Bata India (BATIND) 1017

Transcription

1 Company Update Rating matrix Rating : Buy Target : 1380 Target Period : 12 months Potential Upside : 31% Key Financials ( crore) CY13 FY15P* FY16E FY17E Net Sales 2,065 2,694 2,513 3,011 EBITDA Net Profit EPS ( ) *15 months Valuation summary CY13 FY15P* FY16E FY17E P/E Target P/E EV to EBITDA Price to book RONW (%) ROCE (%) Stock data Particular Amount Market Capitalisation ( Crore) 6,523.0 Debt (FY15P) ( Crore) - Cash (FY15P) ( Crore) EV ( Crore) 6, week H/L 1495 / Equity Capital ( Crore) 64.3 Face Value ( ) 10 Price performance (%) 1M 3M 6M 12M Bata India Liberty Shoes Relaxo Footwear Price Movement 10,000 9,000 8,000 7,000 6,000 5,000 4,000 3,000 2,000 May-12 Jan-13 Research Analysts Aug-13 Price (R.H.S) Bharat Chhoda bharat.chhoda@icicisecurities.com Dhvani Bavashi dhvani.bavashi@icicisecurities.com Nirav Savai nirav.savai@icicisecurities.com Mar-14 Oct-14 Nifty (L.H.S) Jun-15 1,600 1,400 1,200 1, June 19, 2015 Bata India (BATIND) 1017 Platter of products Enriching customer experience We had done a survey across a few selected Bata stores to understand the pulse of Bata s business strategy & actual situation at the ground level. We interacted with the store staff and inputs were provided by the Branch Managers, Franchise Owners & wholesalers of various stores within India. These stores were randomly selected across segments across regions like Mumbai, Nasik, Latur, Vapi, Amritsar, Jammu, Patna, Bhubneshwar, Hyderabad, Chennai, Raipur & Kottayam. We have selected a sample size of 25 stores, out of which 9 stores were Exclusive Brand Outlet (EBO), 9 stores were K-category and 5 Hush Puppies stores and 2 wholesalers. The number of stores located in metros were 17, and the remaining were from Tier 2 & 3 cities. Supply crunch subsiding; SAP implementation postponed Bata reported subdued revenue growth over past few quarters on the back of supply chain issues due to which store level inventories were not managed at required levels. The company intends to enhance its current IT infrastructure with an upgraded SAP version, which would be seamless PAN India across store levels. Due to this IT transformation the stores had teething problems which resulted in delayed dispatches to stores. Our interaction with store managers reveals that SAP implementation has been postponed and would be taken up again at a later stage. On the supply side, stores have seen an improvement in supplies compared to previous two quarters which should perk up the revenue growth though in a gradual manner. Premium Brands & Accessories product gaining traction Bata had ventured in several new product lines in the premium & accessories segment. Bata s premium brand Hush Puppies continues to gain traction in Metros, however though there is higher demand in Tier II and Tier III cities; the supply side constraint remains. Further Power has been able to position itself as one of the preferred sports brand. Among women specific brands, Marie Claire and accessories are catching up fast and gaining acceptance with consumers. Sharpened focus on Customer Loyalty Program As per our survey, our feedback suggests that Bata offers 1% of the bill amount as loyalty point which the customers can redeem on their future purchases. Further, the loyalty program has not been rolled out across India. Aggressive store opening with focus on K-Stores As per our interaction with store managers, Bata has been promoting a unique K Store franchise model in which the company gives an opportunity to few selected employees to manage the store as an entrepreneur. Bata offers margin of around 7% of total revenue to these employees, who in turn bears all employee related cost, while Bata takes care of the unsold inventory & the rental costs. Revamp & Embellishment of Traditional Bata Stores Store Managers have also indicated a eventual strategic shift to revamp the existing store layout and enhanced product portfolio with inclusion of accessories. The company has widened its product portfolio and included premium products with new categories like Handbags, Clutches, Belt, Scarf, Sunglasses etc. Hence, the company is focussing on large format stores in the range of square feet to provide the consumer an enhanced shopping experience with a wider array of products. Also it has increased the presence in malls to capture higher footfalls. ICICI Securities Ltd Retail Equity Research

2 Incentivising employees; Focus on Revenues Every store has ~ 10% revenue growth target on a yearly basis. Few stores in metros also indicated that they have a weekly review on revenue targets. Also in the event of target achievement, Branch Managers as well as store employees are entitled to receive fixed incentive. Average Selling price (ASP) As per our survey ASP is a key criterion behind inventory supply to company owned EBO s. Generally the regionally located warehouse supplies inventory to all the EBO s in the periphery. The price range of products supplied depends on the ASP of the EBO. Product Mix Mens Footwear (Leather, Rubber & Sports Shoes, Sandals) contributes 60-65% of Batas overall sales across India while other 25-30% comes from Women footwear & rest from kids & other products. Category Wise Store Size Format Bata mainly operates in 2 broad categories of stores which is Company owned EBO stores & Large format stores. EBO store size typically ranges from Sqft while Large format store size ranges from sqft. About 70-75% of total store size is used for selling activity while remaining is used for storing inventory. Wholesale (B2B) business The rural distribution channel is mainly managed by Wholesalers who supply to multi brand footwear stores. As per our sample survey, traders in this segment are offered margin of around 20% on MRP while Bata doesn t accept any unsold inventory. Stores Surveyed In our store survey, we had visited stores across different categories in Mumbai. Below mentioned Stores are company owned K Stores & EBO s. Exhibit 1: Mumbai Company Owned K-Stores K Stores K Store 1 K Store2 K Store3 K Store4 K Store5 K Store6 Store Size(Sqft) Yearly Sales(Cr) ASP( ) Source: Survey, ICICIdirect.com, Research. Average Selling Price (ASP) from Jan2015 till June2015 The key observation is that there is a direct correlation between the store size & Average Selling Price. Bigger store size can help in enhancing the product portfolio. The Average Revenue per square feet for the above mentioned (Mumbai owned K stores) was around There is a variance in ASP across different formats of K stores. Contribution of Premium segment in overall sales is higher in Large format K Stores located in Malls (K Store 4, 6). Exhibit 2: Exclusive Brand Outlet (EBO's) EBO's EBO 1 EBO 2 EBO 3 EBO 4 Store Size(Sqft) Yearly Sales(Cr) ASP( ) Source: Survey, ICICIdirect.com, Research; Average Selling Price (ASP) from Jan2015 till June 2015 Also the medium sized EBO (EBO1) in prime shopping location can result in higher ASP compared to other EBO s. The Average Revenue per square feet for the above mentioned Mumbai based EBO s is around ICICI Securities Ltd Retail Equity Research Page 2

3 Store Interactions outside Mumbai Bata has been focusing on K Store concept across India. Even in Tier II & III cities there is a strong presence of K stores in prime locations. Our survey indicated that the average Selling price was in a narrow range of Also the Revenue per Sq feet for the below mentioned K stores outside Mumbai is around Exhibit 3: K Stores outside Mumbai K-Stores Kottayam Vapi Amritsar Jammu Store Size(Sqft) Yearly Sales(Cr) ASP( ) Source: Survey, ICICIdirect.com, Research; Average Selling Price (ASP) from Jan2015 till June 2015 We had also interacted with other company owned EBO s outside Mumbai, the ASP is a factor of store location & size & regional demographics. In our interaction with branch managers, few Tier I branch managers indicated that there is shortage of premium products & accessories. Exhibit 4: Other Company Owned EBO's EBO's Jaipur Chennai Hyderabad Patna Bhubneshwar Nasik Store Size(Sqft) Yearly Sales(Cr) ASP( ) Source: Survey, ICICIdirect.com, Research; Average Selling Price (ASP) from Jan2015 till June 2015 Also the Revenue per Sq feet is around for the above mentioned Other Non Mumbai Company owned EBO s which is much less than Mumbai based EBO s. Hush Puppies Outlets Bata has also been focusing on new Hush Puppy store openings in metro s mainly in malls which attract higher footfalls. Presence in such locations helps in leveraging Hush Puppies brand image as a premium globally recognized footwear brand. Exhibit 5: Hush Puppy Stores Hush Puppies Mumbai1 Mumbai2 Mumbai3 Mumbai4 Mumbai5 Store Size(Sqft) Yearly Sales(Cr) ASP( ) Source: Survey, ICICIdirect.com, Research; Average Selling Price (ASP) from Jan2015 till June 2015 The Average revenue per square feet for the above mentioned stores is around which comparatively is much higher than most categories of Bata stores. ICICI Securities Ltd Retail Equity Research Page 3

4 Pan India Store Bifurcation South India comprises of almost 36% of total Bata stores followed by North (18.14%). Exhibit 6: State-wise stores Exhibit 7: Geographical bifurcation Store Name No.of Stores Region No. of Stores %Total Stores Andra Pradesh 109 South % Karnataka 160 North % Tamil Nadu 100 East % Maharastra 153 West % Uttar Pradesh 116 Central % West Bengal 103 Total % Total 741 Source: Company, ICICIdirect.com, Research Source: Company, ICICIdirect.com, Research While in terms of States top 6 states contributes around 60% of total Bata stores. Karnataka has highest number of stores (160) followed by Maharastra (153) & Uttar Pradesh (116). Unique Bata Brands Below mentioned are brands available and price range per brand, which reflects the variety of products available across price points. On an average men s formal shoes ranges from 899 to 9000; however for women it ranges from 499 to This wide price parity allows the company to create an entry point for large number of customers. Exhibit 8: Bata product range Mens Price Range Unique Features Ambassador Designer Leather Footwear Bata Iconic Legacy Brand Bata Industrial Safety Shoes Comfit Super Soft uppers & Cushioned insole Hush Puppies Premum Higher Quality Finished Leather Mocassino Classic Contemprary Leather Footware North Star Casual Canvas Footwear Power Sports Scholl Massage, Cushion Sparx Casual Sandals, Floaters & Shoes Weinbrenner Casual outdoor Sandak Rainy Rubber Shoes & Chappal Women Sundrops Premium Brand Working Women Hush Puppies Premum Higher Quality Finished Leather Scholl Massager & Pain Reliver North Star Casual Canvas Footwear Marie Clarie Fashionable Style at affordable price Bata Iconic Legacy Brand Naturalizer Premium Brand Working Women Kids Bubble Summers For Primary Schooler Source: Survey, ICICIdirect.com, Research; Sholl s, Naturalizer & Hush Puppies are international brands marketed by Bata. ICICI Securities Ltd Retail Equity Research Page 4

5 Exhibit 9: Bata stores Revamp of Bata stores to attract higher footfalls Source: Survey, ICICIdirect.com, Research; Sholl s, Naturalizer & Hush Puppies are international brands marketed by Bata. ICICI Securities Ltd Retail Equity Research Page 5

6 Financial summary Profit and loss statement Crore (Year-end March) CY13 FY15P* FY16E FY17E Total operating Income 2, , , ,011.1 Growth (%) Raw Material Expenses , , ,426.9 Employee Expenses Manufacturing Expenses Selling & Distribution Expenses Admin & Other Expenses Total Operating Expenditure 1, , , ,541.0 EBITDA Growth (%) Depreciation Interest Other Income Exceptional Item PBT Growth (%) Total Tax PAT Growth (%) EPS ( ) Source: Company, ICICIdirect.com Research; *15 months Cash flow statement Crore (Year-end March) CY13 FY15P* FY16E FY17E Profit before Tax Add: Depreciation (Inc)/dec in Current Assets Inc/(dec) in CL and Provisions Taxes Paid Others CF from operating activities (Inc)/dec in Fixed Assets Others CF from investing activities Issue/(Buy back) of Equity Inc/(dec) in loan funds Dividend paid & dividend tax Others CF from financing activities Net Cash flow Opening Cash Deposits with maturity > 3 months Closing Cash Source: Company, ICICIdirect.com Research, *15 months Balance sheet Crore (Year-end March) CY13 FY15P* FY16E FY17E Liabilities Equity Capital Reserve and Surplus , ,240.4 Total Shareholders funds , , ,304.6 Total Debt Deferred Tax Liability Minority Interest / Others Total Liabilities , , ,304.6 Assets Gross Block Less: Acc Depreciation Net Block Capital WIP Total Fixed Assets Investments Inventory Debtors Loans and Advances Other Current Assets Cash Total Current Assets 1, , , ,662.8 Current Liabilities Provisions Total Current Liabilities Net Current Assets Deferred Tax Assets Application of Funds , , ,304.6 Source: Company, ICICIdirect.com Research, *15 months. Key ratios (Year-end March) CY13 FY15P* FY16E FY17E Per share data ( ) EPS Cash EPS BV DPS Cash Per Share Operating Ratios EBITDA Margin (%) PBT Margin (%) PAT Margin (%) Inventory days Debtor days Creditor days Return Ratios (%) RoE RoCE RoIC Valuation Ratios (x) P/E EV / EBITDA EV / Net Sales Market Cap / Sales Price to Book Value Solvency Ratios Debt/EBITDA Debt / Equity Current Ratio Quick Ratio Source: Company, ICICIdirect.com Research, *15 months ICICI Securities Ltd Retail Equity Research Page 6

7 ICICIdirect.com coverage universe (IT) CMP M Cap EPS ( ) P/E (x) EV/EBITDA (x) RoCE (%) Sector / Company ( ) TP( ) Rating ( Cr) FY15P FY16E FY17E FY15P FY16E FY17E FY15P FY16E FY17E FY15P FY16E FY17E FY15P FY16E FY17E Bata India (BATIND)# 1,012 1,380 Buy 6, Shoppers Stop (SHOSTO) Buy 3, Titan Company (TITIND) Buy 32, * June year end, Source: Company, ICICIdirect.com Research RoE (%) ICICI Securities Ltd Retail Equity Research Page 7

8 RATING RATIONALE ICICIdirect.com endeavours to provide objective opinions and recommendations. ICICIdirect.com assigns ratings to its stocks according to their notional target price vs. current market price and then categorises them as Strong Buy, Buy, Hold and Sell. The performance horizon is two years unless specified and the notional target price is defined as the analysts' valuation for a stock. Strong Buy: >15%/20% for large caps/midcaps, respectively, with high conviction; Buy: >10%/15% for large caps/midcaps, respectively; Hold: Up to +/-10%; Sell: -10% or more; Pankaj Pandey Head Research pankaj.pandey@icicisecurities.com ICICIdirect.com Research Desk, ICICI Securities Limited, 1st Floor, Akruti Trade Centre, Road No 7, MIDC, Andheri (East) Mumbai research@icicidirect.com ICICI Securities Ltd Retail Equity Research Page 8

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