bata india ltd. (bil) february, 2015breport.myiris.com/bobcml/batindia_20150505.pdf · growing...

(Wholly owned subsidiary of Bank of Baroda)

Y/E March CY13 CY14p CY15e CY16e CY17e

Net sales 20652 22027 24544 28289 33183

Growth(%) 12 7 11 15 17

PAT 1909 1744 2125 2506 3042

EPS (Rs) 31 27 33 39 47

P/E(x) 23 42 31 27 22

ROE (%) 27.1 19.9 20.9 21.1 21.9

ROCE (%) 25.0 18.4 19.8 20.2 20.9

Debt/equity (x) 0.09 0.08 0.07 0.07 0.06

P/Bv (x) 5.7 7.8 6.1 5.2 4.5

Source: Company, BOBCAPSe

Bata India Ltd. (BIL)

Frontrunner of rising market; initiate BUY We initiate coverage on Bata India Ltd. (BIL) with BUY and a price

target of Rs.1420 implying 37% upside. BIL is leader of Indian

footwear market due to its right strategy to capture growing consumer market. We expect organize footwear industry would grow

at ~20% in next decade. We expect revenue/EBITDA can grow at a

CAGR of ~15%/~21%respectively over CY14p-17e led by volume

growth, cost effectiveness and strong distribution network.

Volume to grow at a CAGR of ~15% over CY14p-17e: BIL’s revenue

grew at CAGR ~15% over CY10-14p. We expect, revenue/volume to grow at a

CAGR of ~15%/~10% over CY14p-17e on account of increasing disposable

income of middle class, increasing demand for branded footwear’s, Online

availability, increasing penetration in metros and smaller cities to capture the

growing market and strong distribution network and new strategy of BIL to

retain their market share is adding new brands to improve its product mix.

Robust distribution network to drive market share: Bata India is a largest brand in terms of strong distribution network. Currently it has over 1400

stores in 500 cities. They have plan to open 100 stores each year to penetrate

deeply and further grow its distribution network strength and become more accessible. Their major focus on the Tier-II and III cities and the right location

for opening a new store. This would increase their accessibility and brand

awareness pan India.

Upgrading outlets will upsurge the top line: BIL is focusing on upgrading their existing smaller (~1000 sq. ft.) stores to bigger stores (~3000 sq. ft.)

Formatting outlets can help to better display the entire range of product, higher

footfalls, offers a superior shopping experience to its customers therefore, increase sales per store and improve inventory turnover.

Improving earnings, led by cost effectiveness and positive industry

factor: Improving earnings led by a number of factors- 1) Falling Raw material

cost 2) Reduction in staff cost 3) Reduction in excise duty on product made from leather, having a MRP above Rs.1000. We expect that, falling raw

materials costs, reduction in staff cost and reduction in excise duty would

improve profitability. BIL has been growing impressively in past years and it will continue with the similar trend to ensure the leadership position and continuous

progression in the footwear industry.

Valuation: We believe that Bata India is poised for a healthy growth on the

back of new product mix, robust distribution network, improving earnings, cost

effectiveness and right growth strategy. At CMP of Rs1040, the stock is trading

at around 29x CY15E PE. We value the Company at P/E of 30x (average of last

five years) to arrive at our price target of Rs.1420 (37% upside).

Exhibit 1: Financial summary (Rs mn)

Initiating coverage

BUY

Price Price Target Up/Down (%)

Rs. 1040 Rs.1420

Bloomberg Code Reuters Code

BATA: IN BATA.NS

Share Holding (%) As on 31st Mar. 2015

Promoters 52.96

FII 17.71

DIIs 11.52

Stock Data

Nifty 8,332

Sensex 27,491

52 week high/low 1495/978

Maket Cap (Rs. bn) 66.8

Price performance (%) 1M 3M 6M 1Y

Absolute -3.9 -22.8 -18.0 2.7

Relative to Sensex -0.7 -16.5 -16.1 -19.3

Relative Performance

37%

50

70

90

110

130

150

Apr

-14

May

-14

Jun-

14

Jul-

14

Aug

-14

Sep

-14

Oct

-14

Nov

-14

Dec

-14

Jan-

15

Feb

-15

Mar

-15

Bata India BSE Sensex

Source:-Bloomberg

12th February, 2015

Sector: Footwear

5th May, 2015

Initiating coverage

BUY

Akanksha Tripathi | [email protected] | +91 22 6138 9383

mailto:Akanksha%20Tripathi%20%7C%[email protected]

BATA India Ltd. | 25 May 2015

| Equity research | 2


Industry outlook

Emerging Indian footwear industry is the fastest growing market driven by fashion awareness

increase in organized retailing, fast urbanization, increase in disposable income of the middle-

class, increasing working women and youth population. India is the second largest global

producer of footwear after China, accounting for 13% of global Footwear production of 16bn

pairs. The Indian Footwear Industry is highly fragmented.

There are nearly 4,000 units that have engaged as manufacturer of footwear in India. The

industry is dominated by small scale units contributing to nearly 55% of total production. There is

a shift in trend from unorganized market to organized market with the increase in urban

population, changing lifestyle, rising brand consciousness and transformation in the buying

potential of the Indian customer specifically in the youth. It has transformed from being a highly

unorganized market to an emerging organized retail Industry.

Exhibit 2: Indian footwear markert

Source: Company, BOBCAPS

Exhibit 3: Share of overall retail spending

Food & Grocery, 60%

Footwaers, 2%

Others, 38%

Source: Industry, BOBCAPS

Footwear – Global Scenario and India’s share

The global import of Footwear (both leather footwear as well as non-leather footwear) has

increased from US$ 81.47 bn in 2007 to US$ 103.38 bn in 2011, growing at a CAGR of 6.13%.




Exhibit 4: India’s Footwear Export Growth over the last Four Decades

102

423

625

2,056

-

500

1,000

1,500

2,000

2,500

1982-83 1992-93 2002-03 2012-13

USD

Mn


Exhibit 5: Growing Indian market share globally

1.5%

1.6%

1.7%

1.8%

1.9%

2.0%

2.1%

2007 2008 2009 2010 2011


Footwear exports has increased from US$ 102.37 mn in 1982-83 to US$ 2055.93 mn in 2012-13




Investment rationale

Footwear market would grow at a CAGR of 15-20% over the next decade-

India is the 2nd largest global producer of footwear, accounting for 13% of global Footwear

production of 16 bn pairs. The domestic market in the country is estimated at Rs.340 bn. This

means the average consumption globally is about 2-3 pairs/person. India produces approximate

2,000 mn pairs annually in different categories of Footwear. India exports about 115 mn pairs,

thus nearly 95% of its produce meets its own domestic demand.

Currently the organized footwear industry is growing at the rate of 18% yoy, where leather and

non-leather Footwear’s per capita consumption is estimated to be approx. 1.4 pairs and Slippers

(Hawai Chappals) segment is near to 10000cr with per capita consumption estimated to be 1

pair.

There is a desire for branded footwear as the Indian consumer has become more conscious and

demanding in their choice and preference and also there is an increasing per capita consumption

in India. Currently the per capita consumption of footwear is 1 as compared to 4-6 in neighboring

Asian Countries and 6-8 in the developed European markets.

Exhibit 6: Per capita consumption of footwear in the world

Country Per capita consumption Total population(MN)

US 6-8 320

European 6-8 743

Japan 4-6 127

Brazil 4.8 202

Thailand 2.3 67

China 2.3 1400

India 1.6 1282

Source: populationpyramid.net, Company, BOBCAPS

We have done a primary research to understand about the footwear buying habits of

people –

Sample size- 60

Sample Age group (18years old - 50years old)

Sample Gender- All

Occupation- Students and working

Exhibit 7: No. of pair owned by individual

Exhibit 8: No. of pair purchase by

individual in a year

Exhibit 9: Buying preference for footwears

0

7

53

0 20 40 60

only 1 pairs

2 Pairs

More than 2 pairs

4

29

27

0 10 20 30 40

1 pairs

2 Pairs

More than 2 pairs

35

2

23

0 10 20 30 40

Branded

Non Brandeed

Both


Source: Company, BOBCAPS Source: Company, BOBCAPS

Exhibit 10: Factors afftecting buying decision

Price Quality Brand

Degree of importance (1 being the most important

& 3 the least)

1 5 26 10

2 28 3 32

3 17 4 18





Our Findings-

The outcome of this primary research is that the per capita consumption and also the spending

on footwear is increasing. Now, people are willing to pay more for branded product as their

buying decisions are mostly based on the quality & brand of the footwear rather than its price.

So, we can say that a shift from unorganized to organized sector has commenced.

We expect that the per capita consumption in India would be 4-6, at par with the neighboring

Asian Countries, over the next 5 years on the back of a growing economic consumption.

Factors leading to volume growth-

1) Increasing disposable income of middle class

2) Growing fashion consciousness

3) Increasing aspiration level

4) Increasing number of working women

5) Online availability

6) Increasing penetration in metros and Tier II and Tier III cities to capture the growing

consumer market. As per industry reports, the non-metro market accounts for nearly 55% of the

overall footwear industry.

7) Adding new brands to improve product mix like the premium brand hush puppies in leather

segment, Marie Clair for women’s category and the new retail concept – FOOTIN that offers

new range of fashionable and trendy styles for both men and women.

Improvement in margins due to change in product mix- BATA India increased its focus on

high value product to improve margin. It increased its focus from low margin Hawaii slipper to

high margin product such as Sunshine flip-flop for daily casuals, premium brand Hush puppies in

leather segment & other new styles & designs footwear’s.

BIL also concentrates on footwear for specific category like Marie Clair for women and FOOT-IN

for youth. They have also broadened the catalogue for accessories segment which contains ladies

bag, scarves, sunglasses, belt, and wallets, which help the company to improve margins.

BIL is improving its presence in e-Commerce business and also strengthening its Accessories

business by offering a wide product range. They are also planning to revive their old brand

Power (in sports segment) in 2015.

Improving earnings, led by cost effectiveness and positive industry factor-

Improving earnings is led by a number of factors-

1. Falling Raw material cost

2. Reduction in staff cost by decreasing headcounts

3. Reduction in excise duty on leather product made from leather on above the MRP of

Rs.1000

Rubber & PU prices have recently corrected. Natural rubber has been corrected by ~28% and

synthetic rubber has decreased by ~15%. PU is one of the most important component of raw

materials used to make leather footwear is derived from crude oil and fall in in crude price levels

has led to improvement in margins. Brent crude prices have fallen from $115barrel to $58/barrel.




Exhibit 11: Rubber price chart

181

152.5 152

110

0

50

100

150

200

Feb-12 Feb-13 Feb-14 Feb-15

Rs.

Per

Kg.

Source: Source: Industry, BOBCAPS

BIL has benefited from reduction in excise duty on leather footwear with MRP above Rs.1, 000.

(In the current Budget excise duty has been reduced from 12% to 6% for the shoes above

Rs.1, 000 made out of leather.) Hence, there is a huge saving in terms of excise duty for the

company and also employee cost cutting.

We expect that, falling raw materials costs, reduction in staff cost and reduction in excise duty

would improve profitability.

Strengthening distribution network maintain market share- BATA India is the leader of

Indian footwear market in terms of volume growth, brand equity and distribution network.

Currently it has over 1400 stores in 500 cities. To endure their leading position, they are planning

to open 100 stores each year to penetrate deeply and further grow its distribution network

strength and become more accessible.

Their major focus is on the Tier-II and III cities and the right location for opening a new store.

Footwear has a big market share in smaller town and its consumers are often similar in terms of

taste and preference. Currently, these smaller towns are not catered to by many of the larger

players, either domestic or foreign. Therefore, to grab the opportunity in untapped markets, BIL

is planning to open more stores in smaller towns.

Formatting outlet to fuel top line:

BIL has been suffering from crowded store formats and staff without much sales skill which has

only added to its dull image and negatively impacted its sales. They are focusing on upgrading

their existing smaller (~1000 sq. ft.) stores to bigger stores (~3000 sq. ft.) Formatting outlets

would help to better display the entire range of product as we already have seen in Bangalore

(6,000 sq. ft. stores), which is getting very good response.

Strategy of revamping of stores would lead to higher footfalls and offers a superior shopping

experience to its customers, thereby increase sales per store & provides improved inventory

turnover. The new stores are more spacious and managed by staff who are expertise in sales

and also enhancing product portfolio with new aspirational designs, offering accessories such as

sunglasses, belts, handbags, etc. is also being done to attract the youth. We expect that, for

longer-term, growth in stores will continue to remain healthy and BIL will maintain their market

share.




Exhibit 12: Distribution network of Indian footwear players

1400

650 630 400 300 200 150 72 25 20 17 10

0

400

800

1200

1600

BATA

Adid

as

India

Khadim

s

Nik

e I

ndia

Lib

ert

y

Rela

xo

Catw

alk

Metr

o

Ald

o

Mango

Charles

& K

eith

Zara

No in

mns

Source: Industry, BOBCAPS

Advertising campaign to connect with the youth- Bata India is trying to makeover its

brand image by taking marketing initiatives like print ads, launching advertising campaigns across

various social networking sites, Discount offers etc.

Since online stores often offer products that are not available in the physical stores, they are

going to be an engine for growth in the future. On the Digital Space, through Facebook, the

company has entered into over 100,000 customers' personal space. More than a national

advertising campaign, BIL is focusing on marketing activities in their stores, like getting a local

celebrity in one of the stores.

Strong support from parent-

Bata Shoe Organization (BSO) is a Netherlands based company which holds ~51% stake in BIL

as they have been in footwear BSO is one of the world’s top footwear retailers and

manufacturers with operations spread across 5 continents. BIL has a strong parent support, a

strong brand name supported by positioning and its large retail touch. BSO operates through

5000 retail stores and manages a retail presence ~70 countries and has 33 production facilities

across 22 countries. Having a big support from BSO is very beneficiary for BIL at global level as

well as domestic level.

Portfolio of big Brands with extensive variety of product:

Bata India is a leading and most trusted brand in India. People are loyal and have trust on BIL as

they have been in the footwear industry for over 90 years. Bata India has transformed its image

from rubber chappal to all weather, year around, formal & casual wear high value end offerings

and caters to all age group. They sell a wide range of footwear in canvas, rubber, leather and

plastic with price range from INR199-7,000.

It has licensed brands (Hush Puppies and Dr Scholl, licensed respectively from Wolverine

Worldwide and Dr Scholl's) besides those of its parent (Power, Marie Claire and Bubblegummers).

It has also built brands like Weinbrenner, North Star, Bubblegummers, Ambassador, Comfit,

Mocassino and Wind India, for the women's segment, widening brand Marie Claire range. These

brands has seen significant demand and able to connect with the target audience.

Diversified product portfolio-

In last few years, Bata India is concentrating on its image makeover. Being one of the oldest

footwear brand in India, Bata has been suffering from a negative impression that it is not moving

with trend and has not collection of stylish, trendy and youth demanding products.

Bata India has improved its product portfolio in last few years, added more products in the

leather segment and increasing focus on women’s segment. Today, premium brands are growing

at a faster pace and a similar trend in footwear is also visible as consumers are shifting from

unorganized to organized and from domestic brands to international and premium brands. BIL

have planned to create the brand as a one stop shop, as they have their reaches in many

segment like leather, plastic, rubber and also have expanded catalogues for accessories like

bags, belts, wallets, scarves and sunglasses for all age group and gender.




Shifting towards premium products-

As demand for branded and premium products are increasing, Bata India is changing its brand

perception from masses to premium segment to catch up with the current trend. They came up

with premium brand HUSH Puppies, Ambassador, Mocassino and Naturalizer to make their

presence in the premium segments.

They have 34 exclusive stores of hush puppies and 37 shop-in-shops in CY 2013, where in CY12

They had 15 exclusive new stores and 12 shop-in-shops stores across the country.

We expect, this would help to change the consumer’s perception that Bata India caters top to

bottom with premium to value product.

Increased contribution from women and kids segment to drive growth- In the last 8

years, BIL has expanded its product portfolio, added more brands in all segments such as Hush

puppies in premium leather segment, Marie Claire in women segment with North Star, Angry

Birds in kids segments and broaden catalogue of accessories at various price levels.

As demand for women and kids footwear are rising very rapidly, BIL is increasing the display of

women and kids footwear across all stores to stimulus the sales per store. Indian footwear

market is growing with a CAGR of 15%, men's contribute around 60% of footwear market

against women's share of 30%. Men’s market is growing at a CAGR of 10% & women's market is

growing at a much faster CAGR of 20 %. Earlier, women and kids segment contribution was

accounted for ~25%-30% and rest of the demand was coming from men’s segment only.

We believe that, only Bata India has such big product portfolio with strong distribution network in

Indian footwear market for consumers across numerous price levels.

Scale up in e-commerce- BIL is continuously upgrading their website with wider range of

offering as well as revises of products on the leading fashion and lifestyle portals in the country.

BIL provides many festive and promotional offers to increase online volume growth.

The E-commerce segment of the company generated volume growth of almost 100% in 2013

compared to the previous year 2012 (though lower base) and has also tied-up with leading e-

commerce players like Flipkart, Jabong, Myntra, etc. for expanding volumes through e-

commerce. BIL E-Commerce business reached approx. 750 cities across India with its shipments.

New tie-up with leading online players: In order to attract more e-customers, new

partnerships have been entered into by tying up with leading online players e.g., Flipkart,

Jabong, E-bay, HomeShop18, Myntra, Rediff, Indiatimes, etc. As a part of the strategy, Cash on

Delivery service was launched for the end customer to facilitate the shopping ease. The

company's website www.bata.in has experienced a tremendous growth in traffic of approx. 2.5

Million visitors.

By 2015 it plans to start a click and pick model in India or may be a click and reserve model,

where a customer can choose a pair of shoes that they like and pick it up later from the store.

Also if they don't like the shoes that they picked up on the e-commerce platform then they can

get something else. With the help of these marketing initiatives they are trying to integrate

digital with our retail stores to attract more customers through e-commerce.

Fixing of supply chain issues may take back Bata India – Bata's revenue fell 3% on a yoy

in Q4CY15 and 2% qoq. Delay in dispatches to some of its stores due to teething problems with

its new supply chain management system is the main reason behind the fall in revenue. Since

there has not been a fall in demand, sales should pick up once the supply chain issues are

resolved, expected to happen in the July-September quarter of 2015-16.

We expect that, the initiatives taken by Bata such as shifting towards premium

segment footwear, increased outsourcing and increasing its attention in Tier-II/Tier-

III cities and restructure its retail operations by focusing on larger format stores with

standardized store displays with broader range and choice of footwear to customers

would benefit the company to sustain its growth momentum.




Financial Summary

Topline to grow at ~15%CAGR over CY14P-17e: With the new product mix, right strategy

to retain leadership position, strengthening distribution network, we expect revenue to grow at a

CAGR of ~15% for CY14p-17e.

Exhibit 13: Revenue growth

0%

5%

10%

15%

20%

0

5000

10000

15000

20000

25000

30000

35000

CY13 CY14P CY15e CY16e CY17e

Rs m

n

Revenue Growth YoY (%)


EBITDA to grow at ~17.4% CAGR with ~240 bps expansion CY14P-17e: EBITDA grew

at 15.6% CAGR in CY10-14p and we expect it to grow at ~17.42% CAGR over CY14p-18e. This is

mainly led by increasing volume growth, decreasing in raw materials price, cost-effectiveness and

reduction in excise duty. We believe, EBITDA to reach Rs5143 mn in CY17e with expansion of

~240 bps over CY14P-17e.

Exhibit 14: EBITDA margin expansion led by change in product mix

11

12

13

14

15

16

0

1000

2000

3000

4000

5000

6000


%

Rs.

mn

EBITDA EBITDA Margin (%)


Exhibit 15: PAT to grow at 20.4% CAGR over CY14p-17e

7.0

7.5

8.0

8.5

9.0

9.5

0

1000

2000

3000

4000


%

Rs.

mn

PAT PAT Margin (%)





Exhibit 16: EPS to grow at a CAGR of ~17% over CY14P-17e

0.0

10.0

20.0

30.0

40.0

50.0

CY13 CY14P CY15e CY16e CY17ex

EPS Growth


Returns ratios to continue strong: We believe, due to the optimum efficiency of operations,

expansion in EBITDA margin, and decreasing D/E would help the company to get better returns

going forwards.

Exhibit 17: ROE/ ROCE to remain healthy

0

5

10

15

20

25

30


%

ROE ROCE


We expect that, with the strong volume growth and earnings growth, the company can expand

its retail outlets through internal accruals.

Key Risk-

Upswing in raw material prices- A lot of raw materials used by the footwear industry are

derived from crude oil. In the case of a surge in crude oil prices, company’s cost-effectiveness

might get vulnerable.

Globally Competitive Business Environment: The Indian organized footwear industry faces

strong competition from unorganized players, especially in the mass segment. With ever

increasing competition from the local players as well as global giants in the Footwear Industry

with deep pockets, maintaining the existing market share and leadership position in organized

retail footwear industry is a major challenge. There will also be competition from countries like

China, Indonesia, Thailand, Vietnam and Brazil as products are more competitive compared with

India.

Increase in lease rentals- Any increase in lease rentals can erode margins of the company.




Valuation:

BIL has been growing impressively in past years and we expect it will continue with the similar

trend to ensure the leadership position and continuous progression in the footwear industry.

We believe that Bata India is poised for a healthy on the back of new product mix, robust

distribution network, improving earnings, cost effectiveness and right growth strategy. At CMP of

Rs1040, the stock is trading at around 29x CY15E PE. We value the Company at P/E of 30x to

arrive at our price target of Rs.1420 (37% upside)

Exhibit 18: Peer comparison- key financials and margins

Companies Sales PAT EBITDA margin(%) EPS

Rs (mn) Rs (mn) CY15e CY16e CY17e CY15e CY16e CY17e

LIBERTY SHOES 4839 133 8.59 9.08 9.4 8.7 11.2 15.72

*BATA INDIA 24544 2125 14.6 15.0 15.5 33.1 39.0 47.3

RELAXO FOOTWEARS

12118 656 12.47 12.67 13.0 14.7 19.6 25.93

Source: Company, Bloomberg, BOBCAPSe, Industry

Exhibit 19: Peer comparison – key valuation metrics

Companies Price

Mkt. cap

PE(x) ROE(%)

Rs/sh Rs (bn) CY15e CY16e CY17e CY15e CY16e CY17e

*BATA INDIA 1040 668304 31.5 26.7 22.0 20.9 21.1 21.9

LIBERTY SHOES 251 42770 30.0 23.4 16.6 10.7 12.9 16.3

RELAXO FOOTWEARS

725 43500 44.8 33.7 25.4 24.5 24.8 24.8

BATA INDIA 1040 668304 31.5 26.7 22.0 20.9 21.1 21.9

Source: Company, Bloomberg, BOBCAPSe, Industry

*December Ending

Exhibit 20: Bata India ltd. 1 year forward PE

10

20

30

40

50

Apr-

11

Aug-1

1

Nov-1

1

Mar-

12

Jul-12

Nov-1

2

Mar-

13

Jul-13

Nov-1

3

Mar-

14

Jul-14

Nov-1

4

Mar-

15

x

Forward PE Averageg PE

Avg of last 5 yrs = 30x Current PE = 29x

Source: Company, Bloomberg, BOBCAPS




Company Profile

Bata India Limited manufactures and trades footwear and accessories through its retail and

wholesale network primarily in India. The company operates in two segments, Footwear &

Accessories and Surplus Property Development. Its products include various footwear and

accessories products for men, women, and kids, as well as handbags, wallets, and belts. The

company offers its products under the brand names of Ambassador, Angry Birds, Bata, Bata

Shoes, Bata Walks, Bubblegummers, Comfit, Footin, Hush Puppies, Marie Claire, Mocassino,

Naturalizer, North Star, Power, Scholl, Sundrop, and Wienbrenner.

As of August 5, 2014, it operated approximately 1,400 retail stores in approximately 500 cities

across India. The company also exports its products to other countries. In addition, it is involved

in the development of surplus property at Batanagar. The company was formerly known as Bata

Shoe Company Private Limited and changed its name to Bata India Limited in 1973. The

company was incorporated in 1931 and is based in Gurgaon, India. Bata India Limited is a

subsidiary of Bata.

The Company operates a large non retail distribution network through its urban wholesale

division and caters to millions of customers through over 30,000 dealers.

They have a big portfolio for all age groups and segments.

Exhibit 21: Bata India’s Product portfolio-

Men Women Kids

Hush Puppies Angry Bird Angry Bird

Ambassador BATA BATA

Mocassino BATA Life Bubbblegummers

Sparx BATA Walks Green Power

Weinbrenner Comfit Sunshine

North Star Hush Puppies

Scholl Marie Claire

Sparx Naturalizer

Sunshine North Star

Sandak Power

Comfit Sandak

BATA Scholl

BATA Industrial Sparx

BATA Life Sundrops

Sunshine Sunshine


Exhibit 22: Management details

Mr. Uday Khanna Chairman & Independent Director

Mr. Rajive Gopalkrishnan Managing Director

Mr. Ranjit Mathur Director Finance

Mr. Jack G.N. Clemons Non-Executive Director

Mr. Jorge Carbajal Non-Executive Director

Mr Atul Singh Independent Director

Mr. Akshay Chudasama Independent Director





Financials

Exhibit 23: Income Statement

Y/E Dec (Rs mn) CY13 CY14P CY15e CY16e CY17e

Net sales 20,652 22,027 24,544 28,289 33,183

growth (%) 12 7 11 15 17

COGS 3,346 3,800 4,128 4,673 5,276

Staff Cost 2,133 2,486 2,454 2,885 3,617

R&D Cost (1,186) (433) (1,227) (1,414) (1,659)

SG&A Cost 13,139 13,294 15,610 17,907 20,806

EBITDA 3,220 2,880 3,579 4,238 5,143

growth (%) 17.1 (10.5) 24.3 18.4 21.4

Depreciation 592 631 703 810 950

EBIT 2,627 2,249 2,876 3,428 4,193

Other income 315 339 343 360 378

Interest paid 13 14 82 89 80

Extraordinary/Excep. items

(101) - - - -

PBT 2,829 2,575 3,136 3,699 4,491

Tax 920 830 1,011 1,193 1,448

Minority interest - - - - -

PAT 1,909 1,744 2,125 2,506 3,042

Non-recurring items 101 - - - -

Adjusted PAT 2,010 1,744 2,125 2,506 3,042


Exhibit 24: Balance Sheet

Y/E Dec (Rs mn) CY13 CY14P CY15e CY16e CY17e

Cash & Bank balances 2,558 3,392 4,384 5,186 5,964

Other Current assets 7,862 8,340 9,396 10,808 12,533

Investments - - - - -

Net fixed assets 3,393 3,387 3,559 4,394 5,200

Intangible assets 8 14 15 18 19

Total assets 13,820 15,132 17,354 20,405 23,716

Current liabilities 3,738 3,842 4,283 5,229 6,015

Borrowings 793 809 841 891 892

Other non-current liabilities

891 808 1,004 1,226 1,527

Current/Non-current liabilities

5,421 5,459 6,127 7,347 8,434

Share capital 643 643 643 643 643

Reserves & surplus 7,756 9,031 10,584 12,416 14,639

Shareholders' funds 8,399 9,674 11,227 13,058 15,282

Total liabilities 13,820 15,132 17,354 20,405 23,716





Exhibit 25: Cash Flow Statement

Y/E Dec (Rsmn) CY13 CY14P CY15e CY16e CY17e

Profit after tax 1,909 1,744 2,125 2,506 3,042

Depreciation 352 631 187 212 239

Chg in working capital (618) (602) (464) (300) (712)

Total tax paid (237) - - - -

Net Extra-ordinary income 101 - - - -

Cash flow from operations

1,507 1,773 1,848 2,418 2,569

Capital expenditure (455) (625) (359) (1,047) (1,046)

Change in investments - - - - -

Acquisition of Goodwill (1) (6) (1) (3) (1)

Cash flow from investments

(457) (631) (360) (1,050) (1,047)

Free cash flow 1,051 1,142 1,488 1,368 1,522

Issue of shares - - - - -

Net inc/dec in debt 232 16 32 50 1

Dividend (incl. tax) (489) (469) (572) (674) (819)

Other financing activities 225 0 0 (0) (0)

Net Extra-ordinary income (101) - - - -

Cash flow from financing (32) (454) (539) (624) (818)

Inc/(Dec) in Cash & Bank bal.

918 689 949 744 704


Exhibit 26: Ratio analysis

Y/E Dec CY13 CY14P CY15e CY16e CY17e

Per share data (Rs)

EPS 31.3 27.1 33.1 39.0 47.3

CEPS 40.5 37.0 44.0 51.6 62.1

DPS 7.6 7.3 8.9 10.5 12.7

BV 126 146 170 199 233

Profitability ratios (%)

Operating margins 15.6 13.1 14.6 15.0 15.5

Net margins 9.7 7.9 8.7 8.9 9.2

Valuation ratios (x)

PE 23.0 42.0 31.5 26.7 22.0

P/BV 6 8 6 5 4

EV/EBITDA 13.8 24.8 18.2 15.4 12.7

EV/Sales 2.1 3.2 2.7 2.3 2.0

RoE 27.1 19.9 20.9 21.1 21.9

RoCE 25.0 18.4 19.8 20.2 20.9

RoIC 34.2 26.5 29.9 31.5 33.0





Disclaimer

BUY. We expect the stock to deliver >15% absolute returns.

HOLD. We expect the stock to deliver 5-15% absolute returns.

SELL. We expect the stock to deliver <5% absolute returns.

Not Rated (NR). We have no investment opinion on the stock.

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