Bata India Limited (Bata) is a 52 per cent subsidiary of Bata (BN) BV. Bata is one of the largest footwear manufacturers in India and sells a wide range of footwear in canvas, rubber, leather, and plastic. The company has capacity of 628 lakh pairs per annum spread across its five manufacturing units at Batanagar (Kolkata), Faridabad (Haryana), Bataganj (Bihar), Peenya (near Bangalore), and Hosur (Tamil Nadu). Bata currently sells footwear under the Bata brand through 1,388 retail outlets across India and a large number of other outlets, served by various Bata dealers.
Market Cap: Rs. 4,600 crores
5 year sales CAGR: 16.2%
5 year EBITDA CAGR: 27.7%
5 year PAT CAGR: 33.5%
5 year Avg. RoCE: 37.1%
5 year Avg. RoE: 26.2%
Positive FCF for each of the last five tears
Capex as % of revenue: ~5% for the last 5 years
The management says that the current slowdown is temporary and hence BIL will continue aggressive retail expansion (over 100 new stores) during FY 13 ending 31/12/2013
The Company is market leader and is better placed to cater to the demand when growth returns
The company plans to invest Rs 15 crore on strengthening its manufacturing facilities and about Rs 70 crore in setting up new stores across the country.
The company will invest Rs 15 crore each year for the next three years to upgrade machineries and expand the production atits manufacturing units at Batanagar, Patna and Bangalore.
Hush Puppies range of footwear in the premium segment is on an aggressive growth path and has plans to reach new heights with more exclusive brand outlets in all major metros across India
Comfit, Ambassador and Mocassino brands in the dress comfort segment have grown very well
For the ladies segment, Bata’s popularity continues to grow with the trendy Marie Claire range
The youth focused brand North Star and specialty outdoor brand **Weinbrenner **presents new trendy designs with an increased focus on casual styles
Bubblegummers brand continues to allure children across the country
Retail: Over 1250 retail stores across the country, sells over 50 million pairs of footwear every year, serving 1,50,000 customers every day
Non-retail: Over 275 distributors and over 20,000 independent shoe dealers, caters their requirements through 11 depots located across the country
Online: Entered into tie-ups with two e-commerce sites viz., e-bay.com and rediff.com for sale of footwear through internet and shall continue to explore tie-up opportunities with other
e-commerce sites in future
Scale of Opportunity
The domestic footwear market is estimated to be more than Rs.15,000 crores and is expected to reach Rs.20,000 crores by 2015. The average growth in the industry has been estimated at 12 per cent and is estimated to touch Rs 47,000 crore by 2025
The average Indian urban consumer spends Rs. 240/- per annum, consumers in rural areas spend just Rs.100/- per annum. The domestic consumption of footwear is approximately 1.1 billion pairs per annum and top 20 cities constitute about 450 million pairs per annum.
The branded shoes market only accounts for 20 per cent of the entire market
Presently the Indian organised footwear market is dominated by men’s footwear segment that contributes for nearly 60 per cent of the market where the casual footwear has two thirds of the share in the men’s segment. The unorganised players have the lions share in the ladies and kids segment with 80 per cent share.
With more and more Indian woman joining the workforce the ladies footwear market in all the categories/segments will grow rapidly throwing up huge opportunities in an area yet to be fully tapped by Bata
While International Brands mainly dominate the higher end of the consumers, the lower and middle end is dominated by home grown players like your Company as well as unorganized players. The focus of Bata will be to shift the consumers who buy footwear from the unorganized sector to buy from the Company’s branded footwear range at price points which will be affordable and competitive with the unorganized sector
Import of cheap footwear from China by competitors, which controls 17 per cent of international leather trade compared with India’s 3 per cent, remains a challenge
Slowdown in consumer spending
The present corporate strategy involves investments in increasing volumes and improvement in quality coupled with outsourcing.
In a significant shift in strategy, Bata has decided to switch to large format stores measuring above 3,000 square feet. The unviable small format stores shall be relocated in a phased manner and shall be operated in a large format store in the same market.
The move towards store standardization will improve the business viability and give a wider selection and choice of footwear to the customers.
Latest Performance: (Source: Business Standard)
While sales growth of 18 per cent in Q4 was tad behind expectations of 20 per cent, operating profit margin (OPM) of 15.8 per cent was significantly lower than analystsâ expectations of 17.1 per cent, as rent costs (up 266 basis points as percentage to sales) impacted savings in other overheads like raw material and employee costs.
Due to dismal show on the operational front, net profit margin at 10 per cent also came in below expectations. Nevertheless, compared to previous two quarters, demand and cost pressures (except rentals) receded in Q4. Sequentially the performance has jumped—sales up 20 per cent and margins up 250-400 basis points â as the company offered discounts in September 2012 quarter for inventory clearance.
Despite economic slowdown and inflationary pressures, the company managed to report a decent top-line growth of 19.4 per cent in calendar year 2012 partly due to higher than targeted addition of 152 stores (versus 100 each planned in next two years). Further despite cost pressure, the company maintained margins, which was impressive. According to analystsâ expectations, the companyâs financial performance especially profitability is expected to bounce back in 2013 despite addition of new stores.
The current PE is about ~26 which is quite high. But the Companyhas always traded at higher valuations. However, at the CMP of 716, it’s 27% down from the all time high of 982.
Disc: I don’t hold Bata. But plan to add in the near term