Management Meet Update Bata India Reuters: BATA.BO; Bloomberg: BATA IN On Right Track We had a meeting recently with Mr. R. K. Gupta, Chief Financial Officer (CFO) of Bata India (BIL) to understand recent developments in the company s business. The CFO was upbeat about BIL s future prospects and expects it to register double-digit volume growth with improvement in margins on YoY basis. New management at the helm: Mr. Sandeep Kataria has been appointed as Country Manager for the Indian sub-continent with effect from 1 August 17. Prior to his appointment at BIL, Mr. Kataria was Chief Commercial Officer at Vodafone India. He reports directly to Mr. Rajeev Gopalkrishnan who has been elevated as President - Asia South, based in Singapore, with a broader perimeter encompassing India, Bangladesh, Sri Lanka, Indonesia, Australia and New Zealand. We believe this is a positive change and should bring in fresh ideas on the table which will help the Bata brand to further strengthen across India. Strong push for new products: BIL has invested heavily in its Power brand last year and has refreshed it completely. Sales under Power brand increased from ~% to ~% in the past couple of years. The company launched Power XoRise Phantom (Actual Selling Price or ASP Rs3,5/pair) in FY17. Our channel check affirms that Phantom has been doing exceptionally well across major cities. Feedback received from the customers has been good so far. At the beginning of FY1, BIL had launched international styles for women such as Espadrilles and Bata Insolia range. BIL added SKUs since January 17, taking the total SKU count to 5,. Improvement in operating margin likely: The management sounded confident and expects improvement in margins on YoY basis. Improvement in margins is mainly expected on account of operating leverage because of better volume growth and a change in product mix. ASP at company level for BIL stood at ~Rs9/pair in FY17. ASP at BIL s 35 flagship stores (3, sqft) is ~Rs9/pair while at family stores (, sq.ft.) it is ~Rs/pair. Growth at BIL s flagship stores has been outpacing the growth at family stores (reverse trend). Better contribution from flagship stores should also help improve margins. We expect bps operating margin improvement over FY17-FY19E to 13.5%. Impact of Goods and Services Tax or GST to be neutral: The management believes that GST will be neutral for the company. Wholesale business (~% of total sales) has been impacted from GST and is yet to witness a recovery. BIL had received an order from Tamil Nadu government for supply of mn pairs of slippers (ASP Rs1/pair) in FY17. BIL has not received repeat order this year. However, BIL s retail business (~% of total sales) has been fairly shielded from any adverse impact of GST. For BIL, some states such as Delhi and Haryana have been losers while a state like Maharashtra has been positive despite GST implementation. Management commentary in line with our channel check: As per our channel check, there is more than 1% growth across cities. Store managers sounded very positive about growth prospects in FY1 and are expecting healthy demand during the festive season. High ASP products, mainly Hush Puppies and Power, are witnessing healthy traction across stores that we contacted. One of the most common feedbacks that we received from store managers has been that they are seeing a decent number of new products in women and sports segments. Most of the stores didn t witness any adverse impact on footfalls because of GST implementation. Valuation: Based on the feedback that we received from the management and the channel check, we have revised our estimates upward. We expect BIL s sales/ebitda/pat to post CAGR of 13%/%/%, respectively (earlier growth estimates are 11%/1%/1%, respectively). We expect margin improvement of bps over FY17-FY19E with EBITDA margin at.%/13.5% in FY1E/FY19E, respectively. We have valued the stock at 3x (3x earlier) FY19E earnings at Rs9 (earlier target Rs1) with an Accumulate rating. September 17 ACCUMULATE Sector: Retail CMP: Rs9 Target Price: 9 Upside: 1% Akhil Parekh Research Analyst akhil.parekh@nirmalbang.com +91--39 93 Sara Jaffer Research Associate sara.jaffer@nirmalbang.com +91--39-39 Key Data Current Shares O/S (mn).5 Mkt Cap (Rsbn/US$bn) 9./1. 5 Wk H / L (Rs) 7/399 Daily Vol. (3M NSE Avg.) 7,59 One Year Indexed Stock Performance 13 11 1 9 7 Sep-1 Nov-1 Jan-17 Mar-17 May-17 Jul-17 Sep-17 Price Performance BATA INDIA LTD Nifty 5 1 M M 1 Yr Bata India 9. 39.5. Nifty Index (.) 11. 11.1 Source: Bloomberg
1,79,35,7 3,1 3,39,75,7 3,9, Exhibit 1: Key financials Y/E Dec (Rsmn) FY15 (15M) FY1 FY17 FY1E FY19E Revenues,9,7,73 7,3 31,73 YoY...1.5. EBITDA 3,39,75,7 3,9, EBITDA. 11. 11.3. 13.5 Adjusted PAT, 1,53 1,77,,795 Reported PAT,3,19,3,,795 FDEPS (Rs).7 11.9 13. 17. 1. YoY -3. 17.3 15... RoE 19.9 19.7 1.1 1.3 17. RoCE 17.7.. 1.5 17.9 RoIC.. 5. 31.7 33. P/E (x) 5. 5. 5.1 39. 31. Price/sales (x).1 3.7 3. 3.. EV/EBITDA (x) 3. 3. 9.5 3.5 1.9 Exhibit : Sales growth (Rsmn) 35,. 5 19. 3,.1. 5, 15,.5 1. 5 15,.1 1, (5) 5, (1.1) (1) - (15) CY1 CY11 CY CY13 FY15 FY1 FY17 FY1E FY19E Net Sales Growth Exhibit : Gross Margins Exhibit 3: EBITDA growth (Rsmn),5 5, 37.3 3,5.5 3 3, 19.1 17.3 5.,5 1,.1 1,5 1. 1, (1) 5 (17.) () - (3) CY1 CY11 CY CY13 FY15 FY1 FY17 FY1E FY19E Exhibit 5: EBITDA Margins EBITDA Growth 5.5 5. 53.5 53. 5.5 5. 51.5 5.7 5.9 5.9 5.1 5.1 5.5 51.9 5. 5.5 1 1 1 13.3.9.9 15.. 11. 11.3. 13.5 51. 5.5 CY1 CY11 CY CY13 FY15 FY1 FY17 FY1E FY19E CY1 CY11 CY CY13 FY15 FY1 FY17 FY1E FY19E Bata India
1CY13 CY 1QFY1 QFY1 3QFY1 QFY1 QFY17 QFY17 1QFY1 1CY13 CY 1QFY1 QFY1 3QFY1 QFY1 QFY17 QFY17 1QFY1 Exhibit : Gross Margins Exhibit 7: EBITDAM Quarterly 5 5 5 5 5 5.1 51.9 5. 5.3 5. 5. 55. 5. 5.. 53. 51. 5.3 53. 51.5 53. 5.1 5.3 1 1 1 1. 1. 15. 13.9 13.1 13.3 11...5..5 13. 11. 1. 9.5.5 9. 9. Exhibit : PAT growth (Rsmn) 3, 7.3 5,5,..5 3 1,5 1.1. 15. 1 1,. (1) 5 (.9) () - (3) CY1 CY11 CY CY13 FY15 FY1 FY17 FY1E FY19E PAT Growth Exhibit 1: Return on Invested Capital (RoIC) 35 31.7 33. 3 5. 5.. 15 1 5 FY15 FY1 FY17 FY1E FY19E Exhibit 9: Return on Equity (RoE) 5 19.9 19.7 17. 1.1 1.3 15 1 5 FY15 FY1 FY17 FY1E FY19E Exhibit 11: Return on Capital Employed (RoCE) 17.7 17.9 1 1.5 1.. 1 FY15 FY1 FY17 FY1E FY19E 3 Bata India
Sep- 1CY13 Mar-9 Sep-9 Mar-1 Sep-1 Mar-11 Sep-11 Mar- Sep- CY Mar-13 Sep-13 Mar- 1QFY1 Sep- QFY1 Mar-15 3QFY1 Sep-15 QFY1 Mar-1 Sep-1 Mar-17 QFY17 Sep-17 Jan- 1CY13 Jun- Dec- May-9 Nov-9 Apr-1 Oct-1 Mar-11 Sep-11 Feb- CY Aug- Jan-13 Jul-13 1QFY1 Dec-13 Jun- QFY1 Nov- 3QFY1 May-15 Oct-15 QFY1 Apr-1 Sep-1 QFY17 Mar-17 Aug-17 Exhibit : Rental Exhibit 13: Employee expense Quarterly 1% 1% % % 1% % % % 13.% 1.9% 13.1% 13.%.% 11.7%.9% 13.5% 15.9%.3% 1.%.9% 13.% 15.%.1%.% 1 11. 9. 11. 9. 11. 9.9.9 11.9 11.9 9.7 11.5 9.7.5 11. 1. 1. % % Exhibit : 1-Yr forward P/E and P/B charts (Rs) 7 5 3 x 35x 3x 5x x 15x (Rs) 1, 1, x 7x x 5x x 1 Source: BSE, Nirmal Bang Research Source: BSE, Nirmal Bang Research Bata India
Financials Exhibit 15: Income statement Y/E March (Rsmn) FY15 (15m) FY1 FY17 FY1E FY19E Net Sales,9,7,73 7,3 31,73 % growth...1.5. Raw Material,37 11,51 11,51 13,53 15,7 Staff 3,119,15,73,99 3,113 Rent 3,73 3,7 3,5 3,731,19 Freight 9 55-557 35 Commission 7-35 95 Others,991,5, 3,3 3,91 Total Expenditure 3,591 1,9 1,957,39 7,5 EBITDA 3,39,75,7 3,9, % growth (1.) 3. 1. 5..5 EBITDA margin. 11. 11.3. 13.5 Other income 3 53 59 Interest 1 17 Depreciation 79 7 5 7 7 Profit Before Tax,971,19,555 3,31,9 % growth (1.) (.7) 15. 3..5 Tax 9 5 7 1,39 1,7 Effective tax rate 31. 3.9 3. 31.3 31.3 Adjusted Net Profit, 1,53 1,77,,795 % growth (17.9) (.) 15...5 Extraordinaries 35 5 - - Reported Net Profit,3,19,3,,795 % growth (3.) 17.3 (.7)..5 Exhibit 17: Balance sheet Y/E March (Rsmn) FY15 (15m) FY1 FY17 FY1E FY19E Equity 3 3 3 3 3 Reserves 9,579 11,19,1,15 1,5 Net worth 1,1,9 13,3,795 1,99 Short-term Loans - - - - - Long-term Loans - - - - - Total Loans - - - - - Deferred Tax Liability (7) (91) (1,) (1,) (1,) Liabilities 9,35 11,31, 13,791 15,95 Gross Block 7,5 7,7,57 9,99 1,99 Depreciation 3,3,71 5,31 5,991,73 Net Block 3,33 3,97,735 3,3 3,57 Capital work-in-progress 1 13 - - Long-term Investments 5 1,3 1,3 1,3 1,3 Inventories 7,7,5 7,13 7,,39 Debtors 5 71 9 773 Cash,1 3,5 5, 5,95,71 Other Current assets,19 5 57,7,539 Total Current assets 11,9 11,57 13,19 15,735 1,1 Creditors,55,315 5, 5,73 5,7 Other current liabilities 1, 1,1,3 Total current liabilities,153 5,1 5,9, 7,73 Net current assets 5,77,55 7,31,53 1,9 Total Assets 9,35 11,31, 13,791 15,95 Exhibit 1: Cash flow Y/E March (Rsmn) FY15 (15m) FY1 FY17 FY1E FY19E EBIT,557 1,97,135,5 3,5 (Inc.)/Dec in working capital (1,3) 17 (1,) (9) Cash flow from operations 1,333,5,755 1,77 3,7 Other income 3 53 59 Depreciation 79 7 5 7 7 Deffered Liabilities (195) (15) (113) - - Interest paid (-) (1) (17) () () () Tax paid (-) (9) (5) (7) (1,39) (1,7) Dividends paid (-) (9) (53) (5) (77) (9) Extraordinary Items 35 (5) - - Net cash from operations 1,19 3,17,99 1,,17 Capital expenditure (-) (1,1) (71) (39) (1,) (1,) Net cash after capex (5),5 1,73 1,17 Inc./(Dec.) in short-term borrowing - - - - - Inc./(dec.) in long-term borrowing - - - - - (Inc.)/Dec. in investments (1) (1,53) - - Cash from Financial Activities (1) (1,53) - - Others / Extraordinary income (11) 3 91 7 () Opening cash,557,1 3,5 5, 5,95 Closing cash,1 3,5 5, 5,95,71 Change in cash (5) 1,35 1,79 7 1,17 Exhibit 1: Key ratios Y/E March FY15 (15m) FY1 FY17 FY1E FY19E Per share (Rs) EPS.7 11.9 13. 17. 1. Book value 79.5 9.1 13. 115.1 9.9 Valuation (x) P/E 5. 5. 5.1 39. 31. P/sales.1 3.7 3. 3.. P/BV.7 7.5.7. 5.3 EV/EBITDA 3. 3. 9.5 3.5 1.9 EV/sales. 3.5 3.3.9.5 Return ratio RoIC.. 5. 31.7 33. RoCE 17.7.. 1.5 17.9 RoE 19.9 19.7 1.1 1.3 17. Margin ratio EBITDA margin. 11. 11.3. 13.5 PBIT margin 9.5.1. 1.1 11. PBT margin 11. 9. 1.3 11.9. PAT margin 7..3 7... Turnover ratio Asset turnover ratio (x).3.1... Avg inventory period (days) 13 115 117 11 11 Avg collection period (days) 1 11 1 1 1 Avg payment period (days) 7 7 75 75 Growth Sales...1.5. EBITDA (1.) 3. 1. 5..5 PAT (3.1) 17.3 (.7)..5 5 Bata India
Apr-1 May-1 Jun-1 Jul-1 Aug-1 Sep-1 Oct-1 Nov-1 Dec-1 Jan-17 Feb-17 Mar-17 Apr-17 May-17 Jun-17 Jul-17 Aug-17 Sep-17 Rating track Date Rating Market price (Rs) Target price (Rs) April 1 Buy 15 57 1 May 1 Buy 59 1 August 1 Accumulate 5 59 3 November 1 Accumulate 55 7 February 17 Accumulate 759 7 1 May 17 Accumulate 57 3 August 17 Accumulate 5 1 September 17 Accumulate 9 9 Coverage shifted to Akhil Parekh since 7 Feb 17. Rating Track Graph 75 7 5 55 5 5 35 3 Not Covered Covered Bata India
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