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Bata India Equity Research

HomeCompanyBata India Equity Research

Date of Research – 13 January 2016

Price – Rs. 480.00

About the Company

Incorporated as Bata Shoe Company Private Limited in 1931, the Company was initially set up as a small operation in Konnagar (near Calcutta). The Company changed its name to Bata India Limited (“Bata” or the “Company”) when it went public in 1973. Bata manufactures and sells footwear and accessories through its well established retail and wholesale network in India. Today, Bata India has established itself as India’s largest footwear retailer with over 1200 stores.

The Company has its production facilities at Batanagar in West Bengal; Hathidah in Bihar; Faridabad in Haryana; Bangalore in Karnataka and in Patna and Hosur in Tamil nadu. The Company also operates a large non retail distribution network through its urban wholesale division and caters to customers through over 30,000 dealers.The Company’s footwear & accessories segment offers its products under many well known brand names including Bata Shoes, Comfit, Footin, Hush Puppies, Naturalizer, Marie Claire, North Star, Power, Scholl, Sparx, Ambassador, Mocassino, Wienbrenner, and Bubblegummers. The Company also exports its products to Europe and the Middle-East.

*FY 2015 of the Company is of 15 months, i.e., from January 1st, 2014 to March 31st, 2015.

*Bata India split its equity in the ratio of 10:5 on 07 October 2015. EPS and P/E numbers are adjusted to reflect the effect of split.

Key Financial Figures

Consolidated (Rs. Cr)
Particulars FY 2012 FY 2013 FY 2015 FY 2016 FY 2017
Total Income from Operations 1,842.45 2,065.17 2,694.00 2,425.37  2,504.34 
Expenses 1,567.46 1,743.33 2,359.10 2,154.74  2,225.75  
Earnings Before Other Income, Interest, Tax and Depreciation (Operating Profit) 275.00 321.85 334.90 270.63  278.58  
Depreciation 51.40 59.20 79.23 75.27  65.04  
Finance Costs 1.03 1.30 1.76 1.72  4.03
Other income 30.06 31.35 43.23 29.98  46.02  
Exceptional items 10.08 (31.53) (74.71)  21.67
PBT 252.63 282.62 328.67 298.32  233.86  
Tax 80.54 91.88 97.50 79.78  74.91  
PAT (before Minority Interest and share of Associates) 172.08 190.74 231.17 218.54  158.95  

Profitability Analysis

Consolidated (%)
Particulars FY 2012 FY 2013 FY 2015 FY 2016 FY 2017
Operating Profit Margin Ratio 14.93 15.58 12.43 11.16  11.12 
Net Profit Margin Ratio 9.34 9.24 8.58 9.01  6.35

Operating profit margin is a measurement of the proportion of a company’s revenue that is left over after paying for production costs such as raw materials, salaries and administrative costs. Net profit margin is arrived at by deducting non operating expenses such as depreciation, finance costs and taxes out of operating profit and shows what is left for the shareholders as a percentage of net sales. Together these ratios help in understanding the cost and profit structure of the firm and analysing business inefficiencies.

Key Balance Sheet Figures

Sources of Funds / Liabilities (Rs. Cr)
Particulars FY 2011 FY 2012 FY 2013 FY 2015 FY 2016
Share Capital 64.26 64.26 64.26 64.26 64.26
Reserves & Surplus 508.27 634.78 775.61 956.92 1,117.60
Net worth (shareholders funds) 572.54 699.04 839.87 1,021.19 1,181.86
Other liabilities and provisions 62.58 56.11 79.28 97.76 102.87
Long term borrowings
Current liabilities 287.53 374.38 462.87 518.03 464.36
Total Liabilities 922.65 1,129.53 1,382.02 1,636.98 1,749.09

 

Application of Funds / Assets (Rs. Cr)
Particulars FY 2011 FY 2012 FY 2013 FY 2015 FY 2016
Fixed Assets 229.18 261.56 272.01 356.88 323.14
Noncurrent Investments 87.62 0.50
Current assets 573.50 722.71 923.16 1,015.69 1,151.18
Long term advances and other noncurrent assets 85.75 100.91 118.77 176.79 172.35
Deferred Tax Assets 34.22 44.36 68.08 101.92
Total assets 922.65 1,129.53 1,382.02 1,636.98 1,749.09

Efficiency Analysis

  (%)
Particulars FY 2011 FY 2012 FY 2013 FY 2015 FY 2016
ROCE 42.18 39.34 38.32 32.80 22.90
ROE / RONW 45.21 24.62 22.71 22.64 18.49

Return on Capital Employed (ROCE) measures a company’s profitability from its overall operations by calculating the return generated on the total capital invested in the business (i.e. equity + debt). Return on Equity (ROE) or Return on Net Worth (RONW) measures the amount of profit which the company generates on money invested by the equity shareholders. In short, ROE draws attention to the return generated by the shareholders on their investment in the business. Together these ratios can be used in comparing the profitability of the company with other companies in the same industry.

Valuation Analysis

Consolidated
Particulars FY 2012 FY 2013 FY 2015 FY 2016 FY 2017
Total Income from Operations (Rs. Cr.) 1,842.45 2,065.17 2,694.00 2,425.37  2,504.34 
Growth (%) 18.09 % 12.09 % 30.45 % (9.97 %)  3.26 % 
PAT (Rs. Cr.) 172.08 190.74 231.17 218.54  158.95  
Growth (%) (33.52 %) 10.85 % 21.20 % (5.46 %)  (27.27 %) 
Earnings Per Share – Basic (Rs. ) 13.39 14.84 17.99 17.00  12.37 
Earning Per Share – Diluted (Rs. ) 13.39 14.84 17.99 17.00  12.37 
Price to Earnings 32.37 35.60 28.84 29.83  43.27 

Dividend History

The Company has maintained an average dividend yield of 1.37 % over the last 5 financial years.

Liquidity and Credit Analysis

Current Ratio

Higher current ratio implies healthier short term liquidity comfort level. A current ratio below 1 indicates that the company may not be able to meet its obligations in the short run. However, it is not always a matter of worry if this ratio temporarily falls below 1 as many times companies squeeze out short term cash sources to achieve a capital intensive plan with a longer term outlook Bata’s average current ratio over the last 5 financial years has been 1.89 times which indicates that the Company has been maintaining sufficient cash to meet its short term obligations.

Long term Debt to Equity Ratio

Companies operating with high long term debt to equity on their balance sheets are vulnerable to economic cycles. In times of slowdown in economy, companies with high levels of debt find it increasingly difficult to service the interest on their borrowings as profit margins decline. We believe that long term debt to equity ratio higher than 0.6 – 0.8 could affect the business of a company and its results of operations.

Bata’s average long term debt to equity ratio over the last 5 financial years has been 0.04 which indicates that the Company is operating with zero level of debt.

Interest Coverage ratio

Interest coverage ratio indicates the comfort with which the company may be able to service the interest expense (i.e. finance charges) on its outstanding debt. Higher interest coverage ratio indicates that the company can easily meet the interest expense pertaining to its debt obligations. In our view, interest coverage ratio of below 1.5 should raise doubts about the company’s ability to meet the expenses on its borrowings. Interest coverage ratio below 1 indicates that the company is just not generating enough to service its debt obligations.

Since Bata operates with zero level of debt, its average interest coverage ratio over the last 5 financial years has been 210.73 times which indicates that the Company has been generating enough for the shareholders after servicing its debt obligations.

Ownership pattern

In its latest stock exchange filing dated 31 March 2017, Bata reported a promoter holding of 52.96 %. Large promoter holding indicates conviction and sincerity of the promoters. We believe that a greater than 35 % promoter holding offers safety to the retail investors.

At the same time, institutional holding in the Company stood at 26.99 % (FII+DII). Large institutional holding indicates the confidence of seasoned investors. At the same time, it can also lead to high volatility in the stock price as institutions buy and sell larger stakes than retail participants.

About the Author

Rajat Sharma pictureRajat Sharma is a well known stock market analyst and commentator. He has covered Indian markets for over a decade and is regarded for consistently identifying early stage investment opportunities. Attorney by qualification, Rajat has done extensive work for improving corporate governance and disclosure standards.

 

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