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IRF Rising Star Challenge 2011

Re-Launch of BATA: A Case Study on Restructuring the

Overall Business Strategy

By

Pawan Kumar Sharma*, Swet Kumar Singh* and Soumak Chakraborty*

Under Guidance of

Prof. Shamindra Nath Sanyal**

* Students, MBA-III Semester, Future Innoversity (Future Learning Initiative), Kolkata Campus

** Associate Professor and Academic Coordinator, Future Innoversity (Future Learning Initiative), Kolkata Campus, Kolkata, e-mail: shamindranath.sanyal@futuregroup.in.

2Re-Launch of BATA: A Case Study on Restructuring the Overall Business Strategy

Abstract

The study holds attention about the turnaround story of Bata India Ltd. Bata India was

earlier known for its high quality products at reasonable price mainly designed for

functional utility. But in recent years due to various reasons like choice of wrong market

segment, continuous union-related disturbances in manufacturing units and changing in

customer perception in very dynamic and complex market system, Bata started losing

its ground.

This case study proposed certain strategies that can be utilized in the restructuring of

the overall business strategy of Bata. This study also discussed different strategies that

Bata has already adopted as a part of revamping the business to combat the mounting

pressure from the local and international competitors in the Indian retail footwear

industry.

Key Words: Footwear, retail, strategy, Bata, turnaround.

1. Background: The Indian Leather Industry

Leather industry is a significant driver of economic growth in India with a direct

employment of 2, 50,000 (with 50% of them being Women) and export earnings of

US$14 billion. The Indian leather industry enjoys abundant availability of raw materials,

availability of low cost skilled labor and supporting institutions. More than 4000 units are

engaged in manufacturing, of which 95% are small and medium enterprises (SME).

Indias share in the global footwear imports is ~1.4% and future growth is expected from

the SMEs venturing into value added products. The footwear sector is now de-licensed

3and de-reserved, paving the way for expansion of capacities on modern lines with state-

of-the-art machinery. To further assist this process, the Government has permitted

100% Foreign Direct Investment through the automatic route for the footwear sector1.

Major competitors in the export markets for leather footwear are China (14%), Spain

(6%), and Italy (21%). 55% of Indias leather export comes from US and UK, and Dubai

in recent years had emerged as a trading destination to Africa and other markets1.

Global recession had a major impact on the industry, in terms of revenue fall and

markets. Some saw a dip over 30% in their revenue. SME focusing on exports and

producing only semi-finished leather witnessed low demand, increasing margin

pressures and high inventories.

Indian domestic leather goods market is estimated to be worth Rs 16,300 crore and is

expected to grow at a CAGR of 20%. Domestic footwear market is estimated to be over

Rs 15,000 crore in value terms and has grown at the rate of 8.8% over the last couple of

years. Mens footwear accounts for almost half of the total market, with womens shoes

constituting 40 percent and childrens footwear making up the rest. The domestic

market is essentially price driven, with branded footwear constituting less than 42% of

the total market size.

The major production centers in India are Kanpur in U.P., Chennai, Ranipet, and Ambur

in Tamil Nadu, Mumbai in Maharahstra, Jalandhar in Punjab, Agra, Delhi, Karnal,

Ludhiana, Sonepat, Faridabad, Pune, Kolkata, Calicut and Ernakulam. About 1.10

million are engaged in the footwear manufacturing industry1.

About 37.8% of Footwear retail is the organized segment, which qualifies it as the

second most organized retail category in India after watches. While the average

investment on the footwear by urban consumers is Rs. 240/annum, consumers in rural

areas spend only Rs 100/annum. The annual domestic consumption of footwear is

approximately 1.1 billion pairs per annum, and top 20 cities contribute about 450 million

pairs/annum.

4India is the second largest footwear manufacturer in the world, next only to China.

Nearly 58 % of the industry, which is mainly labor intensive and concentrated in the

small and cottage industry sectors, remains generic1. However, as part of its effort of

playing a lead role in the global trade, the Indian leather industry is now focusing on

essential deliverables of innovative design, state-of-the-art production technology and

strict adherence to delivery schedules.

In India, the major players in footwear are Bata, Liberty, Khadim, Nike, ADIDAS, Puma,

Woodland, Reebok, Relaxo and Action apart from many SMEs across different states.

Indian footwear sector has witnessed tremendous growth during the past few years,

Moreover, with the increasing government initiatives, entrance of international players,

and rise in investments, the footwear market in the country is expected to surge at a

CAGR of nearly 9% during 2011-20142.

The key attributes of Indian footwear segment are

The Indian footwear retail market is expected to grow at a CAGR of over 20% for the period spanning from 2008 to 2011.

Footwear is expected to comprise from over 38% in 2006-07 to about 60% of the total leather exports by 2011.

Presently, the Indian footwear market is dominated by Mens footwear market that accounts for nearly 58% of the total Indian footwear retail market.

The ladies footwear segment still remains the most untapped as nearly 80-90 percent purchases happen in the unorganized market.

As footwear retailing in India remain focused on mens shoes, there exists a plethora of opportunities in the exclusive ladies and childrens footwear segment.

The Indian footwear market is dominated by casual footwear market that makes up for nearly two-third of the total footwear retail market.

The Indian footwear market scores over other footwear markets as it gives benefits like low cost of production, abundant raw material, and has huge domestic

consumption market.

52. Customer Segments

Retail footwear segment in Indian is very price sensitive and has been steadily growing

over the year. Major part of the demand is met by the unorganized sector and still there

is a shortfall of 300 million pairs. Branded shoe market only account for 20% of the

entire market. While international brands largely dominate the higher end of the

spectrum, the lower end of the market is dominated by domestic as well as unorganized

players. While men's footwear is the biggest target category (contributing almost 48%),

children's (11%) and women's lifestyle footwear (41%) is not behind in the race2.

Table 1: Segment wise classification of price ranges in the mens footwear segments3

Segments Price Ranges in Rs % of growthMass market 185 700 60% (Liberty Bata) Economy market 700- 1000 30% (Bata Liberty) Sports market 1000 3000 7% (Nike Adidas) Premium leathers 3000- 5000 5% (Charles and Keith) Luxury 10000- 50000 1% (Gucci Louis Vuitton)

Table 2: Segment wise classification of women footwear segment3

Segments Price Ranges in Rs % of growthTraditional footwear 699 999 5%Designer Footwear 599 799 10%

Formals 299 699 40%Casual Wear 499 799 25%Sports Shoes 500- 699 20%

The childrens footwear segment is one of the fastest growing segments in India. The

Indian kids footwear segment is highly fragmented and dominated by the unorganized

sector. The branded childrens footwear segment has a big card to play as India has the

worlds largest child population. The overall kids retail segment has a robust margin of

620 25 % which is huge potential opportunities for organized branded retail footwear

players.

Target Markets

The Figure 1 shows the hierarchy of markets that the existing footwear companies in India

traditionally target.

PUMA, NIKEADIDAS, REEBOK

BATA, ACTION, LIBERTY,

NIKE, ADIDAS, REEBOK

BATA, ACTION, LIBERTY, KHADIM,

NIKE, ADIDAS, RELAXOBATA, ACTION,

RELAXO

Figure 1: Traditional target markets of footwear companies in India.

3. Company-wise Classification (based on Porters Five Forces Model)

Michael Porters fives forces model is an excellent model to use to analyze a particular

environment of an industry. Therefore, for the footwear industry, we would use Porters

model to help us find out about:

Competitive rivalry

A starting point to analyzing the industry is to look at competitive rivalry. Mostly numbers

of competitors are stable, especially because of high entry barriers. This adds to the

UPPER CLASS

UPPER MIDDLE CLASS

MIDDLE CLASS

LOWE MIDDLE CLASS

7rivalry among existing firm. Manufacturers watch each other carefully and make

appropriate countermove to match the competitors move.

Power of suppliers

Suppliers are also essential for the success of an organization. Raw materials are

needed to complete the finish product of the organization. Shoes are made of leather,

rubber etc. These materials are commodities, where the manufacturing process adds

the value and as a result suppliers have limited bargaining power over buyers.

Power of buyers

Customers can exert influence and control over an industry in certain circumstances.

Bata was largest player in industry with 9-10% volume share and 60% market share in

organized segment. It had a market share of 70% in canvas shoe segment and 60% in

leather shoe segment. Their dominant market share give them power over buyer.

Threat of substitutes

Are there alternative products that customers can purchase over the product that offer

the same benefit for the same or less price? Consumer switch from one product to

another if alternatives are available in same quality and performance range and have

competing price or lesser price. Apart from the existing players in the Indian footwear

market, since the Government has permitted 100% Foreign Direct Investment through

the automatic route for the footwear sector, the competition is going to be very intense

where the customers have number of options before them.

Threat of new entrant

The threat of new entrants will be very high in Indian footwear sector because of three

reasons

a) Barriers to entry are absent.

b) The Footwear Sector is now de-licensed and de-reserved, paving the way for

expansion of capacities on modern lines with state-of-the-art machinery, and

8c) As discussed earlier, Government has permitted 100% Foreign Direct Investment

through the automatic route for the footwear sector,

Table 3: Comparison among the prominent competitors in Indian footwear sector

based on Porters Five Forces Analysis

BASIS OFCOMPARISON

NIKE ADIDAS RELAXO ACTION BATA LIBERTY

Barriers to Entry Absent Absent Absent Absent Absent Absent

Bargaining Power of Buyers

Low Low High High High High

Bargaining Power of Supplier

Low Low Low Low Low Low

Threats of Substitutes High High High High High High

Competitive Rivalry High High High High High High

4. Bata India Limited

Bata India is the largest retailer and leading manufacturer of footwear in India and is a

part of the Bata Shoe Organization.

Incorporated as Bata Shoe Company Private Limited in 1931, the company was set up

initially as a small operation in Konnagar (near Kolkata) in 1932. In January 1934, the

foundation stone for the first building of Batas operation - now called the Bata. In the

years that followed, the overall site was doubled in area. This township is popularly

known as Batanagar. It was also the first manufacturing facility in the Indian shoe

industry to receive the ISO: 9001 certification.

9The Company went public in 1973 when it changed its name to Bata India Limited.

Today, Bata India has established itself as Indias largest footwear retailer. Its retail

network of over 1200 stores gives it a reach / coverage that no other footwear company

can match. The stores are present in good locations and can be found in all the metros,

mini-metros and towns

The company manufactures footwear for men, women and children. The Company

manufactures shoes of various qualities such as leather, rubber, canvas and PVC

shoes. Bata Group has worldwide presence across 5 continents, serving 1 million

customers per day and operating 4,600 retail stores globally.

Today the company is the largest shoe company in India in terms of sales and

revenues. The company currently sells over 45 million pairs of shoes every year. It

commands around 35 percent of market share in India. Companys 98 percent revenue

comes from domestic operation. It owns ~1200 stores spread across 400 cities in India.

Currently the company owns brands like Hush Puppies, Dr Scholls, Weinbrenner, North

Star, Power, Marie Claire, Bubble gummers, Ambassador, Comfit and Wind India.

Currently it has five factories located at Batanagar (West Bengal), Bataganj (Bihar),

Faridabad (Haryana), Peenya (Karnataka) and Hosur (Tamil Nadu).

The company has also launched a range of safety shoes for industrial use in the

domestic market with a price tag of Rs.500-Rs. 3,000. The company is planning to sell

these shoes directly to industrial houses and not through its retail stores. Presently, the

products are going through manufacturing process at its Batanagar unit in West Bengal.

But footwear is a very price sensitive market in India and sudden swings in raw material

prices will be detrimental to profitability.

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Table 4: Peer Comparison with stocks associated with retail consumption4

But the path was not very smooth sailing for Bata. Reasons are

a) Wrong target market selection

Bata had traditionally been targeting the middle stratum of the consumers in India, in

general and the lower middle and middle classes, in particular. Due to the changing

market dynamics the competition started undercutting their prices and Bata was thinking

of shifting its focus towards the premium end of the market as well.

In the early 1990s, Bata decided to enter into the high-end segments of the Indian shoe

market as a part of its new target market and subsequently launched quite a few brands

in this segment with higher price tags. This strategy did not suit Bata. This segment was

not in a position to accept Bata, because first, this segment was not sizeable for a

company like Bata. Second, the segment did not realize Batas distinctive competence.

The segment constituted a small 5-10% of the footwear market in India. It could not

provide the volumes that Bata used to receive from the existing markets and high

volume was very essential for Bata for showing a healthy bottom line. Overall, the

adoption of the segment misdirected Batas entire strategy. Actually, Bata was

squeezed at both ends like the top end of the market suddenly became the main focus

of the company and it forgot its bread-and-butter shoes that had given the company its

identity that resulted in decreasing in Batas market share by the small regional players.

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At the lower end, smaller competitors attacked Batas mass range in canvas shoes,

school shoes and Hawaii chappals segment, which the company had practically

vacated on its own by ignoring them entirely. On the other hand, niche players who

were at the high end doing the business for several years were better prepared and

challenging Bata heavily. It resulted in sliding down of market share of around 15% in

the mid-1980s to 10% of the footwear market in mid-1990s. The year 1995 saw the

company running a loss of Rs. 42 crores.

Although Bata is still continuing with the high-end brands like Hush Puppies, these are

being sold in a selective way and through select stores only. After paying for the

mistake in a hard way, Bata returned to the mass segment to get back to the original

customers at the low end and keep that part of the market as its core focus.

b) Major Labour Problems in Bata India

Historically, Bata was crippled with perennial labor problems with frequent strikes and

lockouts at its manufacturing units. The company incurred huge employee expenses

(22% of net sales in 1999) whereas, competitors like Liberty Shoes were far more cost-

effective with remunerations of its 5,000 strong workforce comprising just 5% of its

turnover.

Batas most disturbing factory at Batanagar was always heavily disturbed by labor strike. In 1992, the factory was closed for four and a half months. In 1995,

Bata entered into a 3-year bipartite agreement with the workers, represented by

the then 10,000 strong Bata Mazdoor Union (BMU), which also had the West

Bengal Government as a signatory.

In 1998, the company for the first time signed another long-term bipartite agreement with the unions without any disruption of work. The company entered

into similar long-term agreements with the unions at its manufacturing units at

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Bangalore and Faridabad by apprehending labor problems spilling over to these

units.

In February 1999, a lockout, lasted for eight months was declared in Batas Faridabad Unit. In October 1999, the unit resumed production when Bata signed

a three-year wage agreement.

On March 8, 2000, a lockout was declared at Batas Peenya factory in Bangalore, following a strike by its employees union. The new leadership of the

union had refused to abide by the wage agreement, which was to expire in

August 2001. Following the failure of its negotiations with the union, the Bata

management decided to go for a lock out.

. In September 2000, Bata was again headed for a labor dispute when the Bata

Mazdoor Union (BMU) asked the West Bengal Government to intervene in a pre-

conceived idea of a downsizing exercise being undertaken by the management.

BMU justified this move by alleging that the management has increased

outsourcing of products and also due to perceived declining importance of the

Batanagar unit.

c) Sustainability of the Position

Initially Bata was positioned as a brand offering footwear products for the family and for

the customers belonging to the middle class. But the decision to also tap the premium

segment of the market may be categorized as one which becomes diluted and casts

doubts about the sustainability of Batas desired position in the market.

Brand: The Bata brand has lost its earlier equity due to its strategy for catering both the

segments for which Bata was not at all prepared.

Image of Bata: Batas image has surely been diluted as a result of it targeting various

segments and trying to cater to their needs. Its traditional positioning would also be

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impacted and there would be chances of Bata not being able to provide an experience

fit to its customers as per their expectations.

Activities: The sort of internal activities which they employed in terms of manufacturing,

having different categories of outlets, targeting various segments of the market from

upper to the lower level, selling through retail as well as the wholesale channels even

CSR activities would not help in any way at conveying a consistent and robust corporate

image to its customers. Hence it can be stated that they somehow failed to make any

particular trade offs as far as the key activities were concerned.

Attaining competitive advantage: The competitive advantage for Bata based on what

they are currently planning to do, i.e., trying to offer something for different segments

would render them pretty uncompetitive. The various levels of fits, that a firm should

strive for, would not be easily achievable for Bata with their current marketing strategies.

The traditional Bata positioning strategy is diluted and it can not make any strong impact

to the customers in order to achieve competitive advantage.

d) Traditional Value Proposition for the Customers

Bata was providing with its customers their value proposition that may be categorized

as follows.

Reasonable quality at low or reasonable price

Footwear for the entire family Footwear catering to various functional needs e.g. sports, casual footwear,

formal-semi formal.

Excellent distribution system that enabled Bata to provide a consistent experience to its target customers at all the outlets to leverage its brand equity

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5. Bata Turnaround Stories: Restructuring the Overall Business Strategy

5.1 Proposed Strategy Mapping for Bata Restructuring

Bata would urgently need to make some prominent changes in the way it operates

especially in the face that the value the company provides to its customers and

reorganize its operations for achieving the goals laid down in the strategy.

Customer: The competitive advantage for Bata based on what they are currently

planning to do i.e. trying to offer something for both segments like middle-class and

premium would render them vulnerable. The customer delivered value will also be

substantial as Bata would now be offering value for money along with the trust which is

essential to revamp. In terms of access, functionality and selection options it would

again be fulfilling its promises of being a family store. The service levels would be

strictly monitored and hence an experience fit need to be provided to the customers and

the customers, in turn, will be willing to pay premium because of brand Bata and hence

the competition undercutting Bata on price would no longer be that big a threat. Bata

may still focus on its premium brands but there needs to be a separate entity that will

monitor it meticulously.

Financial: In terms of financial aspects in order to have better returns ensured for the

stakeholders, Bata should be banking on its focus on the middle and upper middle class

segment through its Bata brand, apart from the middle class segment to enable to it to

be a major force and have higher profits through enhanced market share. Also the fact

that the renewed brand image will enable Bata to earn premium at the upper middle end

of the market will aid the achievement of the financial goals.

Brands: Considering the fact that the Bata brand has traditionally been targeting the

middle class customers, it would be appropriate for Bata to use its Bata brand name

only with its traditional product offerings. Since Bata is known for its functional footwear

offering utility and reliability etc., to make its name established in fashion footwear, it

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would highlight its repositioning or, they can come out with a different brand like Bata

Lifestyle or Bata Trendy. The reason behind is that prospective buyers in this segment

will not really be able to associate style or fashion with a brand like Bata. A separate

entity may increase their degree of association with Bata and fashionable footwear and

it will help to challenge the supremacy of local, more responsive and trendy stores

famous for women footwear. In Kolkata city, Bata earlier tried to experiment with the

store called Bata-for Her meant exclusively for the female customers. That venture

was not successful as some twenty years back in Kolkata, that concept was time ahead.

But nowadays, number of working woman is increasing exponentially and the younger

generations are looking for the trendy shoes/chappals. This strategy can also be taken

up in other metro and class I cities as well. However, Bata may continue to carry brands

like Hush Puppies, Power and Weinbrenner for which they have exclusive distribution

rights and also focus on their successful brands like Bubble gummers. Power brand

cricket bats and other cricket playing articles were once-upon-a-time very famous. Bata

can open up new retail stores that can start positioning Power cricket kit.

Internal Operations: So far the internal aspects of the firm are concerned Bata will

need to restructure its operations management processes, customer management

processes, Research & Development and regulatory and social processes and stress

on customer relationship management, the Mantra of the current marketing system.

Changes in the operations management processes will allow Bata to realign systems to

have low cost to an extent, through economies of scale attained through specialist

regions. Through customer management processes it will need to focus on marketing

itself as an outlet meeting all basic needs of the families in its target market segment.

Bata should focus heavily on customer relationship management as it becomes a

widely-implemented strategy for managing a companys interactions with customers,

clients and prospects. Bata should undertake customer relationship management by

involving technology usage to organize and synchronize business processes through

automationprincipally sales activities and also those for marketing, customer service

with necessary technical support. Time has come for Bata to find, attract, and win new

customers-majorly in the middle class segments, nurture and retain the existing ones,

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welcome former customers back into the fold, and reduce the costs of marketing and

customer service. For innovation and R&D, Bata can rely on its international research

centers and with their aid bring newer designs and further enhance its brand image

especially for the premium segment. With regards to regulatory & social processes,

Bata can also enhance its care for its employees by introducing more special schemes

including incentives and smooth promotion process and even help its franchises by

providing them with some of the employees. Bata should, at this juncture, help the

franchises to resolve their attrition related issues, and also enable itself to maintain a

proper organizational culture even at the franchise stores through the trained

employees.

Learning Systems: Retailing in India is in the phase of huge return on investment and

a very lucrative career as well. Organized retailers are regularly giving their store

employees very structured training so that they would be able to better handle the

dynamically changing environment and thrive through increased coordination. In order

to attain its goals as per the new strategy Bata will need to emphasize into training its

human resource, especially those at the outlets to provide consistent quality service to

its customers so that customers can associate the same experience with whichever

Bata outlet they visit. As part of its revamped strategy, Bata would need to develop its

information system in order to allow better sales forecasting and trend analysis. It will

also be helpful to the Bata management and also to meet the increasing necessity of

internal coordination. Effective implementation of customer relationship management

will also help to get closer to its customers by interacting with them from time to with

more focus on customer intimacy. Table 5 shows the comparative analysis of Bata retail

with some of its peers in terms of sales, earning per share (EPS), P/E ratio with respect

to no. of stores. Higher ROE shows a silver lining of transaction, but simultaneously,

less operating profit (EBIT) reveals a cause of concern.

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Table 5: Peer Comparison5

5.2 Re-structuring of Bata: The Siver Linings

a) Investment Details of Bata

Continuous process of restructuring adopted in all areas of operation: There has been an improvement in internal controls and corporate governance,

manufacturing, changes in sourcing, credit management, working capital

management, retail restructuring, labor union & management relationship, retail

expansion programs and de-risking the business of the company to restructure the

operation process of Bata.

Repositioning brand Bata with operational efficiency, stylish layout and trendy shoe design: Bata has introduced soothing music, colorful ambience, contemporary

styling and well-trained and efficient staff at exclusive Bata stores as part of their

latest strategies to provide the best retail environment to its customers. The large

and international layout of these stores help in better exhibition and display of the

several footwear concepts from Bata's new shoe collection. Bata has adopted the

strategy of repositioning brands with stylish layout and trendy shoe design. The

company has already introduced and expanded high-margin premium brands such

as Hush Puppies, Marie Clarie and Weinbrenner. Bata's popularity continues to grow

with the trendy Marie Claire range and its latest designs to enhance a woman's

femininity, sensuality and individuality.

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Introducing new-age customer service: Bata remained their focus on customer service with launch of new initiatives like Home Delivery service, e-commerce

enabled website and a dedicated call centre for customer queries and suggestions.

Extensive training of store staff, customer response and research management

systems, and customer relationship management will remain focal areas for the

Company.

Opening large Format Stores in Tier 2 & Tier 3 cities: It plans to open 50-60 large format stores in tier-2 and tier-3 cities annually of at least an area of 3000 sq. ft to

increase its market penetration from the current store of ~1200 in CY10. It is also

closing down unviable old stores.

Making shoes for Industrial uses and Armed Forces to add value: The Company has recently launched shoes in the range of Rs. 500-3000 for industrial

uses in the domestic market. It is also planning to become an approved supplier of

armed forces of which demand is 1.2 million pairs a year.

Research & development activities and energy conservation: Bata continued its local Research & Development activities during the year in the key areas of product,

process, material development, footwear moulds, leather and tannery technology

with emphasis on creating a pollution-free work environment. Total expenditure

incurred on Research & Development was Rs. 50.1 million during FY-10.

Performance management through Quarterly Performance Review: Batainitiated a quarterly performance review process for all the Retail Managers and

District Managers. This process very clearly defines their objectives and

achievements. This review takes place in retail chain office by the immediate

supervisor before HR representative and feedback of the last quarter is given to the

assesses and also their target for the next quarter is set. The overall process has

been extremely helpful in setting up a process of continuous performance

measurement and performance enhancement.

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Executive Development plan: For the second consecutive year, Bata pursued its aim of nurturing and developing new talent for various responsibilities by

successfully training its executive trainees. 13 executive trainees have been hired

from various retail management schools who have gone through 9 months Executive

Development Plan (EDP) which was initiated in the year 2009. Total 13 executive

trainees, who successfully completed their training, have been placed as District

Managers across chains in retail operations in 2010. Many more executives have

been hired during 2010 for retail operation, merchandising and whole sale, etc.

Table 6: Last five years sales-profit analysis of Bata

b) Changing Customer Perception

Bata commands a very strong position as a low-cost, functional brand at the entry level

and as a school-wear brand. However, it is trying to throw out this image in favour of a

trendier, premium standing, targeted at the vast youth market that is more open to

investing more for better quality.

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Changing consumer perception, however, is a challenging and time-consuming task. It

requires an innovative repositioning strategy and investments in promotion and

advertising. The footwear market is crowded with domestic and international brands

such as Metro, Woodlands, Puma, ADIDAS, Nike and Reebok; most of which already

established themselves as big brands in the youth market segment. With international

brands looking to Indian markets to augment their revenues, competition in the branded

footwear market is likely to shoot up.

The capital expenditure incurred by Bata during the FY-10 amounted to Rs. 580.4

million as against Rs. 436.1 million in 2009. The increase in capital expenditure was

predominantly due to opening a number of new stores and modernization of old stores.

Capital expenditure has also been incurred for installation of machinery and moulds to

modernize the factories and to produce latest trendy design footwear.

In the March '11 quarter, the company received Rs 109.35 crore in consideration for

disposing its stake in its real estate joint venture. This one-time income resulted in a six-

fold jump in net profits6. The company still stands to receive constructed space at no

cost, but revenue from real estate ventures is not likely to flow in.

Bata is a turnaround story, utilising its securities premium account to completely write

off accumulated losses in 2007. In FY-07 (Jan Dec '07) the company posted a

revenue growth of 12%, a significant jump from the flat revenues in the years before

that6.

Since then, however, revenue growth has sped up at that level, even as the company

shut more unviable stores and revitalized others. Revenues have clocked a three-year

compounded annual sales growth of 13% to Rs 1,258 crore in FY-10. Operating and net

margins during this period have hovered at around 12 and 7%, respectively.

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Figure 2: Bata India Stock Development6

c) Investment Argument of Bata

Post turnaround focus on growth: Bata started restructuring its operations in year 2004 wherein it launched VRS scheme, closed unviable stores, launched

franchisee scheme and revamped product portfolio. Profit after tax is increased at

CAGR of 50% in 2005-10 whereas sales grew at 10% during the same period.

During 2010 and Q1CY11 it registered a sales growth of 15%/20% yoy4. It is

evident that focus has now shifted towards accelerating growth by leveraging its

strong brand in footwear market. Bata opened 108 new stores in 2010, which is

significantly more than its usual store addition of 40-50 per year4.

Formidable market position in footwear market: Indian footwear market is around Rs. 13, 000 Cr market growing at ~10% per annum, out of which ~55%

market is unorganized. Bata enjoys value market share of around 25% out of

organized market and 12% of the total market whereas it has just around 5%

volume share. India's per capita consumption of footwear is 1 pair/year, which

offers lot of opportunities for a strong brand like Bata, which is present across

market spectrum catering to all kinds of consumers4.

Balance sheet strength to expand presence: Bata has a debt free balance sheet and will have cash of around Rs. 250 Cr in 2011 to fund its expansion plans.

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It has internal accruals of ~ Rs. 80 Cr every year, which is sufficient to open more

than 120 new stores every year4. Thus, free cash generation and healthy balance

sheet will lead to increasing payout from the company. The Earning per Share

(EPS) (Basic and Diluted) of Bata has increased substantially by 41.87% (from Rs.

10.46 in 2009 to Rs. 14.84 in 2010). Bata is out of bank borrowings since April

2010 as against Rs. 146.5 million at the end of 2009, despite the entire capital

expenditure and VRS funded through internal accruals.

Strong promising notes: The year 2011 has begun on a very promising note for the company with highest sales growth in the first quarter as a result of its

continued expansion through 29 new stores and great response from customers to

its ever improving product range. These 29 new Bata stores are opened across

India with a surface selling area of 4000 sq. ft. The company also continued

expansion of its Hush Puppies brand with 4 new stores in this Quarter. The

wholesale business also continued to grow with opening of new customers in

unrepresented towns which resulted in additional business. The Branding,

Institutional, safety and exports division are also growing by more than 40%5

(Microsec).

Figure 3: Bata Shareholding5

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Table 7: Bata India- Financial and Valuations4

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Figure 4: Bata Stock Scan5

The above report shows that Bata has been maintaining better stock position

consistently that the average SENSEX data across the last one year.

d) Key Strategies Adopted for Growth

Positioning in fashion footwear segment with huge range of trendy footwear. Positioning it as a family brand Key Mantra: customer service and satisfaction Planning the franchise route and online sales to push up its sales. Introducing almost four designs/day. Strong focus on financial control Reduce unviable stores, thereby cutting unnecessary costs Expanding its retail outlets with better and colorful design with more floor space

of at least 4000 sq. ft

Thorough analysis of the catchment areas. Throw out its image as a low-cost functional footwear brand that appeals to the

middle-aged.

Focus on product design and contemporary and trendy look Launch of new industrial and customized sectors

25

Increasing institutional business to hospitals, military forces, factory workers, sports clubs and airlines.

e) Awards and Recognition7

Bata India Limited was awarded CNBC Awaaz Consumer Awards 2010 for "India's Most Preferred Exclusive Brand Retail Outlet" in July 2010. Mr. Marcelo

Villagran, Managing Director was felicitated by Mr. Pranab Mukherjee, Hon'ble

Finance Minister of India in a ceremony held in Mumbai.

'Brand Equity' recognized Bata in the 'TOP 50 Most Trusted Brands' in August 2010.Bata is the only lifestyle retailer in the top 50 brands.

Bata India Limited was listed amongst India's Largest Corporations by Fortune India Magazine in December 2010.

Bata Industrials received Directorate General Mines Safety Certification for its PUSole Safety Footwear range.

Bata India Limited received Images Fashion Award for the Most Admired Retail Partner of the Year in January 2010.

Bata India Limited was awarded "Retailer of Year (Footwear / Non Apparel)"by the Asia Retail Congress. Mr. Marcelo Villagran, Managing Director received the

award in a glittering ceremony at Mumbai on 8th February 2011.

Bata India Limited received the "Most Admired Footwear Brand" of the yearaward by Images Fashion Forum in Mumbai on 18th February 2011.

Amity University awarded Bata India Limited "Corporate Excellence Award for theBest Retail Chain" during the international business summit on 23rd February

2011.

Bata India Limited was recognized as the Most Trusted Brand at 18th position by the Brand Trust Report. This ranking is post survey of 16,000 brands; only 300

top brands were felicitated by The Trust Advisory.

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6. Reference

1) Council for Leather Exports Report on Footwear Sector, retrieved from

http://www.leatherindia.org/footwear.asp

2) RNCOS Data, Indian Footwear Market to Grow at 9% CAGR, retrieved from

www.rncos.com/Report/IM310.htm.

3) Bhaskar, S. (2010), Browne and Mohan Report, retrieved from

http://www.browneandmohan.com/file3.pdf.

4) Tarway, Rakesh (2011), Bata India, retrieved from www.motilaloswal.com.

5) Vyas, Naveen (2011), The rise of Indias leading footwear retailer, Microsec

Research, retrieved from http://breport.myiris.com/MR1/BATINDIA_20110322.pdf.

6) Acharya, Bhavana (2011), Bata India: Book Profits, The Hindu Business Line,

retrieved from www.thehindubusinessline.com/features/investment-world/stock-

insight/article2134849.ece.

7) 78th Annual Report of Bata covering the operating and financial performance for the

year ended December 31, 2010, The Economic Times, retrieved from

economictimes.indiatimes.com/bata-india-ltd/directorsreport/companyid-13974.cms.