Bata India, a multinational company, has existence in India from as long as 1931. Last couple of years didn’t go very well for the company. The SAP implementation didn’t work well for the company and it faced severe supply-chain issue in FY 2015. However overcoming this issue, in FY 2017, Bata India recorded a turnover of Rs 24,972.4 million as compared to the turnover of Rs 24,485.9 million in FY 2016, a nominal increase of 2%. Profit before tax and exceptional item stands at Rs 2552.44 million in comparison to 2219.42 million FY 2016, an increase of 15%.
Now the management is busy in strategizing the company’s growth plan. This is reflective in company’s new advertisement, which is mostly emphasizing on women customers. The ad captures women in different emotional moment. And it ends with a tagline “Me and Comfortable” with it. Bata India now is trying to change its brand image from an age old traditional shoe company to ultramodern shoe company which is walking in tandem with latest fashion trend. Bata India is now no more a name of a comfort show, but it is trying to symbolise itself as a trend setter. This brand transformation of Bata India may work very well for the company.
In the current financial year, young women are the new focus market for Bata India. Bata’s woman customer contributes almost 26% of the revenue in the financial year 2017. Bata India is now concentrating more on its woman customer to increase its revenue share.
On the operation front also, Bata India has brought lots of efficiency. They are closing down the shops, which turned out to be not so profitable for them. Over and above, they have set a target for themselves to open around 100 new outlets this year, which are mostly in the tier two or tier three city. In FY17, they added 100 new outlets and 23 franchised outlets, which take total store count to1293. We believe that this business model will bring success for them going forward. Our belief is based on the up-surging middle class people. Government’s policy of “Inclusive Growth” will intensify the purchasing power of the middle class people. When Bata’s target is to open new shops in tier two and tier three city may work well for them, the capital cost may impact the cash inflow negatively. To tackle this issue, Bata India has decided to mostly bank on franchisee business model. This will render less liability for Bata India.
On one part, Bata India is increasing its outlet and on the other part, it is trying hard to improve its same store growth. They are trying to modernize and change the look and feel of its old styled outlets. In an interview with a TV channel, Managing Director and Chief Executive Officer Rajeev Gopalakrishnan said that they are targeting double digit same store growth going forward. However, for FY18, it may be around 7-8 percent.
Apart from the brick and mortar shop, Bata India is also concentrating on the online sale. The online sale of Bata India was launched 2-3 years back. According to MD and CEO Rajeev Balakrishnan, the online sale started couple of years ago and currently growing at the rate of 70%. The bottomline is that Bata’s strategy encompasses maximizing reach to their customers through various channels.
Last but not the least, the impact of GST is most favorable to leather industry. While the new GST rate may not make a big difference, the main benefit will be achieved through the market share capture of the unorganised player. The unorganised sector has substantial market share in leather industry. There is a possibility that a good part of that will be shifted to the organised players like Bata India. Bata’s foray into two tier and three tier city will be more beneficial here as there is less competition in those cities.
At the current market price of Rs 580, Bata India seems to be trading higher than its historical PE but with the improvement of EPS, it has high potential to trade higher. For a 12 months conservative target, we can set a target price of Rs 650. When market at its peak, we recommend to invest in high quality business, which has limited downside in case the market slides.
Disclaimer : This report is a view of Rover Equity Solution  and not a solicitation for purchase or sale. If anyone is interested to trade in the same stock, he\she is advised to do it at his\her own risk. We are not in any way responsible for any loss incurred. We are also not responsible for any loss or damage that may arise from any inadvertent error in the data provided in the report.
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