Bata India
Going places
The company is on an aggressive growth path on the retail front. The company's massive realestate project is also progressing well
| Buy | Bata India |
| BSE Code | 500043 |
| NSE Code | Not listed |
| Bloomberg | BATA@IN |
| Reuter | |
| 52-week High/Low | Rs 296/ Rs 136 |
| Current Price | Rs 152 (as on 16th April 2008) |
Bata India (51% subsidiary of Bata, Netherland) is the largest footwear retailer and a leader (a 35% market share) in the footwear industry in India. Over the last couple of years, the company has posted massive improvement in financials. In FY 0512 to 0712, while sales have grown at above 10% pa, OPM has more than doubled to 7%.
This improvement in performance is a result of improvement of shoe line designs leading to higher Gross Margins, Opening of many new stores and remodeling of existing stores, Reduction in cash drain stores, Reduction in wholesale credit, Introduction of franchisee model, Reduction in Receivables, Repayment of debts leading to lower financial costs, Rebuilding a strong Management Team, strengthening Team work and efficiency and Introduction of Information technology for better control.
The Wholesale Business has been focused on the top 300 Wholesalers who are willing to do business on the Company's revised commercial terms. The Company has introduced a stringent credit policy in the Wholesale business as a result of which, Wholesale Credit has dropped. Business with Wholesalers who have defaulted in paying the Company in the past has been restricted or stopped. The Wholesale Business is showing overall improvement with the introduction of exclusive/distinctive shoe lines with higher margins and by reducing the operating costs.
Consolidation of operations in Gurgaon, which is fast emerging as the Retail Capital of India, has also helped in the Company's turnaround.
The country is on the verge of another revolution - the emergence of an 'organized retail segment' also known as Modern Trade which is now already in existence in this country. The elements that will significantly influence this revolution are Supply Chain Management, Manpower Management and Real Estate. Manpower Management and best services will be the most important determinant factor for success. The Company has taken significant measures to rationalize existing manpower that includes designing specific training needs for employees, and extension of VRS. The goal is to bring down employee costs, which is exceedingly high in comparison with competitors.
Another factor that will contribute to the success of organized retail is 'Real Estate'. With traditional shops making way for departmental stores, hypermarkets and western style malls, presence in these happening places will give the much required edge over competitors. Although, the Company has a network of retail outlets spread across the country, it is opening up new outlets in these malls to further strengthen its retail network. With the old stores being renovated and refurbished in line with present needs, the Company is projecting itself as a contemporary and fashion conscious business which will create trends rather than follow it. The new and renovated stores follow international design and standards of Bata Stores worldwide.
Now the company is on an aggressive growth path and has implemented forward looking initiatives like investments in large format stores, trendy shoe collections and customer service programs. These initiatives have resulted in a healthy increase of 13% in turnover in FY 2007. Owing to the changing dynamics of the retail scenario in India and in order to stay ahead of competition, Bata has adopted an ambitious strategy of opening 70 stores every year for the next few years. The company has also introduced exclusive Hush Puppies Stores for the first time in India.
With an aim to offer more choice and in-season designs to its consumers, Bata India introduces new collections on a half-yearly basis. The consumers can choose from a plethora of brands that includes trendy international brands like Marie Claire & Weinbrenner, sporty Power & North Star, comfortable Hush Puppies, Dr. Scholls, Comfit & Ambassador.
Bata India's joint venture real estate project with Calcutta Metropolitan Group Ltd. to develop 262 acres land in Batanagar into a world class integrated township has also been progressing well. The Company is developing around 262 acres of land leased to it in Batanagar. For the purpose of developing this land a special purpose vehicle named Riverbank Holdings Pvt. Ltd. has been formed which is a 50:50 joint venture between the Company and Calcutta Metropolitan Group Limited. The estimated total investment in this Project will be around Rs.1300 crore, excluding the cost of land, school, hospital and hotel construction. The Company's proposal for setting up a Special Economic Zone (SEZ) catering to the IT Sector, which will be spread over a total area of 25 acres, with an approximate investment of Rs.333.5 crore, has been approved by the Central Government, with the full support of the Government of West Bengal. This SEZ will go a long way in making the economy of West Bengal stronger. The company has also been able to finalize with Reliance Group for their setting up a Hypermarket in the Project site. Besides residential, the Project involves the creation of an entertainment and shopping zone, and a golf course along with redevelopment of the river bank as a world- class attraction. The valuation accretion from this project will be substantial for Bata India.
In FY0712, the company's sales have increased 13% to Rs 867.48 crore, OPM rose from 5.5% to 7.1%. With not much increase in fixed costs, PBT before extraordinary items jumped 61%. The company earned EO income of Rs 17.13 crore in FY0612. Due to this growth in net profit in CY2007 moderates to 18% to RS 47.44 crore. For FY0812 we expect the company to report sales and net profit of Rs 971.58 crore and Rs 57.19 crore, giving an EPS of Rs 8.9. Current price of Rs 152 discounts the expected FY0812 EPS by 17 times. Considering the company's strong brand equity, growth prospects and the potential value creation from the realestate project, the scrip offers sound investment opportunity.
|
| 0512 (12) | 0612 (12) | 0712 (12) | 0812 (12P) |
| Sales | 708.3 | 770.2 | 867.48 | 971.58 |
| OPM (%) | 3 | 5.52 | 7.06 | 8.0 |
| OP | 21.34 | 42.52 | 61.26 | 77.73 |
| Other income | 18.3 | 10.03 | 13.02 | 14.97 |
| PBIDT | 39.64 | 52.55 | 74.28 | 92.70 |
| Interest | 9.01 | 6.88 | 6.77 | 7.00 |
| PBDT | 30.63 | 45.67 | 67.51 | 85.70 |
| Depreciation | 12 | 13.62 | 16.01 | 18.41 |
| PBT | 18.63 | 32.05 | 51.5 | 67.29 |
| EO | 5.04 | 17.13 | 0 | 0.00 |
| PBT after EO | 13.59 | 49.18 | 51.5 | 67.29 |
| Tax | 1.1 | 9.03 | 4.06 | 10.09 |
| PAT | 12.49 | 40.15 | 47.44 | 57.19 |
| EPS (Rs)* | 2.7 | 4.1 | 7.4 | 8.9 |
| * Annualized on current equity of Rs 64.26 crore. | ||||
| Bata India: Results |
|
| 0712 (3) | 0612 (3) | Var. (%) | 0712 (12) | 200612 (12) | Var. (%) |
| Sales | 233.97 | 210.23 | 11 | 867.48 | 770.2 | 13 |
| OPM (%) | 8.1 | 4.8 |
| 7.1 | 5.5 |
|
| OP | 19.02 | 10.09 | 89 | 61.26 | 42.52 | 44 |
| Other income | 8.2 | 8.63 | -5 | 13.02 | 10.03 | 30 |
| PBIDT | 27.22 | 18.72 | 45 | 74.28 | 52.55 | 41 |
| Interest | 1.52 | 1.36 | 12 | 6.77 | 6.88 | -2 |
| PBDT | 25.7 | 17.36 | 48 | 67.51 | 45.67 | 48 |
| Depreciation | 4.34 | 4.27 | 2 | 16.01 | 13.62 | 18 |
| PBT | 21.36 | 13.09 | 63 | 51.5 | 32.05 | 61 |
| EO | 0 | 17.13 | -100 | 0 | 17.13 | -100 |
| PBT after EO | 21.36 | 30.22 | -29 | 51.5 | 49.18 | 5 |
| Total Tax | 0.26 | 7.81 | -97 | 4.06 | 9.03 | -55 |
| PAT | 21.1 | 22.41 | -6 | 47.44 | 40.15 | 18 |
| EPS (Rs)* |
|
|
| 7.4 | 4.1 |
|
| * on current equity of Rs 64.26 crore. | ||||||
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