Bata India “Stepping Into a Bigger Shoe”!

Bata India LtdPost its announcements in the AGM held on August 4,2016, the footwear giant is prepared to be the new "turnout story" capturing the markets. Bata India Ltd., a family owned global and fashion accessory manufacturer and retailer has incorporated a range of strategies targeting a large and loyal customer base- one of its key strengths.

What’s NEW?

• Franchisee Model

Bata India Ltd. is modifying its expansion strategy. The company aims to have around 200 franchised stores in the coming two to three years. This footwear giant will launch 50 to 60 stores per year, compared to its earlier target of 100, and instead emphasize on increasing revenue per store.

The franchise model will enable Bata to spread its distribution network to rural and semi-urban areas in Tier II and III towns, without investing in own-stores and hence, without its own finances.

Pilot surveys on this model are being run in the states of Madhya Pradesh and Gujarat, and as per the company, the initial response is encouraging.

• Online Offerings

Bata is aiming to increase the share of its digital business from 1.5 per cent (of total sales) to five per cent in three years. In the FY 2015-16, online sales reached Rs 40 crore.

According to Gopalakrishnan, the company has started a ‘Click and Collect’ option on its website whereby the customers can get their chosen products delivered to their local Bata stores. There are 1256 retail stores, 26 of which were set up in the last year.

To prevent cannibalization, the company has already launched a distinct portfolio of online offerings. Moving ahead, approximately 90 out of every 100 shoe models projected online or in stores will be exclusive to that channel.

• Expanding Foot-Prints: Rural Segment

• There is a lot of demand in the rural areas. We will have to cater to a separate product line to cater to this kind of market, which we have to some extent. However, to certain extent we will

have to develop the products. We are targeting a price point of anywhere between Rs 200 to Rs 1,000" said Gopalakrishnan (MD and CEO of Bata India Ltd.).

• Product Differentiation

Faced with intense competition, Bata India has reorganized its strategy and will now focus on ramping up existing business rather than expanding its network.

Emphasis on improving profitability from existing outlets is a strategy shift for the company, which in the past has harped on addition of new ones every year.

Sources are of the opinion that low consumption and enhanced competition is one of the reasons why Bata has focused on increased profitability from the same stores.

Which product categories are aimed at generating more revenue for the company?

Volume growth will come from a range of products. The company is looking at three categories-One is women segment, as more working women are joining the workforce. Second is the younger audience, which is going to drive the footfall. And the third is the kids segment.

Financial Analysis

• The company has witnessed a growing EPS in the Quarter 1 of FY 2017 from 2.17 in the last Quarter to 3.93.
• A QoQ boost is well reflected in Income from operations which saw a jump of 23.85% but the expense growth has superseded this.
• The companies reported stand alone net profit of Rs 50.49 crores for the first quarter ended June 30 as compared to Rs 50.18 crores in the same period last year.
• A YoY comparison shows an absolute decline from 7.02 in Q1 of FY16 to 3.93 in Q1 of FY 17 in terms of EPS but a relative QoQ comparison hints at positivity highlighting improving prospects.

Future Outlook

The major tax reform, GST is said to have a ‘neutral-to-positive’ impact on the company. Although the rates have not been finalized yet, a rate of around 18% is expected.

Bata India aims to invest close to Rs 300 crores over the next 3 years to modernize its existing manufacturing facilities and strengthen its retail network.

Investment Opinion

We recommend a buy at Rs.532 with a target of Rs.553 and stop loss at Rs.521. Meanwhile, Bata India share price is currently trading at Rs. 535.45, up by 0.20%. P/E ratio of the stock is 38.79 and Market Cap is 6868.51 crores.

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