Long Term Recommendation Bata India Ltd. The Growth Sprint · 1 Edelweiss Professional Investor Research Long Term Recommendation Bata India Ltd. The Growth Sprint… 1 visual displays;

Edelweiss Professional Investor Research

Long Term Recommendation

Bata India Ltd. The Growth Sprint…

1

1

Sangeeta Tripathi Research Analyst [email protected]

CMP INR: 1255

Rating: BUY

Target Price INR1500

Upside: 20%

Bloomberg: BATA:IN

52-week

range (INR): 1283 / 674

Share in issue (cr): 13

M cap (INR cr): 16,123

Avg. Daily Vol.

BSE/NSE :(‘000): 1079

Promoter

Holding (%) 52.96

Date: 16th January2019

Bata, India’s largest footwear retailer, we believe is at an inflection point driven by: a) rejig of top management; b) parent company’s sharpened focus on the India market; and c) management’s potent cost rationalisation initiatives. Furthermore, with an eye on bolstering its brand’s strength and perception among young consumers, Bata has: i) overhauled its product range; ii) revitalised visual displays; and iii) reworked its brand communication strategy. This, we believe, will boost footfalls & conversion and spur same store sales growth. Bata’s earnings are estimated to post 28% CAGR over FY08-21 driven by: a) 14.7% revenue CAGR over FY18-21E; and (b)390bps margin expansion over FY18-21E led by improvement in gross margins & operating leverage. Moreover, the asset-light business model is estimated to result in core RoCE expanding to 42.4% in FY21 from 32.8% currently. Over the long term, given its pole position and management’s potent initiatives to get its mojo back, Bata is likely to post industry leading growth, margins and efficiency hence, we initiate with ‘BUY’ and target price of INR 1,500.

Market leader and a one-stop footwear destination Bata is a strong brand in India’s footwear retail market with a formidable pan-India distribution retail network aggregating 1,400 plus stores encompassing 3 mn sq ft retail space. The company is present across 550-600 towns & cities and offers products across price points, segments and categories. Based on the strength of its distribution, product portfolio, width and assortment, Bata is far ahead of peers at the national level and serves as a one-stop footwear destination. Entering virtuous growth phase driven by confluence of macro and company-driven initiatives We believe: (a) parent’s sharpened focus on India operations; (b) rejig of management & operations with clear focus on brand rejuvenation, product portfolio re-orientation & cost rationalisation; (c) marked improvement in merchandising, brand communication & customer engagement; and (d) increased thrust on technology, will lead to Bata clocking industry-leading growth. Hence, we estimate it to post 14.7% revenue and 28% earnings CAGR over FY18-21. Solid balance sheet coupled with revival of growth to propel RoCE and free cash generation Bata has a strong balance sheet with zero debt and cash constituting ~35% of the overall balance sheet. With growth revival, followed by marked improvement in margin (estimate 250 bps operating profit margin improvement over FY18-21), the core RoCE is likely to expand to 42.4% by FY21 from 32% currently. Over the next 3 years, we estimate Bata to generate an aggregate of INR 670 cr free cash. Outlook and valuations: High quality proxy to play robust footwear demand; initiate with ‘BUY’ We believe that a high quality consumer brand in the growing fast fashion footwear category taking all the right initiatives to drive growth, improve brand strength and propel earnings is likely to trade akin to the leader in the consumer space, thus assign 42x PER multiple to FY21 earnings to arrive at our medium term price target of INR 1,500. Further this high quality consumer brand has all the potent ingredients in place for further surprise on growth levers, which we believe makes it a compelling compounding story to be played over long term time frame

Year to March FY18 FY19 FY20E FY21E

Revenues (INR Cr) 2,641 2,968 3,450 3,984

Rev growth (%) 6.7 12.4 16.2 15.5

EBITDA (INR Cr) 351 484 593 685

PAT (INR Cr) 221 312 391 462

EPS (INR) 17.2 24.3 30.4 36.0

EPS Growth (%) 26.3 41.1 25.3 18.4

P/E (x) 72.7 51.5 41.1 34.7

P/B (x) 10.4 8.7 7.1 5.9

RoCE 23.8% 27.6% 28.6% 28.0%

Core RoCE (ex cash) 32.4% 40.6% 42.6% 42.4%

RoAE (%) 16.1% 18.7% 18.9% 18.6%


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2

Table of Contents

Structure ............................................................................................................................. 3

Business Value Drivers ........................................................................................................ 5

Focus Charts 1 ..................................................................................................................... 6

Focus Charts 2 ..................................................................................................................... 7

I. Bata: Market leader with products across categories and segments .............................. 8

II. Bata in the right cycle; making right moves resulting in revival of its growth phase ..... 10

III. Asset-light balance sheet + improved margin to lead to strong core RoCE expansion 24

IV. Competitive positioning ................................................................................................ 25

Outlook and Valuations ...................................................................................................... 27

Business Overview ............................................................................................................. 16

Key Management ............................................................................................................... 16

Timeline .............................................................................................................................. 18

Financials ............................................................................................................................ 30


Structure

Structure

Bata India Ltd

Orient Electric Ltd

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Bata is estimated to clock 28% earnings CAGR over FY18-21E. This will be driven by double-digit revenue growth (led by management’s initiatives to drive footfalls, conversion and thereby improve same store sales) and cost optimization measures for overheads that are estimated to lead to 390bps margin expansion to 17.2% by FY21E from 13.3% in FY18.

28% PAT CAGR will be driven by healhty reveue growth (aided by 8-9% same store

sales growth), premium offerings and sharpened focus on cost optimisation

Bata has a strong balance sheet with 35% in cash. Bolstered by robust business mometum and asset-light model, the free cash is enviaged to increase. Core RoCE is estimated to expand to 42.4% in FY21 from 32.8% in FY18

A market leader in the fast-growing

footwear category with potent initiatives and on growth threshold,

we expect Bata to trade at a premium. Assigning 42xFY21 PER we

arrive at target price of INR1,500

FY18 FY19 FY20E FY21E FY18 FY19 FY20E FY21E PER FY21E EPS CMP/Target

Revenue 2,641 2,968 3,450 3,984 ROE (%) 16% 18.7% 18.9% 18.6% 42x 36 1500

EBITDA margin

13.3 16.3 -17.2 17.2 Core ROCE

(%) 32.4% 40.6% 42.6% 42.4%

PAT 221 312 391 462

EPS growth of 28% over FY18-FY21 FY21E – core RoCE of 42.4% 42x FY21EPS of 36

Upside of 20%


Structure

Structure

Bata India Ltd

Orient Electric Ltd

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4

Price Target INR 1500 Based on revenue CAGR of 14.7%, EBITDA margin of 17.2% and applying PER at 42x FY21E

Bull Case

Market leader on the

cusp of revival and

growth curve to trade

at 50x FY21E earnings

INR 1800 Based on revenue CAGR of 14.7%, EBITDA margin of 18% and applying P/E multiple of 50x

Base Case

Bata valued at 42X

FY21E; discount to

leaders

INR 1500 Based on revenue CAGR of 14%, EBITDA margin of 17.2% and applying PEG of 1.8x (implied

PER at 42x FY21E)

Bear Case

Bata to trade at a

steep discount to

consumer staples at

32x FY21

INR 950 Based on revenue CAGR of 11%, EBITDA margin of 15% and applying P/E of 32x FY21E


Business Value Drivers

Business Value Drivers

Bata India Ltd

Orient Electric Ltd

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Sustainability Bata is one the oldest players in India’s footwear segment and has successfully navigated various business & economic cycles over the years. Despite increased competition, the company has retained its pole position and currently commands 14-15% share of the overall organised footwear market.

Disproportionate Future

We envisage Bata to clock industry-leading growth driven by: a) rejig of top management; b) parent company’s sharpened focus on the India market; and c) management’s cost rationalisation initiatives.

Business Strategy & Planned Initiatives

With an eye on bolstering its brand’s strength and perception among young consumers, Bata has: i) overhauled its product range; ii) revitalised visual displays; and iii) reworked its brand communication strategy. This, management believes, will boost footfalls & conversion and spur same store sales growth.

Near-Term Visibility

Bata’s earnings are estimated to post 28% CAGR over FY08-21 driven by: a) 14.7% revenue CAGR over FY18-21E; and (b) 390bps margin expansion over FY18-21E led by cost rationalisation & operating leverage. Moreover, the asset-light business model is estimated to result in core RoCE expanding to 42.4% in FY21 from 32.8% currently.

Long-Term Visibility

Over the long term, given Bata’s leadership and management’s potent initiatives to get back its mojo, the company’s performance is likely to grow in line with the industry at ~14-15%, along with superior RoCE and high free cash generation.

Near Term Risk Inventory mismanagement on account of SKU and new product introduction, risk of new merchandise failing to appeal to younger customers.

Long Term Risk Exit of key managerial personnel, lack of focus.

Focus Charts

Investment Hypothesis


Bata India Ltd

Orient Electric Ltd

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Part I: Story in a Nutshell

Footwear consumption growth in a sweet spot

Indian footwear – INR 55,000 crore industry; expected to grow at CAGR of 15% over FY17-20

Bata India – Strong distribiution moat ; presence across 1400 stores in 550 cities

Spread across price points and category; best play Bata’s increased focus on high growth Women and Kids

category to drive growth

12.7

15

FY14-17 FY17-20

Bata

Relaxo

Metro

KhadimLiberty

Mirza

-200

0

200

400

600

800

1000

1200

1400

1600

1800

0 100 200 300 400 500 600 700

No

. od

EB

O's

Cities Presence (Reach)

Hush PuppiesAmbassadorClarks

NikeAdidasPuma

SundropsNaturalizerClarks

Hush PuppiesDr. SchollSundropsClarks

Dr. SchollClarks

WeinbrennerWoodland

BataMocassinoMetro

BataBata comfitNorth StarRed TapeMetro

PowerReebok

Marie ClaireNorth StarCatwalk

BataBata comfitCatwalkMetro

Bata

BataLiberty

RelaxoSparxLiberty

Bata & I

SandakRelaxoLiberty

BubblegummersFootinLibertyRelaxo

Men’s formal Men’s casual/comfort

Sports Women’s fashion

Women’s casual/comfort

Youth/Kids Trekking/Outdoor

Premium(>Rs 3,000)

Mid-premium(Rs 1,500)-3,500)

Value/Mass segment(< 1,500)

11.4%

17.8%

23.6%

Mens Womens Kids

Bata IndiaGrowth Engine

Revamp product offerings Increased Marketing SpentEnhanced Instore customer

experienceFocus on High Growth

Categories

Red Label CollectionCasual Collection

Premium Offerings

Kirti SanonSmriti Mandhana

Sushant Singh Rajput

Larger Stores/Stores in High Footfall Areas

Enhanced Ambiance

WomenKids

Sports

Higher Footfalls = Higher Conversion = Higher SSG

Focus Charts



Bata India Ltd

Orient Electric Ltd

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Part II Bata’s potent initiatives to revitalise business bound to spur growth All efforts on brand rejevenutation, visual merchandising and customer engagemnet to result in double digit revenue

ahead

Series of efforts undertaken to bring swagger back to Bata.. ..EBITDA margin to improve on back of growth and Operating

leverage ahead

Strong balance sheet; with 40% in cash ..and robust core RoCE; likley to grow further

Source: Edelweiss Professional Investor Research

3%2%

9%

22%

14%

10.61%

15%

23%

19%

3%

11%

4%

11%

2%

6%

13%

16%15%

FY04 FY05 FY06 FY7 FY8 FY9 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19E FY20 FY21

Sales Growth Trend

6 years of double digit growth

Impacted by micro + Macro challenges

Trending towards growth

Lack of traction in same store sales growth (SSSG)

Reduced focus on wholesale channel

High cost of retail expansion

E-Commerce strategy missing

Operating margin pressures

Is Bata India important to be parent?

Merchandise lacking novelty

Brand Fatigue

Not up to the mark Retail Experience

Addressing the opportunity through B2B distribution model

Increase revenue base from non-rental avenues

Manage channel conflict and focus on it as a growth channel

Rationalize rental cost, negotiate existing rentals, re calibrate store size, etc.

Control Overheads

Focus from the Global leadership

Commitment on India business

Importance to Global business

Identified and Addressing



No Concrete strategy yet


Work in Progress





Operational Factors/Plan of Action StatusThe Problem Statement

1

2

3

4

5

6

13.30%17.2%

2.50%0.20%

1.70%

-0.80%

0.30%FY

18

OP

M

Gro

ss P

rofi

t M

argi

n

Emp

loye

e C

ost

Ren

tal

Sale

s &

Dis

trib

uti

on

spen

t

Oth

er O

verh

ead

s

FY2

1 O

PM

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

-

100

200

300

400

500

600

700

FY15 FY16 FY17 FY18

Cash and Bank % cash to balance sheet size

25.6% 26.9%

32.4%

40.6%42.6% 42.4%

FY16 FY17 FY18 FY19E FY20E FY21E


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Bata India Ltd

Orient Electric Ltd

(I) Bata: Market leader with products across categories and segments In the fast-growing INR 23,000 crore branded footwear segment, Bata is the market leader with

~14-15% share. The company is present in the value for money as well premium categories, which

cumulatively constitute ~40% of the total market.in this focused segment, Bata is the market leader

with ~20% market share. The segment of mid to premium products wherein Bata is present is

growing at a higher pace than the overall footwear market , presenting opportunity to Bata to

benefit from with its increased focus

a. Bata India – Strong distribution moat ; presence across 1400 stores in 550-600 cities Bata India is the only player in the organized footwear space with an exclusive EBO led model of

1400 stores, spread across 550-600 towns and cities. We believe this exclusive owned distribution

spread is the greatest moat of the company.

EBO a cut above MBO-focused model

EBO MBO

Product exclusivity Competition from other products

Pricing power Price comparisons

Control over brand communication Dealer driven push

Helps build brands in the long run Only creates reach with limited capex

Market Leader With Widest Reach


b. Bata India – Widest offerings- across price points and categories

Bata offers a wide range of products across categories and segments including men, women and

kids. Presence across price points insulates the company during down turn.

Bata

Relaxo

Metro

KhadimLiberty

Mirza

-200

0

200

400

600

800

1000

1200

1400

1600

1800

0 100 200 300 400 500 600 700

No

. od

EB

O's

Cities Presence (Reach)0 500 1000 1500

Bata

Khadim

Metro

Liberty

Relaxo

Adidas

Puma

Nike

Catwalk

Clarks India

Aldo

Charles & Keith

No of Stores


9

9



Bata India Ltd

Orient Electric Ltd

Bata is present across categories and across price points


Hush PuppiesAmbassadorClarks

NikeAdidasPuma

SundropsNaturalizerClarks

Hush PuppiesDr. SchollSundropsClarks

Dr. SchollClarks

WeinbrennerWoodland

BataMocassinoMetro

BataBata comfitNorth StarRed TapeMetro

PowerReebok

Marie ClaireNorth StarCatwalk

BataBata comfitCatwalkMetro

Bata

BataLiberty

RelaxoPowerSparxLiberty

Bata & I

SandakRelaxoLiberty

BubblegummersFootinLibertyRelaxo

Men’s formal Men’s casual/comfort

Sports Women’s fashion

Women’s casual/comfort

Youth/Kids Trekking/Outdoor

Premium(>Rs 3,000)

Mid-premium(Rs 1,500)-3,500)

Value/Mass segment(< 1,500)


10

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Bata India Ltd

Orient Electric Ltd

(II) Bata in the right cycle; making right moves resulting in revival of its growth

phase Starting its journey from 1931; as a manufacturer of branded footwear; Bata has witnessed

series of ups and down in its journey and has successfully sailed through. The company

has scripted a strong turnaround every time faced with challenges and problems and

currently is the largest footwear retailer. Over FY15-18; in the last three years time frame

the company has grappled with various internal and external issues. With improving macro

environment towards consistent growth and addressing of internal problems, we believe

Bata is now at a cusp of strong earnings revival , which is likely to unfold in the profits and

returns ahead.

3%2%

9%

22%

14%

10.61%

15%

23%

19%

3%

11%

4%

11%

2.1%

5.6%

12.6%

16.2%15.5%

0%

5%

10%

15%

20%

25%

-

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

4,500

FY03 FY04 FY05 FY06 FY7 FY8 FY9 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19E FY20E FY21E

NetSales % growth

0

-6

3

67

9

1213

15 16 15 15

1211 11

13

16

1717

-10

-5

0

5

10

15

20

-100

0

100

200

300

400

500

600

700

800

FY03 FY04 FY05 FY06 FY7 FY8 FY9 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19E FY20E FY21ECore Operating profit opm (%)

Restructuring

undertaken, VRS

under taken and

increasing

consumer focus

Strong double digit growth

result of efforts and initiative

undertaken also resulting in

marked improvement in OPM

from 2.6% in FY06 to 16% in

FY13

Weak economy +

company grappling

with internal issues

like inventory, weak

product profile and

low consumer

engagement

Series of efforts

undertaken from improved

product, increased

customer engagement,

increased marketing spent

and slew of cost

rationalization drive to

yield results ahead..


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Bata India Ltd

Orient Electric Ltd

(a) Rejig at the top level with enhanced focus from the parent

Over the past 24-36 months, Bata India has been gaining marked Importance in the global parent’s

portfolio with Mr. Thomas Archer Bata (Global Chief Marketing Officer) ) visiting India multiple

times for store launches and other events. This is led by strong growth opportunity presented by

the Indian market; by end FY19; Bata India would emerge as the largest market of Bata global. To

drive on this robust growth and get Bata India into the fashion index, it has inducted talent at the

top level to drive growth

Name Designation Profile

Alexis Nasard Global CEO

Currently, Alexis Nasard is the CEO of Bata global and comes with 24 years’ experience in the consumer goods business and six years’ experience in Heineken. He heads the business since August 2016. This is for the first time that Thomas Bata has inducted some body from outside to lead the company. The current CEO has visited India a couple of times and has maintained that India is one of the most important markets for Bata.

Sandeep Kataria CEO

Sandeep Kataria was inducted and elevated to CEO’s position at the India level in order to drive the brand’s equity strength, improve customer engagement and marketing quotient to contemporise the brand’s image. Sandeep Kataria has strong academic background (IIT Kanpur+ XLRI Jamshedpur) and rich experience in the consumer industry. His previous assignments include Vodafone India, Yum brands and Unilever. He was inducted as country manager in August 2017 and within three months was elevated to the CEO’s office to handle revenue growth and brand rejuvenation.

Ram Kumar Gupta Executive Director Finance and CFO

The CFO Mr. Ram Kumar Gupta (R.K. Gupta) has rejoined Bata. He has been associated with the company since 1986 and has worked in different positions. In August 2015, he was Director-Finance, before he relocated to Kenya as Director- Finance of Bata Shoe Kenya. R.K. Gupta is one of the key people involved in Bata’s major restructuring over 2005-12. Post rejoining Bata, despite macro setbacks like demonetisation and GST hitting the entire domestic consumption space, R.K. Gupta has managed to undertake a slew of cost rationalisation initiatives which have led to earnings growth.

Rajeev Gopalakrishnan

President of Asia South at Bata India Limited

Rajeev Gopalakrishnan has been President of Asia South at Bata India since August 1, 2017, and serves as its Managing Director. He served as the CEO and Managing Director of Bata India from October 1, 2011 to August 1, 2017. He has been associated with Bata since the start of his career and has served in various positions including Managing Director of Bata Bangladesh. He holds a Bachelor of Engineering (Mechanical) degree from the University of Kerala.

Deepak Chakravarty Head Visual Merchandising & Retail Marketing

Design graduate from New Delhi- 1998 Batch ; Has worked in senior position across industry with over 20 years’ experience His experience includes working in companies like ITC and Adidas group as head merchandising

Anand Narag VP Marketing

Anand Narag has been roped in from Reliance Jio. He will be taking care of marketing and customer service/loyalty at Bata. His mandate is to drive footfalls in stores and create clutter-breaking campaigns. He will also be closely looking at customer behaviour to strengthen the brand—customer interactions and hence drive category business. Anand Narag has over two decades of experience and has worked with big companies such as Nokia, Huawei Technologies, Bharti Airtel and Comverse.


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Bata India Ltd

Orient Electric Ltd

(b) Revitalising the brand

Over the past 18-24 months, Bata has identified the problem areas and has been addressing them

to drive revenue and profitability. We list below details of the same and our view.

The problem and the company’s solution

Lack of traction in same store sales growth (SSSG)

Reduced focus on wholesale channel

High cost of retail expansion

E-Commerce strategy missing

Operating margin pressures

Is Bata India important to be parent?

Merchandise lacking novelty

Brand Fatigue

Not up to the mark Retail Experience

Addressing the opportunity through B2B distribution model

Increase revenue base from non-rental avenues

Manage channel conflict and focus on it as a growth channel

Rationalize rental cost, negotiate existing rentals, re calibrate store size, etc.

Control Overheads

Focus from the Global leadership

Commitment on India business

Importance to Global business




No Concrete strategy yet


Work in Progress





Operational Factors/Plan of Action StatusThe Problem Statement

1

2

3

4

5

6


13

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Bata India Ltd

Orient Electric Ltd

(i) Improved /enhanced product offerings – Despite being a strong brand with sturdy quality

image, Bata remained largely a non stylish and a fuddy duddy brand in the Indian context. The

aspirational quotient both on the product and the brand image was lacking, Over the last 24-

36 months , lot of effort has undergone to change this image and make the brand more trendy

, stylish and palatable to the younger and the millennial audience The complete revamp of

offerings in each category (Men, Women, Kids and sports) is done to woo the consumers along

with keeping the pricing equation intact.

It has refreshed its products in various categories – In power it has launched power walking

collection with memory foam, trendy power shoes for women.

It introduced new stylish range of ladies footwear under the new collection naming the same as

the Red label collection

Under the Hush puppies brand, further premiumization and range is being added towards higher

price points

New launches in the youth oriented spaces under its brands like Power, Weinbrenner, Footin etc


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Bata India Ltd

Orient Electric Ltd

(ii) Brand building to spur revenue growth

Revamped marketing - For any consumer brand, in order to drive mind share along with

wallet share of the consumer, it is imperative to continuously engage the consumer with

its products, communication and aspirational quotient. FMCG/ consumer facing

companies spent a substantial amount of their revenue, which drives revenue growth for

the company.

Historically seen that Over FY06-12, Bata posted revenue CAGR of 15.4% driven by increased

branding and new store addition aggression. It was during this period that the company’s

advertising and marketing spends increased substantially. Its advertisement spends averaged 1.5%,

which was pivotal in driving footfalls and conversion at the store level.

However, over FY13-Y17, Bata under-invested in brand building and communication—ad spends

largely remained range bound at 0.9-1.0% of sales. But, over the past 12-18 months, the company

has made efforts to improve its marketing quotient along with improvement in product offerings—

advertisement cost to sales increased from less than 1.0% to 1.5% in FY18.

Bata’s advertisement spent is increasing


For 9MFY19, Bata has spent around INR 50 crores (2-2.5%) of its revenue towards advertisement

and brand building, which has resulted in strong footfalls and better conversion, visible in the last

six months revenue performance. For Q3FY19, Bata reported a Same store Sales growth of 12%.

Enthused by the response on the revamped positioning,, the company has upped its ante further

and for FY20, it aims to increase its advertisement and brand building spent to around 3%, to further

drive revenue, and enhance its brand image.

1.7%1.7%

1.3%1.4%

1.1%

0.9%

0.7%

1.0% 1.0% 1.0%

1.5%

0.0%

0.2%

0.4%

0.6%

0.8%

1.0%

1.2%

1.4%

1.6%

1.8%

2.0%

0

5

10

15

20

25

30

35

40

45

FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY15 FY16 FY17 FY18

(IN

R c

r)

Advertisment Ad to sales

Investment in brand, results in

Under investment in brands


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Bata India Ltd

Orient Electric Ltd

Bata’s spent on advertising still lower than other discretionary players- Increase to propel

growth (Percentage to Revenue)


It has roped in bollywood actress Kirti Sanon as its brand ambassador for fashion forward women’s

footwear. It has also appointed Smriti Mandhana (India’s youngest woman cricketer) as the

ambassador for its sports brand Power. In men’s footwear, while the company is still largely known

for its formal range, the shifting trend in favour of casual footwear has led to the company

improving its range in the latter; to communicate the same, it has roped in bollywood actor Sushant

Rajput as brand ambassador.

Kiriti Sanon- Surpisingly Bata TVC

Sushant Rajput – Casual collection Smirit Mandhana- Power collection

2.0 1.8

2.8 3.0 3.4

3.8 3.9 4.4 4.7 4.8

BA

TA

TREN

T

TITA

N

MET

RO

ASI

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PA

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twea

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FRL

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16

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Bata India Ltd

Orient Electric Ltd

(iv) Improved instore consumer expereince to enhance brand image and drive growth -

Bata India over last 2-3 years has been working on improving its instore expereince right from

opening bigger stores, opening stores in high footfall areas like malls/ High streets.Over FY16-18, it

has added 165 stores, while in the same period it has also closed smaller stores (~1,000 sq ft.

The bigger stores provide a complete range of products, further with enhanced visual merchandise

and improved product placement the store and the shopping experience improves manifold for a

customer. All this aids to higher revenue and better margins

It aims to continue its expansion spree and has guided to add around l 100 stores. Of these, ~50

will be company owned & operated and balance 50 will follow the new franchisee store model

which Bata is exploring to reach out in tier 3 & 4 towns and cities.,

Along with opening new stores, it would also continue to renovate existing stores and improve

layouts with the objective of increasing same store sales growth.

By FY21, we expect Bata to reach 1575 stores with an aggregate 3.4mn sqft area


We believe, Bata’s efforts to: (a) improving product portfolio; (b) enhance visual merchandising,

look & feel of its stores; and (c) improvement in communication & marketing layout, will boost

footfalls & higher conversion and lead to double digit revenue growth.

2.4

3.0

3.4 12351295

1400 14451510

1575

-

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

0

200

400

600

800

1000

1200

1400

1600

1800


(No

. of

Sto

res)

Overall Total Retail space (mn sq ft)


17

17



Bata India Ltd

Orient Electric Ltd

Larger stores with improved layout and premium merchandise


18

18



Bata India Ltd

Orient Electric Ltd

v) Focusing on high growth categories to drive growth

Women share to increase to 35% in next three years

Currently, while women’s footwear constitutes ~30-35% of the overall market, men’s

constitutes ~55-60%. However, the former category is growing at ~18-20%, almost 2x the latter.

Thus, it becomes imperative for any footwear player to focus on the ~INR 20,000 crore

women’s footwear segment.


This segment contributes 26% to Bata’s revenue as the company was largely focused on the men’s

segment. Over the past three years, it has started focusing on this category and aims to take its

share to 35%. We believe this strategy, underpinned by appropriate customer engagement, better

products and wise pricing, will fetch rich returns.

Kids category focus to drive growth

Around 18% of India’s population falls between 0 and 14 years and currently this (kids)

category forms ~9% of the total footwear market, which is highly unorganised. Shift to

formalisation of this segment is expected to drive strong growth for this category. Industry

estimates peg the kids category to grow at the fastest pace of ~23.6% over FY17-20. Kids’

overall share in the footwear segment is estimated to increase to 11%.

Bata is focusing on this huge market with its Bubblegummer brand and expects strong traction

from this category. Kids contribute less than 9% to Bata’s revenue, which it envisages to

increase to ~11%.

11.4%

17.8%

23.6%

Mens Womens Kids

Women and kids category to grow at faster pace


19

19



Bata India Ltd

Orient Electric Ltd

Exclusive 2 kids stores in Banaglore

Marked increase in the space dedicated towards kids


20

20



Bata India Ltd

Orient Electric Ltd

Sharpening focus on sportswear category to Power growth

INR 8,000 crore sports and athleisure category growing in double digits: The sports and athleisure

category in India is growing in strong double digits. Though a formal size and estimates are not

available, industry sources peg the market at INR 8,000 crore, constituting ~20% of the overall

footwear market. This segment is dominated by global players with Adidas leading the pack with

INR 1,100 crore (for FY18) revenue. Though Bata was present in this category through its franchisee

Power brand, focus on the category was missing. With growth in the category and rising domination

of global players, Bata has rejuvenated its focus on its Power brand.

Exploiting sports category via brand Power: Currently, the Power brand contributes ~10% to Bata’s

overall revenue. With swift growth in the category coupled with the company’s focus to take the

brand out of Bata stores to an exclusive format is likely to propel Power’s growth. In order to

resonate with the youth and sport enthusiasts, Bata has roped in Indian women cricket batsman

Smriti Mandhana as its brand ambassador.

Using online channel to expand reach, coverage and growth: Another notable trend in India’s

footwear industry is the spectacular growth in the online segment. The sportswear category has

embraced this distribution channel to the hilt. Currently, the online channel contributes ~20-22%

to total sports footwear sales. Initially, the company was in denial mode and hence lost revenue

and market share to the fast growing online mode. Over the last 18 months, the company has

focused on the online mode and now all its products are available across all market place model –

Amazon, Flipkart, Jabong and also it has its own exclusive online portal. The sports category has

highest online share at the industry level (at 18-20%), while Bata currently has only less than 3% of

the revenue from this mode, the growth potential is high with focus and leverage on this

distribution mode.

Exclusive formats: Sensing the opportunity in the category, Bata has enlarged its collection of

Power offerings for men, women and kids. Also, to create a brand identity & uniqueness in line with

its strategy of Hush Puppies, it is planning to open exclusive Power stores as well as those that will

display the entire width and depth of the product.

Exclusive Power stores


21

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Bata India Ltd

Orient Electric Ltd

Power to contribute 18-20% to turnover in next five years: With this mix of well placed strategy

and positive macros, we expect brand Power to grow in higher double digits and double its share

from current 10% to ~18% over the ensuing five years.

Top Sports Footwear brands in India (INR Cr) Geographical presence

Source- RoC; industry estimates

We estimate Bata to post 14.7% revenue CAGR over FY18-21 driven by high single digit same store

sales growth and an annual 60 new store additions.

Bata India: expected to grow at CAGR of 14.7% over FY18-21E


1,100 1,000 900

500 300

Adidas Puma Nike Reebok Power

800

450360

250 250

Bata Power Adidas Puma Nike Reebok

Bata IndiaGrowth Engine

Revamp product offerings Increased Marketing SpentEnhanced Instore customer

experienceFocus on High Growth

Categories

Red Label CollectionCasual Collection

Premium Offerings

Kirti SanonSmriti Mandhana

Sushant Singh Rajput

Larger Stores/Stores in High Footfall Areas

Enhanced Ambiance

WomenKids

Sports

Higher Footfalls = Higher Conversion = Higher SSG

(15.0)

(10.0)

(5.0)

-

5.0

10.0

15.0

20.0

-

1,000

2,000

3,000

4,000

5,000

FY16 FY17 FY18E FY19E FY20E FY21E

(%)

(IN

R c

r)

Net Sales % growth


22

22



Bata India Ltd

Orient Electric Ltd

Premiumization trend to result in higher gross margin

Over the years, shopping preferences of consumers have changed from price sensitive to fashion

quotient. Bata’s positioning has always been of a sturdy, but low fashion quotient brand. The

company has now consciously changed this perception with trendier and much more fashionable

merchandise. Towards this end, it has exited value category of footwear (MRP < 200; in plastic and

rubber categories) and entering high fashion and premium products.

Brand wise revenue mix (%) Price wise revenue mix (%)

Source: Edelweiss Professional Investor Research Within each category and sub segment, Bata is moving towards the premium range and has vacated

the low end of the market. Currently the premium portfolio contributes around 30% to the company

revenue and with increasing focus in driving growth for this segment, the share is likely to reach

45% in the next three years time frame .

The premium collection for Bata is Hush Puppies, Naturalizer, European Collection, Power

International Range and North Star. Bata has also entered collections of casual, daily wear, sports

and outdoor categories for the 10-14 year age group.

Premium product portfolio helps push the brand quotient on one hand with better connect with

spending millennial class, while on the other hand it leads to higher gross margin and thereby

propels overall margin in higher orbit.

A continuous focus on the premium segment, has resulted in Bata’s per pair realisation growing at

a CAGR of 7.7% from INR 485 per pair in FY15 to INR 562 in FY18, and we expect the same to increase

by 8-10% further in the ensuing years to reach around INR 660 by FY21

Further towards this drive, we expect this to impact gross profit margin positively. Historically as

well, Bata’s gross profit margin has improved from 52.5% in FY16 to 55.9% in FY18 (expansion of

340bps over four years). We believe, the trend is likely to sustain with further aggression and hence

estimate the company to post 56.7% gross margin by FY21.


Bata, 70

Hush Puppies, 10

Power, 10

Acessories, 10

30%

20%

27%

20%INR 1500+

INR 1000+ - 1500

INR 500+- 1000

INR > 500

485

526

562

FY16 FY17 FY18

Improving Average Realization (INR per pair)


23

23



Bata India Ltd

Orient Electric Ltd


Cost rationalisation efforts to result in huge operating leverage benefits

Despite clocking 54% plus gross margin, Bata’s current operating margin is ~13%. For FY18, ~40%

of the total cost is largely fixed. Rentals and employees are major fixed costs for Bata constituting

13.3% and 11.2% of revenue, respectively. Evaluation of discretionary and retail players indicates

that this ratio of rentals to revenue is extremely high for Bata.

Bata’s rental remain high visa-vis other retailers…providing scope for improvement


However, we expect it to improve on: (a) improvement in sales per sq ft; (b) renegotiation of lease

rentals across stores; (c) rationalisation of store size to improve store economies; and (c)

renegotiation with suppliers. These efforts to rationalise overheads coupled with the ongoing

premiumisation drive will positively impact margin.

We estimate Bata’s operating profit margin to expand by 390 bps over the ensuing 9 quarters to

17.2% by FY21.

Journey of operating profit margin from 13.3% in FY18 to 17.2% in FY21E


52.553.2

54.2

55.9 56.056.7 56.7

FY16 FY17 FY18 9MFY19 FY19E FY20E FY21E

Expanding Gross margins (%)

4.4%

7.5% 7.6%

10.1% 10.8%12.1%

13.7%

V-Mart Metro Future Retail Future Lifestyle JubilantFoodworks

Trent Bata

13.3%

17.2%

2.50%0.20%

1.70%

-0.80%

0.30%

FY18OPM Gross ProfitMargin

Employee Cost Rental Sales &Distribution

spent

OtherOverheads

FY21 OPM


24

24



Bata India Ltd

Orient Electric Ltd

(III) Asset-light balance sheet + improved margin to lead to strong core RoCE

expansion Bata, over the years, has evolved from a manufacturing-cum-retailer in to a mid-premium retail

branded player. It has taken a conscious decision to reduce its presence in manufacturing, thereby

creating an asset-light business model.

Currently, ~60-65% of the products sold at Bata are outsourced, resulting in better asset turns and

also margin improvement. Going forward we expect Bata’s EBITDA margin to improve from 13.3%

in FY18 to 17.2 % in FY21E.

With improvement in margin, we estimate Bata’s core RoCE to jump from 32.8% in FY18 to 42% by

FY21


Strong operating cash flow generation ahead to provide scope for inorganic expansion- Driven

by strong margin expansion and stable working capital cycle, Bata is expected to generate strong

operating cash flows ahead, we expect the company to post an aggregate free cash flow of INR

670 crore over FY18-21E. This strong operating cash flow generation along with already high cash

in the books (around INR 600 crore) further strengthens Bata balance sheet. By FY21, we expect

Bata’s cash on books to almost double from present INR 600 crore to INR 1100 crore, thereby

providing it an opportunity to expand via acquisition or takeover.

FY15 FY16 FY17 FY18 FY19 FY20 FY21

Net profit 200 159 175 221 312 391 462

Add: Depreciation 79 79 65 60 67 77 88

Gross cash flow 279 238 240 281 379 467 550

Less: Changes in W. C. 77 113 226 93 209 103 114

Operating cash flow 202 125 14 188 170 365 436

25.6% 26.9%32.4%

40.6% 42.6% 42.4%



25

25



Bata India Ltd

Orient Electric Ltd

IV. Competitive positioning

Resilient performance even during downturns



-20%

-10%

0%

10%

20%

30%

40%

50%

Bata Relaxo Khadim Metro Mirza Liberty Adidas

FY13 FY14 FY15 FY16 FY17 FY18

54.5 54

38

55

47.8 45.7

41.5

Bata Relaxo Khadim Metro Mirza Liberty Adidas

Amongst the best Gross Margins; likely to improve (%)

13.4

15.4

10.3

15.3

Bata Relaxo Khadim Metro

Scope for improvement in operating margin (%)


26

26



Bata India Ltd

Orient Electric Ltd

Well placed on RoCE to EBITDA profile; with scope for improvement


BataRelaxo

Khadim

Metro

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

15% 20% 25% 30% 35% 40%

EBIT

DA

Mar

gin

RoCE


Outlook and Valuation

Outlook and Valuations

Bata India Ltd

Orient Electric Ltd

27

27

We initiate coverage on Bata India with “Buy” recommendation and TP of INR 1500, entailing 20%

upside based on current market price. Our TP is based on 42x FY21 EPS of INR 36. We belevie that

Bata being a market leader in the fast growing footwear category with right intervention, strong

ROCE and strong balance sheet with 40% cash is at the cusp of growth is likely to trade at in line

with the other leading consumer plays.

Relative Valuation

Company M-cap (INR cr)

Diluted EPS (INR) P/E( x) EV/EBITDA(x) ROCE

FY18E FY19E FY20E EPS CAGR FY18-20

FY18E FY19E FY20E FY18E FY19E FY20E FY18E FY19E FY20E

Havell's India 43073 11.2 13.9 17.3 24.1 63.1 50.8 41.0 40.8 32.7 26.5 28.1 31.5 34.9

Asian Paints 133674 21.1 24.2 29.6 18.5 68.8 60.1 49.0 43.4 39.0 32.0 34.3 34.6 37.5

Pidilite Industries 55680 19.0 19.2 23.7 11.6 59.7 59.3 47.9 42.3 39.5 32.2 36.2 33.8 35.5

Jubilant Foodworks 17167 15.6 24.6 29.6 37.5 83.0 52.7 43.9 37.5 27.2 22.4 33.0 42.5 41.8

Titan Company 92241 12.6 16.3 20.3 26.8 84.6 65.4 52.6 57.2 44.6 35.9 34.0 36.8 38.7

Aditya Birla Fashion and Retail

16836 1.5 3.4 5.3 86.7 137.7 61.4 39.5 38.8 25.4 19.5 7.0 15.0 19.2

Avenue Supermarts Limited

91385 12.9 15.4 20.3 25.3 111.6 93.7 71.2 66.3 54.1 41.6 25.6 28.0 29.8

Trent LTD 11069 2.6 5.5 7.7 71.1 130.1 61.5 44.4 57.9 40.9 30.7 10.4 13.0 15.4

Median 26.0 83.8 60.7 46.2 42.8 39.3 31.4 30.5 32.7 35.2

Bata India 16127 17.2 24.3 30.4 33.0 73.0 51.7 41.3 38.4 28.7 22.9 32.4 40.6 42.6

Key Risks Exit of key management personnel: Exit of senior management (Mr. Sandeep Kataria and

senior management employees like R.K. Gupta ) is a key risk for Bata as it has played an

important role in turning around the company over the past 3 years.

Intense competition: Bata may face intense competition from existing players in the form of

aggressive pricing, increased spending on marketing & distribution, launch of improved

products with attractive features, etc. Furthermore, entry of large international companies in

the footwear segment can lead to intense competition in the industry in the future.

Slowdown in economy: Rise in disposable incomes is a key driver of consumer discretionary.

Hence, any slowdown in the economy could pose downside risk to Bata’s earnings.


Business Overview

Business Overview

Bata India Ltd

Orient Electric Ltd

28

28

Company Description Bata, India’s largest footwear retailer, has been operating in the Indian subcontinent for around 9 decades with a retail

network of 1,400 stores across 550 cities, entailing 3 mn sq ft retail space. It has 5 manufacturing plants at West Bengal, Bihar,

Karnataka and Tamil Nadu.

Bata is a part of Bata Shoe Organization (BSO) that has presence in 70 countries and operates through 3 business units—Bata

India is the largest entity of the BSO in terms of pairs sold and will overtake Italy in FY19 in terms of revenue (currently Italy is

the largest revenue market for BSO).

BSO provides access to the technical research and innovative programmes of Global Footwear Services, Singapore. This

arrangement is currently valid up till 2021 and Bata pays 1% as a technical charge for the same.

Business Model The company retails shoes across all price points via its own EBO network of 1,300 plus stores. It manufactures as well as outsources products that it retails.

Strategic Positioning It has pan-India presence and strong brand equity in the minds of its target consumers.

Competitive Edge Wide product portfolio—men, women as well as kids, with store presence in key geographies.

Financial Structure Strong balance sheet, with zero debt on books and ~35% plus of the balance sheet in cash.

Key Competitors Relaxo, unorganised players.

Industry Revenue Drivers

Increasing per capita consumption of footwear along with premiumisation trend.

Shareholder Value Proposition

The company is likely to clock EPS of INR 30.4for FY20E. At valuation of 42x FY21E, we arrive at target price of INR1500 which offers an upside of 20% from the current level.


Timeline

Timeline

Bata India Ltd

Orient Electric Ltd

29

29

Major Milestones

1931 1971 2002 2011 2012 2013 2015 2016 2017 2018

1931: Incorporated in

Kolkata as Bata Shoes

Co. Batanagar plant

was the first footwear

manufacturing facility

to receive ISO 9001

certification

1971: Public issue and name

was changed to Bata

India Limited

2002: Massive operational

restructuring initiated –

closed down cash

drain stores, employee

VRS, technology

upgradation,

outsourcing etc

2011: Restructuring nearly

complete; focus shifts

to aggressively

opening large format

destination stores and

EBO’s for certain

scalable sub-brands

2012:• Achieved annual sales of

50 mn pairs

2013:• General slowdown and the online

slaughter and weak product portfolio

impacted the performance

2015: The company tried

to change the inventory

tracking system from

traditional basis to SAP

module, the changeover

had problem, resulting in

higher inventory pile up

and lower sales

2016:• Rejig at the

management level

was done to fix on

the inventory

problem; which was

resolved

2017: Further restructuring towards

new management, cost

rationalization efforts continued

2018• Marked change in the product,

positioning, pricing and

communication undertaken to cater

to the evolving young generation


Financials

Financials

Bata India Ltd

Orient Electric Ltd

30

30

Year to March (INR cr) FY17 FY18 FY19E FY20E FY21E

Income from operations 2,474 2,641 2,968 3,450 3,984

Direct costs 1,158 1,209 1,306 1,494 1,725

Employee costs 273 296 329 380 438

Renal expenses 357 362 365 414 478

Other expenses 408 423 484 569 657

Total operating expenses 2,196 2,290 2,484 2,857 3,299

EBITDA 278 351 484 593 685

Depreciation and amortisation 65 60 68 77 87

EBIT 213 291 416 516 598

Interest expenses 4 4 4 4 4

Other income 46 51 53 70 97

Profit before tax 255 337 465 582 691

Provision for tax 75 116 153 192 228

Core profit 180 221 311 390 463

Extraordinary items -22 0 0 0 0

Profit after tax 158 221 311 390 463

Minority Interest 0 0 0 0

Share from associates 0 0 0 0

Adjusted net profit 180 221 311 390 463

Equity shares outstanding (mn) 13 13 13 13 13

EPS (INR) basic 14 17 24 30 36

Dividend per share 4 4 4 4 4

Dividend payout (%) 29 23 17 13 11

Common size metrics- as % of net revenues

Year to March FY17 FY18 FY19E FY20E FY21E

Operating expenses 88.8 86.7 83.7 82.8 82.8

Depreciation 2.6 2.3 2.3 2.2 2.2

Interest expenditure 0.2 0.2 0.1 0.1 0.1

EBITDA margins 11.2 13.3 16.3 17.2 17.2

Net profit margins 7.3 8.4 10.5 11.3 11.6

Growth metrics (%)


Revenues 2.1 6.7 12.4 16.2 15.5

EBITDA 2.3 4.3 8.5 15.0 15.5

PBT 14.9 32.3 37.8 25.3 18.7

Net profit (27.3) 39.8 41.0 25.3 18.7

EPS 25.9 23.0 41.0 25.3 18.7


Financials

Financials

Bata India Ltd

Orient Electric Ltd

31

31

Balance sheet (Standalone)

As on 31st March FY18 FY19E FY20E FY21E

Equity share capital 64 64 64 64

Reserves & surplus 1,481 1,793 2,183 2,646

Shareholders funds 1,545 1,857 2,248 2,710

Long Term Borrowing - - -

Short Term Borrowing - - -

Minority interest - - -

Other Liabilties - - -

Sources of funds 1,545 1,857 2,248 2,710

Gross block 485 585 685 785

Depreciation 293 373 453 533

Net block 192 212 232 252

Capital work in progress 14 14 14 14

Total fixed assets 206 226 246 266

Intangible Assets

Deferred tax assets 105 105 105 105

Inventories 762 829 964 1,113

Sundry debtors 89 98 113 131

Cash and equivalents 636 659 867 1,135

Loans and advances 188 207 228 251

Other current assets 105 115 132 152

Total current assets 1,780 1,908 2,305 2,782

Sundry creditors and others 657 554 639 735

Provisions

Total CL & provisions 657 554 639 735

Net current assets 1,123 1,355 1,665 2,048

Uses of funds 1,545 1,857 2,247 2,710

Book value per share (INR) 120 144 175 211

Cash flow statement

Year to March FY18 FY19E FY20E FY21E

Net profit 221 312 391 462

Add: Depreciation 60 67 77 88

Add: Deferred tax

Add: Others 0 0 0

Gross cash flow 281 379 467 550

Less: Changes in W. C. 93 209 103 114

Operating cash flow 188 170 365 436

Less: Capex 83 100 100 100

Free cash flow 105 70 265 336


Financials

Financials

Bata India Ltd

Orient Electric Ltd

32

32

Ratios


ROAE (%) 13% 16% 19% 19% 19%

ROACE (%) 21% 24% 28% 29% 28%

Current ratio 3 3 3 4 4

Debtors (days) 10 10 11 12 12

Inventory (days) 104 103 102 102 102

Payable (days) 68 79 65 65 65

Cash conversion cycle (days) 46 34 48 49 49

Debt/EBITDA

Debt/Equity

Adjusted debt/Equity

Valuation parameters


Diluted EPS (INR) 14.0 17.2 24.3 30.4 36.0

Y-o-Y growth (%) 25.9 23.0 41.1 25.3 18.4

CEPS (INR)

Diluted P/E (x) 101.7 72.7 51.5 41.1 34.7

Price/BV(x) 12.1 10.4 8.7 7.1 5.9

EV/Sales (x) 6.3 5.8 5.2 4.4 3.7

EV/EBITDA (x) 48.0 38.4 28.7 22.9 19.1

Diluted shares O/S 12.9 12.9 12.9 12.9 12.9

Basic EPS 14.0 17.2 24.3 30.4 36.0

Basic PE (x) 101.7 72.7 51.5 41.1 34.7

Dividend yield (%) 0.32 0.32 0.32 0.32 0.32


Financials

Financials

Bata India Ltd

Orient Electric Ltd

33

33

I. India favourably placed to ride on the consumption boom.


India’s per capita consumption as well as per capita spent on footwear is low, and with the growth

in the per capita GDP, the per person consumption along with the per pair spent on footwear is

likely to grow.

Indian footwear industry estimated to grow in mid-teens over medium term

Industry estimates peg the overall footwear industry at INR 55,000 crore, having clocked 12.7%

CAGR over the past five years and estimated to clock 15% CAGR till FY20. Within the industry, while

men’s category is likely to grow at 11.4%, women’s category is expected to grow at a faster clip of

17.8%; kids segment is estimated to register 23% CAGR over the ensuing three years.

India

Indonessia

China

Mexico

UK

Brazil

USA

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

8.0

9.0

- 10,000 20,000 30,000 40,000 50,000 60,000 70,000

Pe

r C

apit

a C

on

sum

pti

on

(N

o. o

f p

airs

)

Per capita GDP (USD)

Footwear consumption remain low in India

0

10

20

30

40

50

-

10,000

20,000

30,000

40,000

50,000

60,000

70,000

India Indonessia China Mexico UK Brazil USA

Spen

t p

er p

air

in U

S$

Per

cap

ita

GD

P (

US$

)

...And per spent on footwear is low

Per capita GDP Spent per pair


Financials

Financials

Bata India Ltd

Orient Electric Ltd

34

34

Footwear Industry expected to grow in mid teens Women and kids category to grow at faster pace


The women’s and kids composition in the footwear category is likely to increase from present level of 37%/ 9% to around 41%/11%

by FY20.


The share of branded footwear in India is estimated to jump to 50% by FY20 from 42% currently led

by: (a) penetration of existing brands in tier 2 & smaller cities; (b) existing international premium

brands expanding their presence via launch of new stores; (c) deepening reach of mid & economy

brands to tier 2-3 towns & cities; and (d) demand shift from unbranded to branded.

The urban segment constitutes ~67% and within the urban cluster, top 8 cities that constitute

metros contribute ~40% to total revenue; tier 1 & 2 cumulatively contribute the next 40% of the

urban share. Broadly based on these estimates, Metro + tier 1 & 2 cities together contribute ~55-

60% to the overall footwear market and the same is estimated to have higher organised share.

Category and price point wise, around 45% of the footwear is sold at >INR 500 and the same is

growing at a higher rate than the mass footwear category (in higher single or lower double digit);

higher price point footwear is growing in double digits.

12.7

15

FY14-17 FY17-20

11.4%

17.8%

23.6%

Mens Womens Kids

Men, 54%Women, 37%

Kids, 9%

Footwear industry

break-up -2020, 0%

Men, 48%

Women, 41%

Kids, 11%


Financials

Financials

Bata India Ltd

Orient Electric Ltd

35

35

Breakup of Footwear Market by Price Point


Footwear segment: Key trends

Rising trust in branded footwear: Though the market share of branded and non-branded footwear

in India has remained almost the same till date, brand consciousness has increased significantly. A

fast-growing economy and a rising number of affluent consumers have pushed India into the league

of most brand conscious countries globally. However, most consumers prefer a price point ranging

between INR 999 and INR 4,999 in national and international brands.

Growing opportunities in women’s segment: Though women’s footwear has only 30% market

share currently, its growth rate is double that of the men’s segment. Men’s category is expected to

grow at 10% ; while women is expected to grow at 20% for the next 3-5 years time frame

Omni-channel retailing: Retailers have started venturing in omni-channel retailin are trying in-store

marketing solutions such as beacons to enrich the shopping experience and are finding ways to

bridge the gap between offline and digital channels. In addition to engaging users on the digital

platform and influencing their merchandising decisions, many retailers are using platform not just

to showcase products, but to actually sell them. The same goes for mobile phones. Companies are

using the small screen to not just ‘get in front’ of customers (i.e., through geo-fencing and mobile-

enabled sites but also for parts of the customer journey, including order fulfilment, payments, and

loyalty.


Premium

(3000+)

Micl

(1000-3000)

Economy

(800-1000)

Mass<600

54%

30%

10%

6%

% Share, ValuePrice Segments

(Avg. Selling Price at Retail Stores in INR)

36

810 11

13

2013 2014 2015 2016 2017 2018

Online Contribution


36

36

Bata India Ltd

Orient Electric Ltd

Edelweiss Broking Limited, 1st Floor, Tower 3, Wing B, Kohinoor City Mall, Kohinoor City, Kirol Road, Kurla(W)

Board: (91-22) 4272 2200

Vinay Khattar

Head Research

[email protected]

Rating Expected to

Buy appreciate more than 15% over a 12-month period

Hold appreciate between 5-15% over a 12-month period

Reduce Return below 5% over a 12-month period

60

80

100

120

140

160

180

200

220

240

260

Jan

-14

Ap

r-1

4

Jul-

14

Oct

-14

Jan

-15

Ap

r-1

5

Jul-

15

Oct

-15

Jan

-16

Ap

r-1

6

Jul-

16

Oct

-16

Jan

-17

Ap

r-1

7

Jul-

17

Oct

-17

Jan

-18

Ap

r-1

8

Jul-

18

Oct

-18

Jan

-19

(In

de

xed

)

Bata Sensex


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