THE RISE OF INDIAS LEADING FOOTWEAR RETAILER

Analyst: Naveen Vyas Email id : nvyas@microsec.in

-107 JUNE 2011 Microsec Research

BATA India Ltd Re-Initiating Buy STRONG BUY**

Market Data Current Market Price (INR) Target Price U pside Potential Time Horizo n 52 Week High / Low (INR) Market Capitalization (In INR Mn)
Individuals 15.04% Corporate Bodies 3.01% Shareholding

Sector Retail
509.00 670.00 32%

1 8 months 513 /268 32,726.00

Promoter and Promoter Group 52.03%

Hush Puppies, Dr Scholls, Weinbrenner, North Star, Power, Marie Claire, Bubblegummers, Ambassador, Comfit and Wind India Investment Highlights
Continuous and ongoing process of restructuring adopted in all areas of operation :There has been an improvement in manufacturing, changes in sourcing, credit management, retail restructuring, labour union & management relationship, retail expansion programs, internal controls, working capital management and corporate governance to restructure the operation process of Bata. Brand Repositioning with operational efficieny, stylish layout and trendy shoe desgin seems to the latest mantra : With sylish layout and trendy shoe design Bata is repositioning its brand. The company introduced and expanded high-margin premium brands such as Hush Puppies, North Star and Weinbrenner. Soothing music, colourful ambience, contemporary styling and excellent staff at exclusive Bata stores are the latest strategies adopted to provide the best retail environment to its customers.

We once again recommend Bata India a BUY. We have earlier recommended it at CMP of INR353 with a Target price of INR439 which had been achieved. Bata India is the largest retailer and leading manufacturer of footwear in India and is a part of the Bata Shoe Organization. It owns ~1200 stores spread across 400 cities in India. Currently the company owns brands like

Institutions 29.92%

STOCK SCAN BSE Code NSE Code Bloomberg Ticker Reuters Ticker Face Value (INR) Equity Share Capital (Rs. Mn.) Average 5 Year P/E Beta vs Sensex Average Daily Volmes (6 M) Dividiend Yield (%) Stock Return (1 Yr)
250

Opening Large Format Stores in Tier 2 & Tier 3 cities.: It plans to open large format 50-60 stores in tier-2 and tier-3 cities annually of atleast an area of BATAINDIA 4000 sq.ft to increase its market penetration from the current store of ~1200 in CY10. It is also closing down unviable old stores. BATA IN Making shoes for Industrial uses and Armed Forces to add value: The BATA.BO Company has recently launched shoes in the range of INR500-3000 for 10.00 industrial uses in the domestic market. It is also planning to become an 642.64 approved supplier of armed forces of which demand is 1.2mn pairs a year.

500043

38x Devloping 260 acre land in Batanagar in JV with Calcutta Metropolitan to 0.70x unlock value: The township project in JV with Calcutta Metropolitan where Bata has deployed around Rs.73 crore in 2007 is expected to be competed 442,000 by 2013 and would further unlock value of Bata India. 0.79 Exhibit 1. Bata India Historical Financials and Projections INR Millions 101% Particulars CY08 CY09 CY10 CY11E CY12E
Net Sales Growth (%) EBITDA EBITDA Margins (%) Adjusted Net Profit Net Profit Margins (%) Net Profit Growth (%) EPS (Adjusted) EV/EBITDA P/E P/BV RoE 9,836.0 830.0 8.4% 590.6 6.0% 9.19 6.95 55.39 12.60 24.7% 10,902.0 11% 1,240.0 11.4% 625.8 5.7% 6% 9.74 9.35 52.26 10.92 22.4% 12,739.0 17% 1,629.0 12.8% 883.7 6.9% 41% 13.75 12.81 37.02 9.21 27.0% 15,300.0 20% 2,094.0 13.7% 1,186.0 7.8% 34% 18.46 15.40 27.57 7.30 29.3% 18,353.0 20% 2,512.0 13.7% 1,436.0 7.8% 21% 22.34 12.90 22.78 5.78 28.2%

200

1 50

1 00

50

6/7/10

9/7/10

12/7/10

3/7/11
SE NSE X

6/7/11

Bat a India Ltd.close

Source: Company, Microsec Research ( Adj. Profit Excludes One time Gain in CY11E)

-207 JUNE 2011 Microsec Research

Company Profile
Bata India is the largest retailer and leading manufacturer of footwear in India and is a part of the Bata Shoe Organization. Incorporated as Bata Shoe Company Private Limited in 1931, the company has been holding a unique place in the hearts of Indians for more than 75 years. Probably the only footwear brand that offers footwear and accessories for the entire family. It has established a leadership position in the industry and is the most trusted name in branded footwear The company manufactures footwear for men, women and children. The Company manufactures shoes of various quality such as leather, rubber, canvas and PVC shoes. Bata Group has worldwide presence across 5 continents, serving 1 million customers per day and operating 4,600 retail stores globally. Today the company is the largest shoe company in India in terms of sales and revenues. The company currently sells over 45 million pairs of shoes every year. It commands around 35 percent of market share in India. Companys 98 percent revenue comes from domestic operation. It owns ~1200 stores spread across 400 cities in India. Currently the company owns brands like

Hush Puppies, Dr Scholls, Weinbrenner, North Star, Power, Marie Claire, Bubblegummers, Ambassador, Comfit and Wind India

Currently it has five factories located at Batanagar, (West Bengal), Bataganj, (Bihar), Faridabad (Haryana), Peenya (Karnataka) and Hosur (Tamil Nadu). The company has also launched a range of safety shoes for industrial use in the domestic market with a price tag of INR500-Rs 3,000. The company is planning to sell these shoes directly to industrial houses and not through its retail stores. Presently, the products are going through manufacturing process at its Batanagar unit in West Bengal. Awards and Recognistion Bata India Limited was awarded CNBC Awaaz Consumer Awards 2010 for India's Most Preferred Exclusive Brand Retail Outlet. 'Brand Equity' recognized Bata in the 'TOP 50 Most Trusted Brands' in August 2010. Bata is the only lifestyle retailer in the top 50 brands. Bata India Limited received the Most Admired Footwear Brand of the year award by Images Fashion Forum in Mumbai on 18th February 2011. Bata India Limited was recognized as the Most Trusted Brand at 18th position by the Brand Trust Report. This ranking is post survey of 16,000 brands; only 300 top brands were felicitated by The Trust Advisory. Bata India Limited was awarded Retailer of Year (Footwear / Non Apparel) by the Asia Retail Congress.

-307 JUNE 2011 Microsec Research

Batas Brands
The company has build various brand over the years like Hush Puppies, Dr Scholls, Weinbrenner, North Star, Power, Marie Claire, Bubblegummers, Ambassador, Comfit and Wind India . Bata's leadership in the dress comfort segment continues and Comfit, Ambassador and Mocassino brands have grown very well in the year CY10. For the ladies segment, Bata's popularity continues to grow with the trendy Marie Claire range and its latest designs to enhance a woman's femininity, sensuality and individuality. The youth focused brand North Star and specialty outdoor brand Weinbrenner presents new trendy designs with an increased focus on casual styles. The premium brand of Hush Puppies offers city casual styles to customers. There are now 12 exclusive brand outlets along with 13 shop-in shops with leading department stores such as Lifestyle and Central. Scholl & Comfit are offered with fresh younger designs for absolute comfort with style.

Key Strategies Adopted for Growth

Positioning in fashion footwear segment with huge range of trendy footwear. Realising that customer service and satisfaction is the Key Mantra. Planning the Franchisee Route and Online Sales to push up its sales. Introducing almost four designs every day. Expanding its Retail Outlets with better design and more store space of atleast 4000 sq.ft Area. Shed its image as a low-cost functional footwear brand that appeals to the 40-plus age group Focus on Product Design and contemporary look Targeting for a family as a whole Launch of new industrial and customized sectors Strong focus on Financial control Reduce unviable stores Increasing its business to Institutional like Hospitals, Military forces, factory workers and Airlines

-407 JUNE 2011 Microsec Research

Quarterly analysis
Particulars Net Sales Other operating income Net Sales & Other Operating Income Total Expenditure PBIDT (Excl OI) EBITDA (%) Other Income Operating Profit Interest PBDT Depreciation PBT Tax Profit After Tax Exluding EO PAT (%) Extra Ordinary Item (Net of Tax ) PAT inclding Extra Ordinary Item Equity Capital Adjusted EPS Mar-11 3107 37 3143 2699 444 14.3% 26 470 2 469 85 383 132 251 8.0% 843 1094 642.6 3.9 Dec-10 3559 40 3598 3005 593 16.7% 22 614 2 613 98 515 171 344 9.6% 0 344 642.6 5.4 2592 24 2616 2347 269 10.4% 9 277 3 274 64 210 67 143 5.5% 0 143 642.6 2.2

INR Mn

Mar-10 QOQ -13% -13% -25%

YOY 20% 20% 65%

-26% -27%

82% 75%

218%

663%

-27%

75%

The Companys Net sales jumped by 20% to INR3107 Millions and EBITDA improved by 65% to INR444 Millions when compared to previous corresponding quarter. EBITDA Margin of the company improved to 14.3% from 10.4%. Adjusted PAT of the company jumped by 75% to INR251 Millons in comparison to previous corresponding quarter. In the Q1CY11E, there is an Extra- ordinary Income of INR1093 Million resulting from the restructuring of the agreement for the development of integrated township project at Batanagar. Taking the Extra-ordinary Income into account, this quarter PAT jumped by 663% to INR1094 Millions as against INR143 Millions. The year 2011 has begun on a very promising note for the company with highest sales growth in the first quarter as a result of its continued expansion through 29 new stores and great response from customers to its ever improving product range. These 29 new Bata stores are opened across India with a surface selling area of 4000 sft. The company also continued expansion of its Hush Puppies brand with 4 new stores in this Quarter. The wholesale business also continued to grow with opening of new customers in unrepresented towns which resulted in additional business. The Branding, Institutional, safety and exports division are also growing by more than 40%

-507 JUNE 2011 Microsec Research

Industry
Indian domestic leather goods market is estimated to be worth Rs 16,300 crore and is expected to grow at a CAGR of 20%. Domestic footwear market is estimated to be over Rs 15,000 crore in value terms and has grown at the rate of 8.8% over the last couple of years. Indian Footwear Market is projected to reach INR20000 crore by 2015. Mens footwear accounts for almost half of the total market, with womens shoes constituting 40 percent and kids footwear making up for the remainder. The domestic market is substantially price driven, with branded footwear constituting less than 42 percent of the total market size. About 37.8 percent of Footwear retail is the organized segment, which qualifies it as the second most organized retail category in India, next only to Watches. While the average spend on the footwear by urban consumers is INR240/annum, consumers in rural areas spend just about INR100/annum. The annual domestic consumption of footwear is approximately 1.1 billion pairs per annum and top 20 cities contribute about 450 Million pairs/annum. India is the second largest footwear manufacturer in the world, next only to China. Retail footwear segment in Indian is very price sensitive and has been steadily growing over the year. Major part of the demand is met by the unorganised sector and still there is a shortfall of 300 million pairs. Branded shoe market only account for 20% of the entire market. While international brands largely dominate the higher end of the spectrum, the lower end of the market is dominated by home-grown players as well as unorganised players. While men's footwear is the biggest target category (contributing almost 48%), children's (11%) and women's lifestyle footwear (41%) is not behind in the race. Major Brand in Footwear Segment Bata Liberty Woodland Khadim Red Tape Metro Nike Reebok

-607 JUNE 2011 Microsec Research

Peer Comparison
Sales Particulars Pantaloon Retail Shopper Stop Trent Titan BATA FY11 11778 2194 1520 6532 1273
Note :

Figures in INR crore

EPS EBITDA PAT 1001 131 12 591 163 60 43 8 433 88 FY11 2.8 5.3 3.4 97.5 13.7 D/E 1.7 0.5 0.0 0.1 0.2 ROE 2.3% 4.9% 0.2% 49.0% 27.0% CMP 263 400 1034 4378 509

P/E FY11 95.2 76.0 302.3 44.9 37.0 MCAP 5710 3286 2074 19434 3271

No. of stores 57 41 109 665 1200

Source: Microsec Research, Accord,

Bata Indias Financials are year ending December and Pantaloon Retail financials are year ending June Consolidated Financial numbers are considered for all the companies.

VALUATION
The stock is currently trading at INR509 at a P/E of 37x. It discounts its CY11E EPS of Rs.18.4 by 27.6x and its CY12E EPS of Rs 22.3 by 22.8x. Its 5 year consolidated Average P/E works out to be 38x as per Bloomberg. Bata India has transformed itself from being a shoe player to Indias growing Retailer and hence is looking set to trade at higher multiples commanded by other retail players. With Strong Brand Value, Mass appeal, new strategies, Strong Management, Value for money products and Neglible Debt, Bata India looks to be a good bet for investment. We assign a multiple of 30x on its CY12E EPS of Rs.22.3 to arrive at a Target price of INR670 for a time horizon of 18 months.

Key Concern
Import of cheap footwear from China, which controls 17% of international leather trade compared with Indias 3%, remains the main challenge for Bata India Ltd.

-707 JUNE 2011 Microsec Research

Microsec Research: Phone No.: 91 33 30512100 Email: microsec_research@microsec.in Ajay Jaiswal: President, Investment Strategies, Head of Research: ajaiswal@microsec.in Fundamental Research Name Nitin Prakash Daga Naveen Vyas Nitesh Goenka Abhisek Sasmal Sutapa Roy Gargi Deb Ravi Gupta Vinit Pagaria Ranajit Saha` Institutional Desk Rajiv Lilaramani Dhruva Mittal PMS Division Siddharth Sedani Sarmistha Rudra Shrivardhan Kedia Research-Support Subhabrata Boral Research Support Executive sboral@microsec.in PMS Research PMS Technical FPD Products AVP Research Analyst Manager Research ssedani@microsec.in srudra@microsec.in skedia@microsec.in Sectors IT, Telecom & Entertainment Midcaps,Market Strategies Metals & Mining BFSI Economy Agriculture & Pharma Midcaps Derivatives & Technical Technical Research Institutional Equities Institutional Equities Designation AVP-Research AVP-Research Sr. Research Analyst Research Analyst Research Analyst Executive Research Executive Research VP Sr. Manager Sr. Manager Manager Email ID npdaga@microsec.in nvyas@microsec.in ngoenka@microsec.in asasmal@microsec.in s-roy@microsec.in gdeb@microsec.in rgupta@microsec.in vpagaria@microsec.in rksaha@microsec.in rlilaramani@microsec.in dmittal@microsec.in

Technical & Derivative Research

Research: Financial Planning Division

-807 JUNE 2011 Microsec Research

-907 JUNE 2011 Microsec Research