28thMay 2018

Lukewarm revenue growth but margin improvement maintains… For Q4FY18, revenue grew by 6.9% YoY. However, EBITDA growth was strong at 45% YoY supported by 340pbs improvement in EBITDA margins. Higher focus on premium products, lower rent and benefit from input tax credits supported margins, gross margins improved by 180bps YoY. PAT grew by 45% YoY mainly aided by improvement in margins.

Growth to improve aided by new stores and higher ad spend BIL currently owns and operate the major chunk of its outlets while having ~150 franchised outlets in India. For To accelerate growth by tapping opportunities in Tier I & Tier II cities, BIL is planning to add ~300-350 stores via franchise route in next 3Yrs. As a next step towards this target, BIL has identified 435 small cities in India. BIL’s target is to achieve $1billion in five years and management expects the franchise route will support to accelerate the growth. Additionally, BIL’s plan to increase its advertisement spending to ~2.5% of sales in FY19 will drive increase in footfalls. BIL continued to invest in improving customer experience by launching ‘Red-concept’ stores. This coupled with renewed focus on women and kids categories would give additional push to top-line growth. BIL wants to increase the share of women’s shoe from current 40% to ~50% in next 3 years. We expect revenue to grow at 10.6% CAGR over FY18-20E driven by increasing premium mix, higher advertisement spending and store additions.

Margins to improve further… Bata has been on a path of premiumisation of its products by adding technologies like memory cusion & insolia and with several new launches in men and women categories such as Hush Puppies, Naturalizer, European collection etc. This will improve realisation goingforward. Additionally, BIL’s strategy on store additions through franchise route will control its fixed costs. Rent expense has come down by 5%YoY in Q4FY18. We expect 100bps improvement in EBITDA margin over FY18-20E supported by better operating efficiency and premiumisation of products which will support 15.7% CAGR in PAT.

Valuations

BIL is currently trading at 36x 1yr fwd P/E (at 1Yr Avg). The healthy outlook on earning is expected to support valuations. We value BIL at 38x on FY20E EPS and revise upwards our target price to Rs.900 (Earlier Rs772) and recommend Buy

RETAIL EQUITY RESEARCH

Bata India Ltd Rating as per midcap 12months investment period FMCG

BSE CODE:500043 NSE CODE: BATAINDIA CMP Rs. 763 TARGETRs.900 RETURN 18%

Bloomberg CODE: BATA IN SENSEX: 34,925

Company Data

Market Cap (cr) Rs. 9,806

Enterprise Value (cr) Rs. 9,218

Outstanding Shares (cr) 12.9

Free Float 47%

Dividend Yield 0.5%

52 week high Rs. 833

52 week low Rs. 510

6m average volume (cr) 0.07

Beta 0.94

Face value Rs5

Shareholding( %) Q2FY18 Q3FY18 Q4FY18

Promoters 53.0 53.0 53.0

FII’s 8.7 7.2 6.19

MFs/Insti 22.8 24.2 25.5

Public 15.5 15.6 15.35

Total 100.0 100.0 100.0

Price Performance 3 month 6 month 1 Year

Absolute Return 4.9% 1.4% 44.8%

Absolute Sensex 1.4% 3.6% 13.6%

Relative Return 3.5% -2.2% 31.2%

*over or under performance to benchmark index

Standalone (Rs.cr) FY18A FY19E FY20E

Sales 2,629 2,940 3,259

Growth (%) 6.6 11.8 10.8

EBITDA 354 417 473

Margin(%) 13.5 14.2 14.5

PAT Adj 224 266 304

Growth (%) 23.9 19.1 14.2

Adj.EPS 17.4 20.7 23.7

Growth (%) 23.9 19.1 14.2

P/E 43.9 36.8 32.3

P/B 6.6 5.8 5.0

EV/EBITDA 26.1 21.8 19.0

RoE (%) 15.9 16.8 16.7

D/E 0.0 0.0 0.0

300400500600700800900

May 17 Aug 17 Nov 17 Feb 18 May 18

Bata India Senses rebased

COMPANY INITIATING

REPORT

GEOJIT BNP PARIBAS

Research

Q4FY18 RESULT UPDATE

Healthy performance continues… Bata India Ltd (BIL) is the largest retailer and leading manufacturer of footwear in India with ~1290 retail stores as on March 2018.

BIL reported strong earnings growth of 45%YoY supported by 340bps improvement in EBITDA margins for Q4FY18 and revenue grew by 6.9%.

Gross margin has been improving since Q1FY18 from 52.3% to 55.9% aided by premiumisation, lower rent and benefit from input tax credits.

Expect revenue growth to improve due to revival in rural demand aided by good monsoon, government focus on rural, store additions, new lauches and higher advertisement spending.

Improving efficiencies & premiumisation will continue to support margins and we estimate ~17% CAGR in PAT over FY18-20E.

Healthy outlook on earnings is expected to support valuations and value BIL at P/E of 38x. We recommend Buy with a revised Target of Rs900.

Buy

Vincent Andrews Analyst

Quarterly Financials

Profit & Loss Account

(Rscr) Q4FY18 Q4FY17 YoY Growth % Q3FY18 QoQ Growth %

Net Revenue 632.3 591.4 7% 586.9 8%

EBITDA 82.3 56.7 45% 64.5 28%

Margin (%) 13.0% 9.6% 410 bps 11.00% (550bps)

Depreciation 16.9 16.6 1% 14.4 17%

EBIT 65.4 40.1 63% 50.1 31%

Interest 2.0 1.6 31% 0.8 155%

Other Income 13.7 12.2 13% 14.8 -7%

Exceptional Items 0.0 0.0 NA 0 NA

PBT 77.1 50.7 52% 64.1 20%

Tax 25.0 14.7 70% 21.2 18%

Reported PAT 52.1 35.9 45% 42.9 21%

Adjustment 0.0 0.0 NA 0 NA

Adj PAT 52.1 35.9 45% 42.9 21%

No. of shares (cr) 12.9 12.9 0% 12.9 0%

EPS (Rs) 4.1 2.8 45% 3.3 23%

Change in estimates

Old estimates New estimates Change %

Year / Rscr FY19E FY20E FY19E FY20E FY19E FY20E

Revenue 2,999 3,383 2,940 3,259 -1.96% -3.66%

EBITDA 418 478 417 473 -0.34% -1.11%

Margins (%) 13.9% 14.1% 14.2% 14.5% 30bps 40bps

PAT 268 310 266 304 -0.60% -1.78%

EPS 20.8 24.1 20.7 23.7 -0.35% -1.70%

Standalone Financials

Profit & Loss Account Y.E March (Rscr) FY16A FY17A FY18A FY19E FY20E

Sales 2415 2467 2629 2940 3259

% change 9.9 2.1 6.6 11.8 10.8

EBITDA 276 278 354 417 473

% change 2.5 0.7 27.4 17.7 13.5

Depreciation 78 65 60 79 85

EBIT 197 213 293 337 387

Interest 2 4 4 5 5

Other Income 27 47 51 59 65

PBT 297 234 340 392 448

% change 10.1 -21.2 45.5 15.2 14.3

Tax 79 75 116 125 143

Tax Rate (%) 27% 32% 32% 32% 32%

Reported PAT 218 159 224 266 304

Adj* 75 -22 0 0 0

Adj PAT 143 181 224 266 304

% change -10.8 26.3 23.9 19.2 14.3

No. of shares (mn) 13 13 13 13 13

Adj EPS (Rs) 11.1 14.0 17.4 20.7 23.7

% change -10.8 26.3 23.9 19.2 14.3

DPS (Rs) 4.1 4.1 4.1 4.1 4.1

CEPS (Rs) 17.2 19.1 22.1 26.9 30.3

Cash flow

Y.E March (Rscr) FY16A FY17A FY18A FY19E FY20E

Net inc. + Depn. 296 223 284 345 390 Non-cash adj. -43 -4 30 -1 -2 Changes in W.C -47 70 -99 -10 -77 C.F.O 206 289 214 334 311 Capital exp. -40 -34 -71 -128 -100 Change in inv. -94 0 0 0 0 Other invest.CF 18 -10 -1 -24 -26 C.F - investing -116 -44 -72 -152 -126 Issue of equity 0 0 0 0 0 Issue/repay debt 0 0 0 0 0 Dividends paid -50 -52 -52 -52 -52 Other finance.CF -2 -4 -4 -4 -5 C.F - Financing -52 -56 -75 -57 -57 Chg. in cash 38 189 68 125 128 Closing cash 341 521 588 714 841

Balance Sheet Y.E March (Rscr) FY16A FY17A FY18A FY19E FY20E

Cash 341 521 588 714 841

Accounts Receivable 70 67 89 97 112

Inventories 679 705 762 848 965

Other Cur. Assets 234 235 289 314 348

Investments 5 5 5 5 5

Gross Fixed Assets 379 402 491 616 716

Net Fixed Assets 302 265 293 339 354

CWIP 19 30 12 15 15

Intangible Assets 1 1 2 2 2

Def. Tax (Net) 79 75 105 111 118

Other Assets 43 56 0 0 0

Total Assets 1772 1961 2145 2445 2759

Current Liabilities 532 611 636 719 780

Provisions 18 24 30 32 34

Debt Funds 0 0 0 0 0

Other Liabilities 0 0 0 0 0

Equity Capital 64 64 64 64 64

Reserves & Surplus 1158 1261 1414 1628 1880

Shareholder’s Fund 1222 1325 1479 1693 1945

Total Liabilities 1772 1961 2145 2444 2759

BVPS (Rs) 95 103 115 132 151

Ratios

Y.E March FY16A FY17A FY18A FY19E FY20E

Profitab. & Return

EBITDA margin (%) 11.4 11.3 13.5 14.2 14.5

EBIT margin (%) 8.2 8.6 11.2 11.5 11.9

Net profit mgn.(%) 5.9 7.3 8.5 9.1 9.3

ROE (%) 12.7 14.2 15.9 16.8 16.7

ROCE (%) 8.6% 8.5% 10.3% 11.2% 11.2%

W.C & Liquidity

Receivables (days) 9.7 10.1 10.8 11.5 11.7

Inventory (days) 220.6 219.1 224.0 218.3 220.8

Payables (days) 170.8 180.9 190.3 183.7 182.6

Current ratio (x) 2.4 2.4 2.6 2.6 2.8

Quick ratio (x) 0.7 1.0 1.1 1.1 1.2

Turnover &Levg.

Gross asset T.O (x) 4.5 6.3 5.9 5.3 4.9

Total asset T.O (x) 1.4 1.3 1.3 1.3 1.3

Int. covge. ratio (x) 113.0 52.7 69.9 74.4 79.1

Adj. debt/equity (x) 0.0 0.0 0.0 0.0 0.0

Valuation ratios

EV/Sales (x) 3.9 3.8 3.5 3.1 2.8

EV/EBITDA (x) 34.3 33.4 26.1 21.8 19.0

P/E (x) 68.6 54.3 43.9 36.8 32.2

P/BV (x) 8.0 7.4 6.6 5.8 5.0

Recommendation Summary (last 3 years)

Dates Rating Target

8th March 2016 Accumulate* 556

06th June 2016 Accumulate 619

10th August 2016 Reduce 516

30th November 2016 Hold 432

14th February 2017 Buy 584

05th August 2017 Hold 665

28th November 2017 Hold 768

06th March 2018 Hold 772

28th May 2018 Buy 900

Source: Bloomberg, Geojit Research

Investment Rating Criteria Large Cap Stocks; Mid Cap and Small Cap;

Buy - Upside is above 10%. Hold - Upside is between 0% - 10%. Reduce - Downside is more than 0%.

Neutral - Not Applicable

Buy - Upside is above 15%. Accumulate - Upside is between 10% - 15%. Hold - Upside is between 0% - 10%. Reduce/Sell - Downside is more than 0%. Neutral - Not Applicable

To satisfy regulatory requirements, we attribute ‘Accumulate’ as Buy and ‘Reduce’ as Sell The recommendations are based on 12 month horizon, unless otherwise specified. The investment ratings are on absolute positive/negative return basis. It is possible that due to volatile price fluctuation in the near to medium term, there could be a temporary mismatch to rating. For reasons of valuations/return/lack of clarity/event we may revisit rating at appropriate time. Please note that the stock always carries the risk of being upgraded to BUY or downgraded to a HOLD, REDUCE or SELL. Neutral- The analyst has no investment opinion on the stock under review.

General Disclosures and Disclaimers

I, Vincent K Andrews, author of this Report, hereby certify that all the views expressed in this research report reflect my personal views about any or all of the subject issuer or securities. This report has been prepared by the Research Team of Geojit Financial Services Limited, hereinafter referred to as Geojit.

COMPANY OVERVIEW

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We have prepared this report based on information believed to be reliable. The recommendations herein are based on 12 month horizon, unless otherwise specified. The investment ratings are on absolute positive/negative return basis. It is possible that due to volatile price fluctuation in the near to medium term, there could be a temporary mismatch to rating. For reasons of valuations/return/lack of clarity/event we may revisit rating at appropriate time. The stocks always carry the risk of being upgraded to buy or downgraded to a hold, reduce or sell. The opinions expressed are subject to change but we have no obligation to tell our clients when our opinions or recommendations change. This report is non-inclusive and does not consider all the information that the recipients may consider material to investments. This report is issued by Geojit without any liability/undertaking/commitment on the part of itself or anyof

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