Nov-14 Dec-14 Jan-15 Feb-15 Mar-15 Apr-15 May-15 Jun-15 Jul-15 Aug-15 Sep-15 Oct-15 Q2FY16 Result Review (Wholly owned subsidiary of Bank of Baroda) BUY Bata India Ltd. (BIL) Cloudy quarter sunshine ahead; maintain BUY Bata India Ltd. (BIL) reported 2QFY16 result with revenue growth of 5% YoY to Rs 5.7bn and EBITDA declined by ~23 YoY to Rs.491mn due to weak demand, supply chain issue, higher discounts & promotional costs. Reported PAT increased by ~39% YoY to Rs.541mn vs Rs.390mn mainly due to gain from exceptional items. Sluggish revenue growth: BIL s topline increased only by 5% YoY to Rs.5.7bn in 2QFY16 due to lower consumer sentiment, weak demand and supply chain issue. However, the company is currently widening its product portfolio; training its staff to improve the quality of shopping experience; putting efforts towards solving the implementation of SAP/ERP systems. With all these measures, the company is expected to recover and show a healthy growth in revenue going forward. We expect the company to maintain the growth rate at CAGR of ~11.6% over FY15-18E backed by volume growth, strengthening e-commerce business and enhanced versatility in its product portfolio. A ~308 bps declined in EBIDTA margin to 8.5% v/s 11.6% YoY: BIL s EBITDA margin declined by ~308 bps YoY to 8.5% as against 11.6% in 2QFY15. EBITDA for 2QFY16 stood at Rs.491mn v/s Rs.636mn in 2QFY16 a decline of ~23%/43% YoY/QoQ respectively mainly due to high rental costs, increase in other expenses & many promotional schemes to liquidate the inventory. Price Price Target Up/Down (%) Rs. 476 Rs. 571 Bloomberg Code BATA: IN Share Holding (%) BATA.NS Promoters 52.9 FII 11.88 DIIs 15.11 Stock Data Sector: Footwear 18 th Nov, 2015 20% Reuters Code As on 30th September 2015 Nifty 7,732 Sensex 25,483 52 week high/low 748/458 Maket Cap (Rs. bn) 61.2 Face Value Rs. 5 Price performance (%) 1M 3M 6M 1Y Absolute -9.9-19.2-10.4-27.2 Relative to Sensex -3.7-10.8-2.5-18.0 Reported PAT grew by ~39% YoY: BIL s reported PAT grew by ~39% YoY to Rs.541mn but adjusted profit (excluding exceptional items) declined by ~42% YoY to Rs.224mn in 2QFY16 as against Rs.390mn in 1QFY15. Exceptional items represent gain from sale of trademark (Sparx) of Rs.60.8cr and expenditure incurred (except the expenditure on perpetual license) amounting to Rs.29.1cr on setbacks in implementation of ERP system. Focusing on premiumisation: BIL is the largest footwear retailer in India with a high market share in the organized sector. The Company has strong pan-india presence with ~1,265 Shoe Stores located in over 500 cities. Of these there are 1,121 Bata, 102 Hush Puppies and 42 Footin Stores. In order to improve volume and profitability the company is focusing on rationalizing its stores; opening ~70-73 new exclusive outlets of premium brands like Hush Puppies, Naturalizer and Marie Claire in FY16. Strengthening online presence: BIL is strengthening its online presence by launching exclusive online portfolio, which will help in augmenting its online presence and also set up uniqueness amidst high competition. Relative Performance 120 110 100 90 80 70 60 50 Source:-Bloomberg Bata India BSE Sensex Valuation: Although the company had a slow growth due to teething problem in supply chain and lower consumer sentiments, we still believe that BIL would be back on track and poised for strong growth on account of premiumisation, expansions of product ranges, strengthening online presence and distribution network. At CMP of Rs.476, the stock is trading at around 37.4/32.4/25x of FY16/17/18e. We maintain BUY rating with target price of Rs.571 (upside 20%). Exhibit 1: Financial summary (Rs mn) Year end: March CY13 FY15(15M) FY16 FY17 FY18 Net sales 20,652 26,940 23,726 26,574 30,560 Growth (%) 12.1 30.4 7.9 12.0 15.0 Operating margin (%) 15.6 12.4 11.8 12.2 13.6 PAT 1,909 2,313 1,637 1,887 2,448 Adjusted PAT 2,010 1,997 1,637 1,887 2,448 EPS (Rs) 15.6 15.5 12.7 14.7 19.0 P/E(x) 30.4 30.6 37.4 32.4 25.0 ROE (%) 27.1 22.1 15.5 16.0 18.2 ROCE (%) 25.0 20.3 14.8 15.2 17.3 Akanksha Tripathi akanksha.tripathi@bobcaps.in +91 22 6138 9383
Exhibit 2: Q2FY16 Quarterly financials (Rs Mn) 2QFY16 3QFY15 YoY (%) 1QFY16 Net Sales 5,752 5,476 5.02 6,799-15.41 Other Related Income 2 3 6 Total Income 5,754 5,480 6,805 Total Expenses 5,263 4,844 5,941 (%) of net sales 91% 88% 87% (Increase)/ decrease in stock -960-740 -366 Raw material consumed 971 1,012 1,127 (%) of net sales 17% 18% 17% Staff cost 663 653 666 (%) of net sales 12% 12% 10% Manufacturing & Other Expenses 1,899 1,680 1,762 (%) of net sales 33% 31% 26% EBITDA 491 636-22.89 864-43.25 EBITDA Margin 8.5 11.6 12.7 Depreciation 192 155 159 EBIT 299 481-37.96 705-57.68 Interest 4 3 5 Other Income 82 106 44 PBT 376 584 744-49.40 Less: Taxation 153 194 251 Tax / PBT 41% 33% 34% Recurring PAT 224 390-42.68 493-54.64 Exceptional items (income)/expense -318 0-430 Less: Minority Interest 0 0 0 Reported PAT 541 390 38.72 922-41.34 NPM 9.4% 7.1% 13.6% Source: Company, BOBCAPS FY15 includes 15 months as the company changed its financial year-end from December to March. QoQ (%) Equity research 2
Financials Exhibit 3: Income Statement Net sales 20,652 26,940 23,726 26,574 30,560 growth (%) 12.1 6.5 7.9 12.0 15.0 COGS 3,346 4,284 3,991 4,390 4,859 Staff Cost 2,133 3,119 2,610 3,056 3,667 R&D Cost (1,186) (1,106) (1,186) (1,329) (1,528) SG&A Cost 13,139 17,294 15,517 17,220 19,405 EBITDA 3,220 3,349 2,795 3,237 4,156 growth (%) 17 (0) (17) 16 28 Depreciation 592 792 698 782 899 EBIT 2,627 2,557 2,097 2,455 3,257 Other income 315 432 437 458 481 Interest paid 13 18 100 107 97 Extraordinary/Exceptional items (101) 315 - - - PBT 2,829 3,287 2,434 2,807 3,642 Tax 920 975 799 921 1,195 Minority interest - - - - - PAT 1,909 2,312 1,636 1,886 2,447 Non-recurring items 101 (315) - - - Adjusted PAT 2,010 1,996 1,636 1,886 2,447 Exhibit 4: Balance Sheet Cash & Bank balances 2,558 2,101 1,882 1,798 1,708 Other Current assets 7,862 9,824 9,896 11,119 12,671 Investments - - - - - Net fixed assets 3,393 4,436 5,446 6,666 7,864 Intangible assets 8 9 16 19 20 Total assets 13,820 16,370 17,240 19,602 22,264 Current liabilities 3,738 4,418 4,171 4,971 5,620 Borrowings 793 978 1,017 1,078 1,079 Other non-current liabilities 891 762 645 768 991 Current/Non-current liabilities 5,421 6,158 5,832 6,816 7,689 Share capital 643 643 643 643 643 Reserves & surplus 7,756 9,569 10,765 12,143 13,932 Shareholders' funds 8,399 10,212 11,407 12,786 14,574 Total liabilities 13,820 16,370 17,240 19,602 22,264 Equity research 3
Exhibit 5: Cash Flow Statement Profit after tax 1,909 2,312 1,636 1,886 2,447 Depreciation 352 334 222 258 298 Chg in working capital (618) (1,411) (437) (300) (680) Total tax paid (237) - - - - Net Extra-ordinary income 101 (315) - - - Cash flow from operations 1,507 919 1,421 1,845 2,065 Capital expenditure (455) (1,181) (1,232) (1,479) (1,496) Change in investments - - - - - Acquisition of Goodwill (1) (2) (7) (3) (1) Cash flow from investments (457) (1,182) (1,239) (1,482) (1,497) Free cash flow 1,051 (263) 182 363 567 Issue of shares - - - - - Net inc/dec in debt 232 185 39 61 1 Dividend (incl. tax) (489) (489) (440) (508) (658) Other financing activities 225 (10) 0 0 (0) Net Extra-ordinary income (101) 315 - - - Cash flow from financing (32) (314) (401) (447) (657) Inc/(Dec) in Cash & Bank bal. 918 (262) (219) (84) (90) Exhibit 6: Ratio analysis Y/E Mar CY13 FY15(15M) FY16 FY17 FY18 Per share data (Rs) EPS 15.6 15.5 12.7 14.7 19.0 CEPS 40.5 43.4 36.3 41.5 52.1 DPS 7.6 9.7 6.8 7.9 10.2 BV 126.3 154.7 173.3 194.8 222.6 Profitability ratios (%) Gross margins 73.5 72.5 72.2 72.0 72.1 Operating margins 15.6 12.4 11.8 12.2 13.6 Net margins 9.7 7.4 6.9 7.1 8.0 Valuation ratios (x) PE 30.4 30.6 37.4 32.4 25.0 P/BV 3.7 3.1 2.7 2.4 2.1 EV/EBITDA 8.9 8.5 10.2 8.8 6.9 EV/Sales 1.4 1.1 1.2 1.1 0.9 RoE 27.1 22.1 15.5 15.9 18.2 RoCE 25.0 20.3 14.8 15.2 17.3 RoIC 34.2 26.3 17.1 17.1 19.2 Equity research 4
Sales and Dealing Team Purvesh Shelatkar Senior Vice President & Head Equity +91-22-6138 9330 purveshshelatkar@bobcaps.in Anil Pawar Senior Manager Dealing +91-22-6138 9325 anil@bobcaps.in Sachin Sambare Manager Dealing +91-22-61389331/33 sachin.sambare@bobcaps.in Ashwin Patil Executive Dealing +91-22-6138 9326 ashwin@bobcaps.in Research Team Sectors Vaishali Parkar Kumar Analyst Agri, Auto, Defence +91-22-6138 9382 vaishali.parkar@bobcaps.in Padmaja Ambekar Analyst Auto Ancillary, Infra, Midcap +91-22-6138 9381 padmaja.ambekar@bobcaps.in Akanksha Tripathi Analyst Footwear, FMCG +91-22-6138 9383 akanksha.tripathi@bobcaps.in Rishabh Mehta Associate +91-22-6138 9384 rishabh.mehta@bobcaps.in Hareesha Kakkera Associate +91-22-6138 9351 hareesha@bobcaps.in UTI Tower, 3rd Floor, South Wing, Bandra-Kurla Complex, Bandra (E), Mumbai - 400 051. India. Ph.: +91.22.6138.9300 Fax: +91.22.6671.8535 Email: research@bobcaps.in Web: www.bobcaps.in NSE SEBI No. (CASH): INB231304537 NSE SEBI No. (DERIVATIVES): INF231304537 BSE SEBI No. : INB011304533 Disclaimer BUY. We expect the stock to deliver >15% absolute returns. HOLD. We expect the stock to deliver 5-15% absolute returns. SELL. We expect the stock to deliver <5% absolute returns. Not Rated (NR). We have no investment opinion on the stock. The BoB Capital Markets research team hereby certifies that all of the views expressed in this report accurately reflect our personal views about the subject company or companies and its or their securities. We also certify that no part of our compensation was, is or will be, directly or indirectly, related to the specific recommendations or views expressed in this report." 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