Stock Pick From The Retail Sector

HERE IS WHY:

• Bata India is the top brand in the footwear market
• It plans to launch 100 new branded stores every year
• It has consistently seen rise in margins and return ratios

Can you imagine stepping out of home without your footwear on? This is one commodity that would always be in demand. The Global footwear market is expected to grow at a CAGR of two per cent to USD 211.5 billion by 2018 (source: Transparency Market Research). In its August 2012 report, Price Waterhouse Coopers, a well know consultancy firm, estimated that the Indian footwear market would grow at a CAGR of 15 per cent to become a nearly USD 7 billion market by 2015. Now that is a huge growth potential. Bata India, which is a dominant player in the industry, is one such high growth potential company and thus our choice scrip for this issue.

Bata India (BIL) is a subsidiary of the Netherlands-based parent company, Bata Shoe Organization.  Sustainability is not a cause of concern as a 120-year history of the company speaks for itself. Bata India has been in India for the last eight decades and enjoys leadership in the sector. It offers a wide range of products for every possible product category, gender specific and age specific. It is also not afraid of the changing market trends and has been consistent in introducing new products in the shoes, sandals, chappals, bags, belts and wallets categories. Some of its popular brands are Sparx, Weinbrenner, Comit, Marie Claire, Bubblegummers etc.

Shareholding Pattern As On 31/03/2013
Promoter & Promoter Group	52.01
FII	20.20
DII	10.23
Non Institutions	11.68
Bodies Corporate	14.21
GRAND TOTAL	100

Footwear & Accessories is a principal business segment of BIL. It is further split in to two sub- segments - Footwear (95 per cent of total sales) and Accessories and Garments (five per cent of total sales). The company also exports its products but that accounts to only a per cent of its sales. A total of 1350 retail stores with a good penetration in rural and urban areas is a significant characteristic of the footwear company. It expects to launch 100 new stores every year starting from FY14. It is also renovating its old stores to enhance the shopping experience for its customers. The new stores would be large format stores with a size of more than 3000 square feet. This strategy is yielding good results for the company in terms of improved sales and healthy profitability. The company’s retail assets are its main growth drivers.

The company has now shifted its focus on the women and children segment which is showing fantastic growth. The contribution of women’s footwear segment in the total sales has increased from 25 per cent in 2008 to 35 per cent in 2012, indicating a huge potential in the segment. Recently, BIL launched a new brand named 'Angry Birds' in the children's segment and the brand is doing quite well. It is now set to introduce sunglasses under its brand. This will help it garner higher revenues going ahead.

On the financial front, the company has shown a fantastic performance in terms of revenues, net profit and margins. Revenues and profits have grown at a five-year CAGR of 16 per cent and 29 per cent respectively by 2012. The margins have also increased from seven per cent in 2006 to 16 per cent in 2012. Returns on equity, an important measure of the profitability for the shareholders, have also shown a consistent rise from 19 per cent in 2006 to 25 per cent in 2012.

On the valuation front, at a CMP of Rs 806, the counter is available at a TTM price to earnings ratio of 30x. Being the largest company in the sector, it is premium amongst its peers. We advise investors to enter the counter at the CMP with a target price of Rs 950 and a one-year horizon.

LAST FIVE QUARTERS (Rs/CR)
	Mar '13	Dec '12	Sep '12	June '12	Mar '12
Total Income	453.87	509.03	429.05	506.51	408.01
Raw Material Consumption	6.94	7.55	4.31	3.98	3.97
Interest	0.24	0.54	0.16	0.17	0.17
Tax	18.04	22.55	15.75	24.65	17.41
Net Profit	38.46	50.91	32.04	52.65	36
Equity Share Capital	64.26	64.26	64.26	64.26	64.26