BATA SHOE COMPANY (BANGLADESH ) LIMITED DSE: BATASHOE

BLOOMBERG::BD

Company Overview valorem basis upon the industries which pollute the
environment. Leather industries will surly face the burden.
Bata Shoe Company (Bangladesh) Limited (Bata) was According to the Bangladesh Ministry of Environment, the
incorporated in 1972. The Company is mainly engaged in tanneries discharge nearly 22,000 cubic litters of untreated and
manufacturing and marketing of leather, rubber, plastic, canvas highly toxic, including cancer-causing chromium, into the river
footwear, hosiery and accessories items. It has two Buriganga every day. It also produces 100 tons of solid waste
manufacturing facilities one in Tongi and the other one in every day in the form of trimmings of finished leathers, shaving
Dhamrai. In 2013, the total production capacity of the Company dust, hairs, trimmed animal flesh skins/hides to contaminate
was 36 mn of which around 30 mn pairs of shoes were the soil and the water.
produced registering 83% capacity utilization.
Company Fundamentals
BATA generates revenue mostly from local sales (99%) while
Market Cap (BDT mn) 16,952.2
exports trivially. The Company imprints its strong presence
both in retail and non-retail business through its 265 retail Market weight 0.6%
outlets, 665 DSPs (Dealers Support Programs) and 444 RWD No. of Share Outstanding (in mn) 13.7
(Registered Wholesale Dealers). In 2013, 63% revenue Free-float Shares 30.0%
generates from retail channel and 36% revenue generated form Paid-up Capital (BDT mn) 137.0
non-retail channel. Around 68% raw materials are locally
3-month Average Turnover (BDT mn) 17.2
procured and rests 32% are imported.
3-month Return 25.5%
The company is one of the largest taxpaying corporate bodies Current Price (BDT) 1229.5
contributing BDT 1.80 billion to the Countrys National
52-week price range (BDT) 682-1309
Exchequer.
Sectors Forward P/E 24.7
The Firm enlisted in the DSE in 1985 and in the CSE in 2004.
2014
Around 70.00% shares of the company are held by the Sponsors 2011 2012 2013
(Q1 Ann.)
Bafin (Nederland) B.V, whereas 18.38%, 11.60% and 0.02%
shares are held by General, Institutional and Foreign Investors Financial Information (BDT mn):
respectively. Net Sales 6,647.8 7,384.5 7,879.0 8,131.9
Operating Profit 851.6 1,009.7 1,202.3 1,080.9
Industry Overview Profit After Tax 579.2 671.9 813.1 724.6
Tannery Industry is the 3rd largest export earning sector in Assets 3,542.9 3,980.0 4,610.4 4,792.4
Bangladesh. It contributes about 4.3% to the overall export Long Term Debt 152.2 136.1 149.0 157.7
earnings up to July-May 2013-14 (Source: Export Promotion Equity 1,558.3 1,854.0 2,256.7 2,653.2
Bureau). This industry employs about 850,000 people directly. Dividend (C/B)% 250/- 275/- 300/- -/-
More than 400 mn square feet of raw hides and skins are Margin:
processed and exported by tanneries each year in the recent Gross Profit 35.5% 36.1% 38.3% 39.3%
times. About 95% of the leather sector output in the form of
Operating Profit 12.8% 13.7% 15.3% 13.3%
crushed leather, finished leather, leather goods and footwear
are exported. There are 200 tanneries, 3,500 MSMEs (Micro Pretax Profit 11.9% 13.2% 14.6% 12.7%
Small & Medium Enterprises) and 110 large firms related to Net Profit 8.7% 9.1% 10.3% 8.9%
leather tanning, leather goods and footwear sub-sectors in the Growth:
country. However, few large companies control more than 90% Sales 17.4% 11.1% 6.7% 3.2%
of the export market. Main exporting countries are Hong Kong, Gross Profit 15.4% 12.9% 13.3% 5.8%
Italy, Korea, Japan, China, Vietnam, Spain, UK, Germany, Operating Profit 10.6% 18.6% 19.1% -10.1%
France, USA, Saudi Arabia, etc. Net Profit 6.8% 16.0% 21.0% -10.9%
According to Export Promotion Burea data, leather export grew Profitability:
by 29.11% to USD 468.63 mn in July-May of FY 2013-14 from ROA 17.6% 17.9% 18.9% 15.4%
USD 362.97 mn in the same period of the last FY while the ROE 40.2% 39.4% 39.6% 29.5%
footwear export totaled USD 493.76 mn with a 30.78% growth Leverage:
and leather goods export totaled USD 218.34 mn with a 59.87%
Debt Ratio - - - -
growth. All the subsectors i.e., leather, leather goods and
footwear comply their respective strategic target set for the Debt-Equity - - - -
July-May of 2013-14 FY. Int. Coverage 40.2 227.4 198.8 142.1

A project has started, on 200 acres of land with CETP facilities Valuation:
costing BDT 10.78 bn, to relocate tanneries from Hazaribagh to Price/Earnings 29.0 25.0 20.7 23.2
Savar Tannery Estate. EU will not allow export beyond 2014 Price/BV 10.8 9.1 7.5 6.3
until a full-fledged CETP becomes operational. In 2014-15 EPS (BDT) 42.3 49.1 59.4 53.0
proposed budget, the Government has imposed 1% DPS (BDT) 25.0 27.0 30.0 -
Environment Protection Surcharge or Green Tax on ad- NAVPS (BDT) 113.9 135.5 165.0 193.9

1 November 06, 2014

 Investment Positives Last Five Year's EPS (BDT)
BATA displayed fantastic performance over the years. 5
59.44
year CAGR (Compound Annual Growth Rate) of revenue 49.12 52.97
39.66 42.34
of the company was 10.2%.
It has established a new business channel under Bata
Industrials focusing the industrial group such as
petrochemicals, food industries, machineries, automobile
Year 2010 Year 2011 Year 2012 Year 2013 Year 2014 ( Ann.)
parts, electrical equipment etc.
Both production facilities of the firm are upgraded with Last Five Year's Price (BDT) Movement
various high-tech machineries and equipment which 1,400
eventually help to increase revenue. 1,200

Though current export earning is insignificant only 1% of 1,000

800
total revenue, yet the Company put efforts to find new
600
export market for footwear.
400
Major festivals i.e., Eid-ul-Fitar, Eid-ul-Azha, Durga Puja 200
etc. stimulates the product demand. Therefore, the firm 0
nd Oct-09 Oct-10 Oct-11 Oct-12 Oct-13 Oct-14
enjoys higher earnings in the 2 half of the year (July-
December).
It has established handsome dividend policy over the years Pricing Based on Relative Valuation:
(as mentioned in the table). Multiple Value (BDT)
Sector Forward P/E 24.7 1,306.9
Investment Negatives
Sector Trailing P/E 21.1 1,129.3
The Company is exposed to foreign exchange risk as it Market Forward P/E 18.9 999.6
imports 32% of its raw materials. Market Trailing P/E 18.4 1,092.4
The Company currently runs at P/B of 5.5 whereas the 4.0 780.4
Sector P/B
sectors P/B was 3.2.
The dividend payout ratio, on an average, is 55%. Concluding Remark
BATA is one of the leading manufacturer and marketer in the
countrys leather and footwear industry. The Company
displayed growth in its business performance consistently over
the years. It has sessional effect on its business performance.
During the major festive session for the last few years this is
Q3 the Company reported substantially higher earnings.

Source: Annual Reports, DSE website, BATAs website, http://promotebdleather.net/, Export

Promotion Bureau, the Financial Express, the Daily Star and ILSL Research

ILSL Research Team:

Name Designation
Rezwana Nasreen Head of Research
Towhidul Islam Research Analyst
Md. Tanvir Islam Research Analyst
Miraj Islam Chowdhury Jr. Research Analyst
Md. Imtiaz Uddin Khan Jr. Research Analyst

For any Queries: research@ilslbd.com

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2 November 06, 2014