Wednesday, July 4, 2012

>BATA INDIA: Renewed its product lines, introduced new brands, refurbished or shut down old stores

Transformation delivering results!

A large market… and an even larger opportunity
The Indian footwear industry has a market size of Rs200bn, with the unorganized segment constituting over 60%. Moreover, about 75% of the total consumer base lies in rural India. An urban customer spends an average Rs240 pa for footwear as against Rs100 pa in rural India, which implies a huge scope for premiumisation across rural and urban markets. Though men’s footwear accounts for 50% of the market, its share has been gradually decreasing as women and children’s segments are now growing at faster. With an unmatched reach (1340 stores, the largest footwear retailer), strong brand equity and a wide product portfolio across segments, Bata stands to be a big beneficiary.

Adapting to changing consumer needs bearing fruit
Bata has, in the past few years, strived to become more relevant to the increasingly demanding modern consumer. The company now changes 70% of its merchandise every 7-8 months to keep in step with the latest trends. It has renewed its product lines, introduced new brands, refurbished or shut down old stores while expanding its portfolio across the consumer chain (men, women and kids). As a result, only 50-55% of the company’s sales now come from men’s footwear, as against ~75% three years back. The ladies segment now contributes 20-22% and children’s 8-10%. Focus on improving the mix has significantly boosted margins, albeit at the cost of volume growth. These factors have driven ahead-of-industry growth levels and doubled EBITDA margins from 7.5% in CY07 to 15% in CY11.

Demand momentum to continue; volume growth back on track
Focus on improving the product mix resulted in muted volume growth in CY11. However, volumes have improved in CY12, with a 14% volume growth in Q1 as compared to low single-digit volumes in the corresponding quarter. Though the management expects the momentum to continue, we believe a large part of incremental volumes will come from new stores (75 in Q1). The company is not seeing any signs of a slowdown and believes the demand momentum seen in Q1 (31% revenue growth) should translate into a healthy 20%+ revenue expansion this year.

To read report in detail: BATA INDIA