Bata Shoe Bangladesh. Parvez M Chowdhury Analyst: Pharmaceuticals and Consumer Goods Rating: OUTPERFORM February 15, 2010

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1 Price, BDT Turnover, MM Parvez M Chowdhury Analyst: Pharmaceuticals and Consumer Goods parvez@bracepl.com Bata Shoe Bangladesh DSE: Bloomberg: BATASHOE BATASH:BD Company Summary 52-week Price Range BDT Current Price BDT month Target Price BDT Total Return 21.6% Number of Shares mn 13.7 Market Cap BDT mn 6,550.0 BDT mn 2009A 2010E 2011E Revenue 4,995 5,982 7,212 Ops Income 1,109 1,226 1,473 Net Income Margins Gross Margin 35% 35% 35% Operating Margin 13% 14% 14% Net Margin 9% 10% 10% Growth Revenue Growth 8% 20% 21% Net Income Growth 0% 31% 21% Per Share EPS Dividend Book Value/Share Cashflow BDT mn Operating Capex Dividend Valuation P/E 14.57x 11.13x 9.17x P/B 5.85x 5.17x 4.53x ROE 43% 49% 53% ROA 17% 20% 22% Miscellaneous BDT mn Total Debt Cash Price Performance (since 2010) Bata Shoe FY10 Result Preview Rating: OUTPERFORM February 15, 2010 Bata Shoe Bangladesh is close to announcing its annual results. We expect the company to post a net profit of BDT mn with an EPS of BDT as compared to BDT mn (EPS of BDT 32.85) in 2009, a solid 31% growth YoY. We expect the Q4 to be slightly weaker in performance compared Q3, for which Bata posted fantastic growth thanks to the buying frenzy on the eve of Eid festival in September. In Q3 alone, Bata enjoyed EPS of BDT 15.72, more than half of the cumulative EPS of BDT for the first nine months of FY10. We expect net profit of BDT mn (EPS: BDT 13.02) for Q4 compared to net profit of BDT mn (EPS: BDT 12.32) for the same period a year ago. MM BDT 1Q10A 2Q10A 3Q10A 9M10A 4Q10E FY10E Revenue 1, , , , , ,982.3 COGS , , , ,908.0 GP , ,074.3 SGA ,225.8 Operating Profit Other Income Interest Income Profit before WPPF WPPF EBT Tax PAT EPS We also expect a final cash dividend of BDT 32 per share anticipating a payout ratio of 75%. For the first half, Bata has already declared an interim dividend of BDT 14.5 per share leaving BDT 17.5 per share for the remaining half outlook Bata has just bounced back from a lackluster 2009, which was mainly due to the effects of global financial downturn. The company has recently established a fully export-oriented subsidiary. While the subsidiary is yet to come online, we think it could boost Bata s exports significantly 2011 onwards With an expected year end EPS of BDT for 2010, the company is trading at a P/E of 11.1x (2010 EPS). Considering latest growth boost, we maintain our Outperform rating. Our estimated fair value of BDT 550 with a dividend yield of 6.7% implies a total return of 21.6% at the end of Turnover Avg Price

2 Table 5: Income Statement Net Sales 3,976 4,623 4,995 5,982 7,212 8,498 COGS 2,653 3,031 3,238 3,908 4,709 5,545 Gross Profit 1,323 1,593 1,758 2,074 2,503 2,953 Administrative, Selling & Distribution Expense ,109 1,226 1,473 1, ,030 1,221 Other Income EBIT ,059 1,255 Interest Expense Profit before Contribution to WPPF ,054 1,248 WPPF EBT ,001 1,186 Tax PAT Table 6: Cash Flow Statement Operating Cash Flow Net Income Add Back Non-cash Expense Change in Working Capital Cash Flow from Operations Investing Cash Flow Capital Expenditure Cash Flow from Investing Financing Cash Flow Change in Debt Dividend Paid Cash Flow from Financing Net Cash Beginning Balance Closing Balance

3 Table 7: Balance Sheet Inventories 1,312 1,460 1,433 1,717 2,069 2,438 Accounts Receivables Advance, Deposits & Prepayments Cash & Bank Balance Total Current Assets 1,832 2,013 2,165 2,486 2,896 3,351 Net Fixed Assets Capital Work In Progress Deffered Tax Asets Total Non Current Assets Total Assets 2,252 2,483 2,723 3,071 3,490 3,952 Total creditors ,172 1,412 1,663 Provision for tax Unpaid dividend Total Current Liabilities 1,289 1,384 1,471 1,671 1,911 2,162 Total Non Current Liabilities Total Liabilities 1,429 1,511 1,602 1,803 2,043 2,294 Shareholders' Equity: Share Capital Reserve & Surplus ,131 1,309 1,521 Total Liabilities & Equities 2,252 2,483 2,723 3,071 3,490 3,952

4 Table 8: Indicators and Ratios Source: Company Data, BRAC EPL Research, January Sales growth 3% 16% 8% 20% 21% 18% EBITDA growth 19% 24% 2% 28% 21% 18% Net profit growth 17% 38% 0% 31% 21% 18% EPS CFPS Gross margin 33% 34% 35% 35% 35% 35% Operating margin 13% 14% 13% 14% 14% 14% EBITDA Margin 14% 15% 14% 15% 15% 15% Net margin 8% 10% 9% 10% 10% 10% Inventory turnover Sales/assets Working capital 543, , , , ,929 1,188,412 Working capital ratio Debt/equity 0% 0% 0% 0% 0% 0% Debt/assets 0% 0% 0% 0% 0% 0% Return on equity 40% 50% 43% 49% 53% 55% Return on assets 15% 19% 17% 20% 22% 23% Effective tax rate 34% 27% 29% 29% 29% 29% Equity growth rate 0% 18% 15% 13% 14% 15% Book value per share P/E P/B

5 IMPORTANT DISCLOSURES Analyst Certification: Each research analyst and research associate who authored this document and whose name appears herein certifies that the recommendations and opinions expressed in the research report accurately reflect their personal views about any and all of the securities or issuers discussed therein that are within the coverage universe. Disclaimer: Estimates and projections herein are our own and are based on assumptions that we believe to be reasonable. Information presented herein, while obtained from sources we believe to be reliable, is not guaranteed either as to accuracy or completeness. Neither the information nor any opinion expressed herein constitutes a solicitation of the purchase or sale of any security. As it acts for public companies from time to time, BRAC-EPL may have a relationship with the above mentioned company(s). This report is intended for distribution in only those jurisdictions in which BRAC-EPL is registered and any distribution outside those jurisdictions is strictly prohibited. Compensation of Analysts: The compensation of research analysts is intended to reflect the value of the services they provide to the clients of BRAC-EPL. As with most other employees, the compensation of research analysts is impacted by the overall profitability of the firm, which may include revenues from corporate finance activities of the firm's Corporate Finance department. However, Research analysts' compensation is not directly related to specific corporate finance transaction. General Risk Factors: BRAC-EPL will conduct a comprehensive risk assessment for each company under coverage at the time of initiating research coverage and also revisit this assessment when subsequent update reports are published or material company events occur. Following are some general risks that can impact future operational and financial performance: (1) Industry fundamentals with respect to customer demand or product / service pricing could change expected revenues and earnings; (2) Issues relating to major competitors or market shares or new product expectations could change investor attitudes; (3) Unforeseen developments with respect to the management, financial condition or accounting policies alter the prospective valuation; or (4) Interest rates, currency or major segments of the economy could alter investor confidence and investment prospects. BRAC EPL Stock Brokerage Capital Markets Group Aminul Haque Head of Capital Markets amin@bracepl.com Md. Monirul Islam Research Analyst monirul@bracepl.com Parvez Morshed Chowdhury Research Analyst parvez@bracepl.com Ali Imam Investment Analyst imam@bracepl.com Asif Khan Investment Analyst asif@bracepl.com Md. Ashfaque Alam Research Associate ashfaque@bracepl.com Khandakar Safwan Saad Research Associate safwan@bracepl.com Aasim Tajwaar Matin Research Associate tajwaar.matin@bracepl.com BRAC EPL Research WW Tower (7 th Floor) 68 Motijheel C/A, Dhaka-1000 Tel: Fax: research@bracepl.com