11 February 2015 Sent: Tuesday, February 10, 2015 2:53 PM
Subject: Alibaba to Enter India; ECOM space to FLARE up!; Red Flag for BATA!
Indian ECOM space getting intense as ALIBABA.com intends to enter India in CY15. http://www.business‐standard.com/article/companies/alibaba‐may‐enter‐indian‐e‐commerce‐soon‐jack‐ma‐to‐visit‐
this‐year‐115021000014_1.html 1) Alibaba announced its investment in India's start‐up paytm last week. 2) Alibaba has Gross Merchandise Value (GMV) of ~$300bn vs Indian eCOM market of $10bn After our interaction with stakeholders, we reiterate offline retailers (SHOP/BATA) are facing a BIG THREAT from ECOM players. This is also reflected from SHOP Q3 Results and nervousness in BATA share price (‐10% over past 10 days). Pl check the mail trail below to read our concerns on BATA; BATA to report its Q3 tomorrow (11th Feb) Maintain Our Stance E-tailers to hit players like Shoppers/Bata (-VE)… Although Trent to trail the differentiated path
(+VE)
Sent: Thursday, February 05, 2015 1:31 PM
Subject: Drive on Trent, Run over Shoppers/Bata....
E-tailers to hit players like Shoppers/Bata (-VE)… Although Trent to trail the differentiated path
(+VE)
– 1 of 1 – 11 February 2015 Key Parameters to read on
Parameters Trent (+ve) Ecommerce Threat: *Own label dept store
1% of overall retail model best placed among
offline players. market &
*Zara as a part of Trent’s
10% of Organized
operation is a boon, can be
retail. much bigger
*Women wear forms 70%
of the Trent sales; less
impacted by online buying
in India. Trent operationally very
Quarterly
robust. Performance Westside LTL growth of
7% in Q3FY15 when
consumer spending was
muted.
Operating leverageLike to Like sales Part of Tata ecommerce platform‐> Extend reach of Westside & Zara ‐>. Product revamp to lead to improvement. Shoppers (-ve)
*3rd party retailer faces
severe headwinds from
commerce player.
*Stores maturing &
contributing 9-10% store
margin now at risk as more
buyers moving online Bata (-ve) *Distribution edge is
blunted by online reach of
unknown & known brands
PAN India;
*Major eCOM players
footwear sales estimated
@Rs1000cr+ which is
(50% of BATA’s FY15e
Sales) Results way below
expectation on both
revenue (14% below
consensus) & EBTIDA
(11% below). LTL growth
of 0.8% and Volume degrowth is disappointing Expect a dent in
profitability as 30% of the
cost is Fixed for BATA; A
small revenue slice taken
by eCOM players would
hit BATA EBITDA
margin- esp when Q3 saw
euphoric online sales
LTL sales to weaken as
BATA embarks on bigger
(6000-20000 sq ft) stores
which would have delayed
breakeven. Footwear as category
getting acceptance online!
Lower Footfalls -> Limited
conversion ->Reduced avg
ticket size -> Leading to>+ Profitabiliy hit – 2 of 2 – 11 February 2015 Sent: Thursday, January 29, 2015 2:48 PM
Subject: Attn: 30-60% discount on shoes !!
Just as we wrote, here are some lucrative offers available online !! (Not to miss a good deal you could get J !!)
I.e. PFA our note below – RED FLAG for BATA, with the surge of online shopping
– 3 of 3 – 11 February 2015 Sent: Thursday, January 29, 2015 12:03 PM
Subject: BATA Q3: RED flag; Online sales surge; chk Chinese Footwear co's
RED Flag for BATA: Bata like any other consumer discretionary is well owned and performed well (58%
yoy). However with surge of online shopping as seen in past 2 qtrs, we believe there is a cause of concern.
** Online footwear billing could be ~Rs1000cr (BATA’s FY15E sales at Rs2423cr); This is derived from
Jabong’s footwear sales reported at ~Rs300cr; + others - Flipkart, Myntra, Amazon and Snapdeal etc it could be
well above Rs1000cr. This might have snatched a small % from Bata’s sales which would be DETRIMENTAL
to margins: BATA’s 30% of sales is almost fixed cost (Employee, Lease rentals etc), thus a small dip in sales
can dent margins. Online has given emergence of many unknown brands (Franco Leone, Alberto Toressi) with
wider no of SKUs while known brands (Clarks, Puma etc) reach a wider set of buyers with attractive price point
through perpetual online discounts (20-55%). Bata at 28x FY17E has more scope for disappointment than any
rerating when topline itself would be is at risk.
** Q3 was Unprecedented for Online sale- All online majors did a huge sale; effort was bolstered by GOSF
(Google’s Great online shopping festival). This would surely affect the sales for Offline players for whom Q3 is
supposedly the best quarter of full price sales. We think Q3 could be disappointment. (GOSF Singapore on Feb
2-4). Not only BATA but other offline retailers such as SHOP IN, TTKPT IN would also feel the heat.
** What happened in China needs to be evaluated: The offline multibrand footwear retailers like Belle Int’l
(1880 HK) and Daphne Int’l (210 HK) faced similar treatment from online shoppers in China. Margins were
dented for both. Moreover what happened in online shopping in China is well known with success of Alibaba.
In china local footwear brands have lost market share to international brands due to lower price points (driven
by discounts) and increased availability. Do note that Bata is perceived as a local brand in most countries
including India (confirmed by Bata’s own sustainability report).
(Source: Bloomberg Daphne Int'l (210 HK) Belle Int'l (1880 HK) EBITDA Margins
(%) Stock pr return
FY11 FY14
3 yrs (%)
18.2 6.4
-73
20.8 18.3
-18
Structurally we are positive on BATA but its time to evaluate how ecommerce affects BATA and if& how
would Bata embrace ecom. For more details on surge of ecommerce in India pl refer our Ground Zero report
(Click here).
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