Quarterly Update Q4FY19

Weak Q4; impacted by one offs- Growth momentum

Bata India Ltd.
continues; Maintain Buy
Bata posted weak Q4 performance at the both revenue and the EBITDA level; the revenue
and the EBITDA for the quarter grew by 7% and 15% respectively. The topline was weak Sangeeta Tripathi
Research Analyst
on account of (a) Lower ecommerce sales (b) Lack of institution order, in Q4FY19, which sangeeta.tripathi@edelweissfin.com
was there in the base quarter. Adjusting for these one offs, the retail performance
remained healthy at 11% growth , on the back of 7% Same Store Sales growth (SSG). The
premiumization and the margin enhancement trend continued (Gross margins +121 bps
and EBITDA margin + 90 bps yoy), for now 12 quarters in a row. Thus, despite a blip in the
quarterly performance, we remained positive on Bata’s effort towards getting its mojo
back with relevant interventions (Product, People, Communication), and hence maintain
CMP INR: 1312
our Buy rating on the stock with our price target of INR 1500 (valued at 42x FY21 PER).
Rating: BUY
Weak revenue and EBITDA performance; Retail performance remained healthy Target Price INR 1500
Bata India’s Q4FY19 revenue/EBITDA and net earnings grew at 7%/15% and 69% yoy
respectively. The revenue performance was muted on account of certain one offs (lower Upside: 14%
ecommerce sales + institution order of INR 40 crore in Q4FY19). Adjusting for the same, the
retail growth was healthy at 11% yoy. The Same Store sales growth was healthy at 7% rate.
For the year Bata has added 140-150 franchisee store and 80-90 Company operated store
in its kitty.
Bloomberg: BATA:IN
Premiumization trend resulted in consistent margin expansion 52-week
Bata’s efforts towards Premiumization continues, visible in the consistent improvement in 1,479.95 / 739.20
range (INR):
the gross margin. For the quarter, its gross margin expanded by 121 bps to reach 57.1%.
Share in issue (cr): 13
This is the 12th quarter of yoy expansion in the gross margin posted by the company. Bata
has been enhancing its branding and communication reach and has upped its ante towards M cap (INR cr): 17,219
spending on the same from the 1.5% levels a year back to the current levels of 3%+. Thus
Avg. Daily Vol.
despite these increase (benefits of which would continue to flow via enhanced brand BSE/NSE :(‘000):
865

image, improved positioning and higher revenue), the EBITDA grew at 15% yoy; while the
Promoter
margins expanded 90 bps yoy to 13.9% for the quarter. During the quarter the company Holding (%)
52.96

launched new 9 to 9 collection of merchandise; targeting towards working women and the
same has been aggressively communicated via its brand ambassadors.

Outlook & Valuation

We believe that Bata being high quality consumer brand in the growing fast fashion
footwear category is 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

Q4FY19 Q4FY18 % yoy Q3FY19 % qoq FY18 FY19 FY20E FY21E

Net Sales (INR cr) 679 632 7.4 779 -12.8 2,641 2,928 3,369 3,840
Growth (%) 6.7 10.9 15.1 14
EBITDA (INR cr) 94 82 14.8 164 -42.3 351 477 580 661
Adj. PAT (INR cr) 68 52 31.1 103 -33.8 221 310 388 459
% growth 26.3 40.1 25.4 18.4
EPS (INR) 17.2 24 30.1 35.6
P/E (x) 78 56 45 38
EV/EBITDA (x) 41 30 25 21

Date: 27th May, 2019

Edelweiss Professional Investor Research 1

 Bata India Ltd. Q4FY19 Result Highlights

Key other highlights

New store addition momentum to continue- Store addition momentum for Bata continues strong and for FY20, the company has
guided for opening around 70-80 company operated stores , while it plans to open another 70-80 franchisee operated stores in
farther hinterlands of tier 4 and tier 5 towns and cities.

Balance Sheet remains robust- Bata’s balance sheet continues to remain robust and for the year, and has added INR 250 crore to
its cash kitty (after funding the capex requirement of 80-90 owned stores; while the working capital days remained intact.

Particulars (INR cr) Q4Y19 Q4FY18 % change Q3FY19 % change FY19 FY20E FY21E
Income from operations 679.4 632.3 7.4 778.7 (12.8) 2,928 3,369 3,840
Cost of goods sold 291.5 278.9 4.5 322.6 (9.6) 1,284 1,459 1,663
Gross profit 387.9 353.4 9.8 456.1 (15.0) 1,644 1,910 2,178
Gross profit margin (%) 57.1 55.9 121 bps 58.6 -148 bps 56.1 56.7 56.7
Employee expenses 84.9 80.9 4.9 83.1 2.2 331 371 422
Rentals 96.9 89.6 8.1 97.0 (0.1) 379 404 461
Other expenses 111.7 100.6 11.0 112.4 (0.7) 456 556 634
EBITDA 94.5 82.3 14.8 163.6 (42.3) 477 580 661
EBITDA margin (%) 13.9 13.0 90 bps 21.0 -710 bps 16.3 17.2 17.2
Depreciation and
16.6 16.9 (1.3) 17.0 (2.4) 64 75 82
amortization
EBIT 77.9 65.4 19.0 146.6 (46.9) 413 504 578
Interest expenses 0.6 2.0 (71.2) 0.9 (36.6) 4 4 4
Other income 27.9 13.7 103.8 13.7 103.3 69 75 106
PBT 105.2 77.1 36.4 159.4 (34.0) 478 575 681
Provision for tax 16.9 25.0 (32.4) 56.2 (69.9) 149 187 221
Core profit 68.4 52.1 31.2 103.2 (33.8) 330 388 459

Edelweiss Professional Investor Research 2

 Bata India Ltd. Q4FY19 Result Highlights

Initiating Coverage Outlook

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

Bata India

Edelweiss Professional Investor Research 3

 Bata India Ltd. Q4FY19 Result Highlights

Charts

Gross profit margin (%) Rental to sales ... coming down

56.1%
14.4
14.2

54.2% 13.7
53.2%
52.5%
13.0

FY16 FY17 FY18 FY19 FY16 FY17 FY18 FY19

Operating margin expands... Strong cash and equivalents

20.0% 700.00 1,257
600.00
15.0% 500.00 972
400.00
10.0% 747
300.00 636

5.0% 200.00
100.00
0.0% 0.00
FY16 FY17 FY18 FY19 FY20E FY21E

Operating Profit OPM (%) FY18 FY19E FY20E FY21E

Core RoCE (ex cash) Free cash flow

40.5% 42.1%
347

32.4% 280
26.9%

172

FY18 FY19 FY20E FY21E FY19 FY20E FY21E

Source: Edelweiss Professional Investor Research

Edelweiss Professional Investor Research 4

Bata India Ltd. Financials

Income statement (Standalone) (INR cr)

Year to March FY17 FY18 FY19 FY20E FY21E
Income from operations 2,474 2,641 2,928 3,369 3,840
Direct costs 1,158 1,209 1,284 1,459 1,663
Employee costs 273 296 331 371 422
Renal expenses 357 362 379 404 461
Other expenses 408 423 456 556 634
Total operating expenses 2,196 2,290 2,451 2,790 3,180
EBITDA 278 351 477 580 661
Depreciation and amortisation 65 60 64 75 82
EBIT 213 291 413 504 578
Interest expenses 4 4 4 4 4
Other income 46 51 69 75 106
Profit before tax 255 337 478 575 681
Provision for tax 75 116 149 187 221
Core profit 180 221 330 388 459
Extraordinary items -22 0 0 0 0
Profit after tax 158 221 330 388 459
Minority Interest 0 0 0 0
Share from associates 0 0 0 0
Adjusted net profit 180 221 330 388 459
Equity shares outstanding (mn) 13 13 13 13 13
EPS (INR) basic 14 17 26 30 36
Dividend per share 4 4 4 4 4
Dividend payout (%) 29 23 16 13 11

Common size metrics- as % of net revenues

Year to March FY17 FY18 FY19 FY20E FY21E
Operating expenses 88.8 86.7 83.7 82.8 82.8
Depreciation 2.6 2.3 2.2 2.2 2.1
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 11.3 11.5 12.0

Growth metrics (%)

Year to March FY17 FY18 FY19 FY20E FY21E
Revenues 2.1 6.7 10.9 15.1 14.0
EBITDA 2.3 4.3 7.0 13.8 14.0
PBT 14.9 32.3 41.7 20.2 18.4
Net profit (27.3) 39.8 49.2 17.8 18.4
EPS 25.9 23.0 49.2 17.8 18.4

Edelweiss Professional Investor Research 5

Bata India Ltd. Financials

Balance sheet (Standalone) (INR cr)

As on 31st March FY18 FY19 FY20E FY21E
Equity share capital 64 64 64 64
Preference Share Capital - - - -
Reserves & surplus 1,481 1,811 2,199 2,658
Shareholders funds 1,545 1,875 2,263 2,722
Long Term Borrowing - - - -
Short Term Borrowing - - - -
Minority interest - - - -
Other Liabilties - - - -
Sources of funds 1,545 1,875 2,263 2,722
Gross block 485 585 685 785
Depreciation - - - -
Net block 485 585 685 785
Capital work in progress 14 14 14 14
Total fixed assets 499 599 699 799
Intangible Assets
Deferred tax assets 105 105 105 105
Inventories 762 774 879 1,002
Sundry debtors 89 64 74 84
Cash and equivalents 636 747 972 1,257
Loans and advances 188 207 228 251
Other current assets 105 115 132 152
Total current assets 1,780 1,908 2,285 2,746
Sundry creditors and others 657 535 605 686
Provisions
Total CL & provisions 657 535 605 686
Net current assets 1,123 1,373 1,681 2,060
Uses of funds 1,545 1,875 2,263 2,722
Book value per share (INR) 120 146 176 212

Cash flow statement (INR cr)

Year to March FY18 FY19 FY20E FY21E
Net profit 221 330 388 459.45
Add: Depreciation 60 64 75 82
Add: Deferred tax
Add: Others 0 0 0
Gross cash flow 281 394 464 542
Less: Changes in W. C. 93 138 84 95
Operating cash flow 188 255 380 447
Less: Capex -352 83 100 100
Free cash flow 540 172 280 347

Edelweiss Professional Investor Research 6

Bata India Ltd. Financials

Ratios
Year to March FY17 FY18 FY19 FY20e FY20e
ROAE (%) 13% 16% 20% 19% 18%
ROACE (%) 21% 24% 28% 28% 27%
Current ratio 3 3 4 4 4
Debtors (days) 10 10 11 8 8
Inventory (days) 219 219 223 220 220
Payable (days) 144 173 145 145 145
Cash conversion cycle (days) 85 57 89 83 83
Debt/EBITDA
Debt/Equity
Adjusted debt/Equity

Valuation parameters
Year to March FY17 FY18 FY19 FY20e FY20e
Diluted EPS (INR) 14.0 17.2 25.6 30.2 35.7
Y-o-Y growth (%) 25.9 23.0 49.2 17.8 18.4
CEPS (INR)
Diluted P/E (x) 109.0 77.9 52.3 44.4 37.5
Price/BV(x) 13.0 11.1 9.2 7.6 6.3
EV/Sales (x) 6.7 6.3 5.6 4.8 4.2
EV/EBITDA (x) 51.5 41.3 30.2 24.8 20.8
Diluted shares O/S 12.9 12.9 12.9 12.9 12.9
Basic EPS 14.0 17.2 25.6 30.2 35.7
Basic PE (x) 109.0 77.9 52.3 44.4 37.5

Edelweiss Professional Investor Research 7

Bata India 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
VINAY Digitally signed by VINAY KHATTAR
DN: c=IN, o=Personal, postalCode=400072, st=Maharashtra,
2.5.4.20=87db74ffb17a70c89e8519a4d13e40e93c4bcaba1a6
Head Research 4d00f3c841d2fee3fa678,

KHATTAR
serialNumber=cd5737057831c416d2a5f7064cb693183887e7f
f342c50bd877e00c00e2e82a1, cn=VINAY KHATTAR
Date: 2019.05.28 16:08:22 +05'30'
vinay.khattar@edelweissfin.com

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

310

260
(Indexed)

210

160

110

60
Jul-14

Oct-18
Oct-14

Jul-15
Oct-15

Jul-16
Oct-16

Jul-17
Oct-17

Jul-18
Apr-14

Apr-15

Apr-16

Apr-17

Apr-18

Apr-19
Jan-14

Jan-15

Jan-16

Jan-17

Jan-18

Jan-19

Bata Sensex

Edelweiss Professional Investor Research 8

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Edelweiss Professional Investor Research 10