Rating Expected to
Buy appreciate more than 15% over a 12-month period
Hold appreciate between 5-15% over a 12-month period
Reduce Return below 5% over a 12-month period
60
80
100
120
140
160
180
200
220
240
260
Jan
-14
Ap
r-1
4
Jul-
14
Oct
-14
Jan
-15
Ap
r-1
5
Jul-
15
Oct
-15
Jan
-16
Ap
r-1
6
Jul-
16
Oct
-16
Jan
-17
Ap
r-1
7
Jul-
17
Oct
-17
Jan
-18
Ap
r-1
8
Jul-
18
Oct
-18
Jan
-19
(In
de
xed
)
Bata Sensex
Edelweiss Professional Investor Research
37
37
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