Parvez M. Chowdhury
(880) 167 107 6393; [email protected]
Bata Shoe Company (Bangladesh)
Recommendation: BUY
Target Price: BDT 650
October 2009
Company Summary
52-week Price Range (BDT)
575.0 - 275.0
Current Price
BDT 579.6
12-month Target Price
BDT 650.0
Total Return
39.5%
Number of Shares MM
13.68
Market Cap BDT MM
68,646.2
MM BDT
2008A 2009E 2010E
Revenue
4,623 5,099 5,634
Ops Income
952 1,158 1,278
Net Income
449
459
509
Margins
Gross Margin
Operating Margin
Net Margin
2008A 2009E 2010E
34%
35% 35%
14%
12% 12%
10%
9%
9%
Growth
Revenue Growth
Net Income Growth
2008A 2009E 2010E
16%
10% 10%
38%
2% 11%
Per Share
EPS
Dividend
Book Value/Share
2008A 2009E 2010E
32.85 33.54 37.21
22.0
23.5
26.0
60.56 70.62 81.78
Cashflow MM BDT
Operating
Capex
Dividend
2008A 2009E 2010E
370
429
472
81
69
93
309
321
356
Valuation
P/E
P/B
ROE
2008A 2009E 2010E
14.60 14.30 12.89
7.92
6.79
5.86
60%
51% 49%
Leverage MM BDT
Total Debt
Cash
2008A 2009E 2010E
0
0
0
279
318
341
600
160000
140000
500
120000
400
100000
300
80000
60000
200
40000
100
20000
0
0
Volume
Close Price
Bata Shoe Company (Bangladesh) Limited is the largest
footwear manufacturer and the most recognizable footwear
brand in Bangladesh. The company also possesses the largest
distribution network in the country controlling the largest
market share in the footwear market. Since the company is a
matured one, their profit margin is very consistent albeit not
spectacular. Average return on equity for the last five years has
been more than 40% while average return on assets has been
around 14%. Bata is also among the largest dividend payers
with an average dividend payout ratio of 80% for the last three
years. Moreover, the company has large land holdings which
have not been revalued in a long time. The company has zero
leverage and a huge stockpile of cash which give them enough
flexibility to expand and/or maintain a high payout ratio.
We maintain our coverage of Bata with a BUY
recommendation and a 12-month target price of BDT 650.
Our recommendation considers the superior cashgenerating capacity of the company, good corporate
governance, consistent dividend payout trends and the
undervalued asset base. Our recommendation is based on
an estimated 2010 EPS of BDT 39.72 and a conservatively
estimated P/E multiple of 16x. With an estimated dividend
yield of 4% in 2010, this target price implies an estimated
total return of 39.5%.
Table 1: Performance Snapshot
Net Sales (MM BDT)
YoY Growth
Operating Income (MM BDT)
YoY Growth
Net Income Growth
Capex/Depreciation
Dividend/Share
Total Assets (MM BDT)
Debt/Asset
Debt/Equity
Source: Company Annual Reports
2006
3,872
26%
1,131
41%
35%
111%
23.5
2,047
0%
0%
2007
3,976
3%
821
-27%
17%
174%
25
2,252
0%
0%
2008 2009E 2010E 2011E
4,623 5,099 5,634 6,332
16%
10%
10%
12%
952 1,158 1,278 1,434
16%
22%
10%
12%
38%
2%
11%
13%
164% 115% 115% 115%
22
23.5
26.0
29.4
2,499 2,727 2,982 3,287
0%
0%
0%
0%
0%
0%
0%
0%
Bata Shoe Company Bangladesh
(DSE, CSE: BATASHOE)
Business
Bata Shoe Company (Bangladesh) Limited is affiliated with the Bata Shoe Organization, the
world's largest footwear manufacturing and marketing organization. Listed as a public limited
company in Bangladesh in 1985, Bata started operation back in 1962 and immediately seized the
market leadership.
Currently, Bata Bangladesh operates 2 manufacturing plants in Tongi and Dhamrai. The company
is producing around 110,000 pairs of shoes daily. It has a modern tannery with the latest
technological facilities to process 5 million square feet of leather yearly. Bata Bangladesh
concentrates mainly on the domestic market through a countywide distribution network
comprising retail stores, Dealer Support Program (DSPs) and independent dealers. The company
also markets its own brands to sister companies overseas and the Middle Eastern countries.
Market leadership
The retail footwear market size is approximately BDT 15bn and estimated to be expanding at 20%
per year, according to newspaper reports. Bata currently enjoys around 30% of the market share
with net revenue of BDT 4.6bn. The company has maintained a good brand image since they
commenced operation in Bangladesh in 1962. With 150mn people in Bangladesh, demand for
quality footwear is high. At present, 90% demand for footwear is met by the local companies. The
industry is fragmented with millions of small shoe manufacturing companies that produce
footwear in small scale.
Unrivalled distribution network
With around 250 retail stores, Bata remains the largest retail footwear manufacturer in
Bangladesh. Its distribution network covers the whole country. Their strong network helps them
maintain their dominance in the market and meet the demand. No other footwear manufacturer or
retailer in the country comes close to matching the distribution network of Bata.
Consistent margin and growth
Table 2: Margins
Gross profit margin
Operating margin
Net margin
EBITDA margin
2004
40%
12%
7%
13%
2005
37%
11%
7%
13%
2006
40%
11%
7%
12%
2007
33%
13%
8%
14%
2008
34%
14%
10%
15%
Source: Company Annual Reports
Table 3: Growth
Sales growth
Earnings growth
EBITDA growth
2005
18%
15%
14%
2006
26%
35%
23%
2007
3%
17%
19%
2008
16%
38%
24%
Source: Company Annual Reports
Bata has been a consistent
performer in recent years and this
is reflected in their profit margins
for the last five years. The average
gross profit margin for the last five
years has been 37% while average
operating margin has been 12%.
Average net margin stands at 8%.
Bata also enjoyed consistent growth
in sales and earnings. Sales growth
has been averaging around 16% in
the last four years while earnings
growth has been averaging over
25% during that period. EBITDA
growth has been around 20% on
average.
No credit sales policy helped accumulate large cash
Bata maintains a no credit sales policy. This has helped reduce cash cycle for the company and
Bata Shoe Company Bangladesh
(DSE, CSE: BATASHOE)
they have been able to accumulate a large amount of cash reserve. This large cash reserve has
given them the added flexibility of financing and investing from their own cash.
Consistent dividend payer
Bata is one of the most consistent dividend payers in Bangladesh. The company has been
maintaining a high payout ratio which has an average of more than 80%. They also had a dividend
yield of 4% on average for the last few years. Bata usually pay out their dividends in two halves.
No leverage
Bata do not have any debt on their book currently which is impressive considering the size of the
business. Since they have a large cash reserve, they can easily finance their projects internally.
Land holdings highly undervalued
Bata owns a huge land bank at different prime locations throughout the country including all cities
and towns. These lands have a book value of slightly over BDT 86mn. However, there has not been
any revaluation since 1979 which makes them heavily undervalued. If we consider a meager
appreciation of 10% per year, the total value of the land holdings would be more than BDT
1,500mn, an appreciation of over BDT 100 per share.
Liquidity
Bata has a free float of 30% for its shares. The company remains a fairly liquid one in the Dhaka
Stock Exchange (DSE). The company had an average trade volume of BDT 7.3mn per day over the
last 52-weeks.
Table 4: Shareholding Pattern
Shareholders
Bafin (Nederlands) B.V.
IFC
Other Non-resident Shareholders
Local Shareholders
Total
Source: Company Annual Reports
2008
95,760
45
11,099
29,896
136,800
%
70.00%
0.03%
8.11%
21.85%
100.00%
Bata Shoe Company Bangladesh
(DSE, CSE: BATASHOE)
Valuation
Our DCF analysis with a discount rate of 13.5% and terminal growth rate of 9.75% gives us Net
Present Value of BDT 679 per share. In valuing Bata Shoe Bangladesh, we also compared five
leading consumer cyclical companies listed on the DSE. We found that most of them that the
average P/E is 33.1x. The average P/B is 6.3x. Bata Shoe is currently trading at 14.6x P/E and 7.9x
P/B. With a 16.0x 2010E earnings and 8.25x 2010E book value, we estimate 12-month prices of
BDT 595 and 675 respectively, and set a 12-month target price of BDT 650.
Table 5: Discounted Free Cash Flow Valuation
Discounted FCF
Operating Cash
Capital Expendture
Change in Debt
2008
2009
428,873
-69,049
2010
472,320
-93,019
2011
511,799
-78,367
2012
587,130
-82,874
2013
643,166
-87,639
2014
713,937
-92,678
2015
781,319
-98,007
359,824
379,302
433,432
504,257
555,527
621,259
683,312
19,871,206
19,998,270
127,065
Net Terminal Value
Terminal Value
Terminal Debt
Discount Rate
Terminal Growth Rate
13.5%
9.75%
NPV
NPV/Share
9,294,252
679.40
Source: BRAC EPL estimates
Table 6: Comparative Valuation
Other consumer cyclicals
BATBC
Apex Adelchi
AMCL
Berger Paints
Marico Bangladesh
Average
Bata Shoe
Price
319.5
2281.5
1640.25
552.4
437.4
EPS
27.81
168.74
44.94
17.28
6.09
P/E
11.5x
13.5x
36.5x
32.0x
71.8x
33.1x
BVPS
75.56
500.39
428.39
39.26
90
P/B
4.2x
4.6x
3.8x
14.1x
4.9x
6.3x
Bata Shoe Valuation
2010 estimates
Multiple
Target price
EPS
37.21
16.0x
595.41
Average Target Price
649.84
479.6
32.85
14.6x
60.56
7.9x
Dividend yield
4.01%
Source: DSE and BRAC EPL estimates
BVPS
81.78
8.25x
674.71
Bata Shoe Company Bangladesh
(DSE, CSE: BATASHOE)
Table 7: Income Statement
Net Sales
COGS
Gross Profit
Administrative, Selling & Distribution Expense
Other Income
EBIT
Interest Expense
Profit before Contribution to WPPF
WPPF
EBT
Tax
PAT
2006
3,872,268
2,330,514
1,541,754
1,130,766
410,988
26,356
437,344
7,609
429,735
21,487
408,248
131,226
277,022
2007
3,976,388
2,653,372
1,323,016
821,252
501,764
21,437
523,201
3,277
519,923
25,996
493,927
169,078
324,849
2008
4,623,312
3,030,619
1,592,693
951,661
641,032
16,258
657,290
5,043
652,247
32,612
619,635
170,219
449,416
2009
5,099,295
3,338,559
1,760,736
1,157,870
602,866
20,397
623,263
2010
5,633,856
3,687,404
1,946,452
1,277,545
668,907
22,535
691,442
2011
6,331,603
4,142,800
2,188,803
1,433,840
754,963
25,326
780,289
623,263
31,163
592,100
133,223
458,878
691,442
34,572
656,870
147,796
509,074
780,289
39,014
741,275
166,787
574,488
2007
2008
2009
2010
2011
509,074
63,495
-100,248
472,320
574,488
68,146
-130,834
511,799
Source: Company Annual Reports and BRAC EPL Estimates
Table 8: Cash Flow Statement
2006
Operating Cash Flow
Net Income
Add Back Non-cash Expense
Change in Working Capital
Cash Flow from Operations
324,459
302,298
369,914
458,878
60,042
-90,047
428,873
Investing Cash Flow
Capital Expenditure
Cash Flow from Investing
-42,345
-78,038
-81,423
-69,049
-69,049
-93,019
-93,019
-78,367
-78,367
Financing Cash Flow
Change in Debt
Dividend Paid
Cash Flow from Financing
-178,846
-326,358
-309,442
-321,214
-321,214
-356,352
-356,352
-402,142
-402,142
85,087
317,125
402,212
-102,098
402,212
300,114
-20,951
300,114
279,163
38,610
279,163
317,773
22,950
317,773
340,723
31,290
340,723
372,013
Net Cash
Beginning Balance
Closing Balance
Source: Company Annual Reports and BRAC EPL Estimates
Bata Shoe Company Bangladesh
(DSE, CSE: BATASHOE)
Table 9: Balance Sheet
2006
988,672
116,049
155,810
402,212
1,662,743
2007
1,311,620
39,912
180,641
300,114
1,832,286
369,042
44
15,083
384,168
416,101
1,069
2,505
419,675
Total Assets
2,046,911
2,251,961
2,499,136 2,726,891 2,981,672 3,287,251
Total creditors
Provision for tax
Unpaid dividend
Proposed dividend
Total Current Liabilities
615,157
392,175
72,536
143,640
1,223,508
788,196
410,948
89,966
143,640
1,432,751
886,646 976,738 1,078,797 1,212,029
432,674 432,674 432,674 432,674
80,710
80,710
80,710
80,710
143,640 143,640 143,640 143,640
1,543,670 1,633,762 1,735,821 1,869,053
148,106
148,333
140,265
140,265
1,371,841
1,573,016
136,800
675,070
136,800
678,945
2,046,911
2,251,961
Inventories
Accounts Receivables
Advance, Deposits & Prepayments
Cash & Bank Balance
Total Current Assets
Net Fixed Assets
Capital Work In Progress
Deffered Tax Asets
Total Non Current Assets
Deffered Liabilities
Total Non Current Liabilities
Total Liabilities
Shareholders' Equity:
Share Capital
Total Equities
Total Liabilities & Equities
Source: Company Annual Reports and BRAC EPL Estimates
2008
2009
2010
2011
1,460,138 1,610,464 1,779,289 1,999,652
79,409
87,585
96,766 108,751
210,171 231,809 256,110 287,829
279,163 317,773 340,723 372,013
2,028,882 2,247,631 2,472,888 2,768,244
457,968
466,974
496,498
506,720
12,286
470,254
12,286
479,260
12,286
508,784
12,286
519,006
127,065
127,065
127,065
127,065
127,065
127,065
127,065
127,065
1,670,735 1,760,827 1,862,886 1,996,118
136,800
828,401
136,800 136,800 136,800
966,064 1,118,786 1,291,133
2,499,136 2,726,891 2,981,672 3,287,251
Bata Shoe Company Bangladesh
(DSE, CSE: BATASHOE)
Table 10: Indicators
2006
2007
2008
2009
2010
2011
Sales growth
EBITDA growth
Net profit growth
26%
23%
35%
3%
19%
17%
16%
24%
38%
10%
-3%
2%
10%
10%
11%
12%
12%
13%
EPS
CFPS
Gross margin
Operating margin
EBITDA Margin
Net margin
20.25
23.72
40%
11%
12%
7%
23.75
22.10
33%
13%
14%
8%
32.85
27.04
34%
14%
15%
10%
33.54
31.35
35%
12%
13%
9%
37.21
34.53
35%
12%
13%
9%
41.99
37.41
35%
12%
13%
9%
2.47
1.89
439,234
1.36
2.31
1.77
399,535
1.28
2.19
1.85
485,212
1.31
2.17
1.87
613,869
1.38
2.18
1.89
737,067
1.42
2.19
1.93
899,191
1.48
0%
0%
0%
0%
0%
0%
0%
0%
0%
0%
0%
0%
Return on equity
Return on assets
40%
14%
48%
15%
60%
19%
51%
18%
49%
18%
48%
18%
Effective tax rate
32%
34%
27%
23%
23%
23%
Equity growth rate
Book value per share
-6%
49.35
1%
49.63
22%
60.56
17%
70.62
16%
81.78
15%
94.38
P/E
P/B
23.68
9.72
20.20
9.66
14.60
7.92
14.30
6.79
12.89
5.86
11.42
5.08
Inventory turnover
Sales/assets
Working capital
Working capital ratio
Debt/equity
Debt/assets
Source: Company Annual Reports and BRAC EPL Estimates
Bata Shoe Company Bangladesh
(DSE, CSE: BATASHOE)
IMPORTANT DISCLOSURES
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update reports are published or material company events occur. Following are some general risks that can
impact future operational and financial performance: (1) Industry fundamentals with respect to customer
demand or product / service pricing could change expected revenues and earnings; (2) Issues relating to
major competitors or market shares or new product expectations could change investor attitudes; (3)
Unforeseen developments with respect to the management, financial condition or accounting policies alter
the prospective valuation; or (4) Interest rates, currency or major segments of the economy could alter
investor confidence and investment prospects.