A household name in Pakistan, Bata Pakistan Limited is engaged in the manufacturing and sale of footwear products. It also manufactures and sells accessories and hosiery items. The company's registered office is located at Batapur, Lahore. It is listed on the Pakistan Stock Exchange under the moniker BATA. Bata's parent company is Bafin B.V. (Nederland), which owns three-quarter of the firm's shareholding. The ultimate parent company is Compass Limited in Bermuda. Bata's latest available pattern of shareholding is provided below:
Product portfolio
Bata has three main business divisions namely retail, wholesale, and export. Its production facilities are located in Batapur and Maraka. The company has been gradually expanding its retailing footprint. As of 2016, Bata had 412 retail outlets and 13 wholesale depots across the country. Bata's shoe products include school shoes, dress shoes, sandals, slippers, athletic shoes, casual shoes, etc. The company targets a broad demographic of men, women and children. Some of its popular shoe brands include Bata Shoes, Marie Claire, Bubblegummers, Weinbrenner, Power, and North Star.
In its non-retail/wholesale division, Bata provides both domestically-produced and imported footwear products to the wholesale market. Bulk of Bata's overall top line is derived from local sales. The company has also been exporting its products over the years. However, the revenues from exports have been declining in recent years, contributing less than 1 percent of the gross sales since CY13
Recent financial performance
Bata's financial performance in recent years has been fairly consistent. Since the turn of this decade, the shoemaker has increased its top line every year, with a bigger corresponding increase in the bottom-line on account of manufacturing efficiencies and adept management of administrative expenses.
Faced with growing demand, the company has been expanding its production capacity. In 2016, the company had reached a capacity to produce 19.4 million pairs of shoes, up from 12.9 million in 2011. The capacity utilization has remained high in recent years, averaging about 90 percent between CY11 and CY16.
The firm's net sales crossed Rs 15 billion in CY16. Domestic sales have consistently provided the impetus to top line growth, even as exports have remained marginal. The company has a domestic focus, where Pakistan's growing non-grocery retail spending augurs well for future sales growth. As per Pakistan's Household Integrated Economic Survey, 'clothing and footwear' had a 9.05 percent share in average monthly consumption expenditure in FY15, up from 5.97 percent in FY05.
But top line growth has come down for the firm lately. Net sales grew by a paltry 2 percent year-on-year in CY16, down from 7 percent in CY15, 8 percent in CY14 and 11 percent in CY13.
While the management attributes recent top line weaknesses to unsatisfactory performance of its non-retail business division, the slump perhaps illustrates growing competition from brands that have come up in recent years. Unlike Bata that markets a variety of shoes for different age groups and genders, the new entrants have been targeting their footwear products towards individual segments and trendy fashion, a segment that attracts more discretionary spending. The likes of Bata and Service, which provide a full spectrum of shoe products, are being challenged by different competitors in different segments.
The company has done well over the years to keep its cost of sales in check. As a result of gradual efficiencies in the cost of goods manufactured, the gross margin has improved from 36 percent in CY11 to 41 percent in CY16 - with consistent improvements along the way. Due to the company's retail focus, the growth in distribution costs has outstripped revenue growth in recent years. The administrative expenses, however, have remained under control.
Thanks to cost efficiencies and a little help from 'other income', the firm's operating margin has increased from 11 percent in CY11 to 14 percent in CY16. Historically there have been low financial charges on account of a lean capital structure. As a result of all those factors, the firm's net margin has been hovering close to 10 percent in recent years. In CY16, the net margin stood at 9.56 percent, 22 bps lower than CY15, on account of subpar top line growth, as the net profits went down by 0.2 percent year-on-year.
Latest financials
After a lackluster CY16, Bata didn't have a great start to CY17. In the first quarter ended March 31, 2017, the firm suffered a top line fall of 5 percent year-on-year. The weakness continues to emerge from the firm's non-retail business. In the end, net profit suffered a bigger decline, of 17 percent year-on-year, due to increases in distribution and administrative expenses.
Stock performance
The Bata scrip is extremely thinly-traded on the local stock market. In the year ending June 30, 2017, the stock's average daily volume stood at just 96 shares per day. The stock can go for days without a single share changing hands at the bourse. Bata has underperformed the broader index in the year under review. Starting in January, the stock has shed the gains made earlier. On July 10, the stock closed at Rs 3340 per share, with a volume of mere 20 shares.
Outlook
Going forward, Bata's challenge will be to reinvigorate its top line. On one hand, Bata needs to expand its retail stores, especially in rural areas. On the other hand, it needs to make its urban retail footprint more modern and customer-friendly. Amid cost efficiencies, a percentage increase in top line will yield more than a percentage increase in bottom-line.
Faced with growing competition from trendy outlets, Bata's management may also need to think about repositioning their brand in the mind of the customers. They could go for a more fashion-oriented brand persona. Pakistan's is an aspirational consumer market. So a brand repositioning may help the firm penetrate deeper into the mass market. That's where the large volumes are.
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BATA: Pattern of shareholding Shares held % of total
(as at December 31, 2016) shares
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Foreign shareholders:
Bafin (Nederland) B.V. 5,685,866 75.21%
Afc Umbrella Fund (CDC) 1,400 0.02%
Credit Agricole (Suisse) S.A. (CDC) 800 0.01%
Tundra Pakistan Fund (CDC) 29,242 0.39%
Grandeur Peak Emg. Mkts.
Opportunities Fund (CDC) 11,160 0.15%
Local shareholders:
Individuals 216,787 2.87%
National Investment Trust 49,076 0.65%
Trustee National Investment (Unit) Trust 1,090,234 14.42%
National Bank of Pakistan 611 0.01%
Industrial Development Bank of Pakistan 125 0.002%
Pension funds 111,135 1.47%
Insurance companies 327,768 4.34%
Joint stock companies 2,432 0.03%
Modarabas and Mutual funds 6,927 0.09%
Other companies 26,437 0.35%
Total 7,560,000 100%
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Source: Company accounts
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BATA: Financial snapshot
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Rs (mn) CY16 CY15 CY14 CY13 CY12 CY11
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Operating results
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Net sales 15,082 14,782 13,767 12,774 11,477 9,816
Gross profit 6,194 6,005 5,379 4,994 4,259 3,541
Operating profit 2,141 2,132 1,919 1,741 1,439 1,076
Profit after tax 1,442 1,446 1,339 1,232 1,021 748
Financial position
Paid-up share capital 75.6 75.6 75.6 75.6 75.6 75.6
Shareholders' equity 6,663 6,051 5,255 4,501 3,934 3,278
Total assets 9,085 8,239 7,391 6,389 5,638 4,626
Property, plant & equipment 1,421 1,471 1,392 1,116 833 734
Current liabilities 2,264 2,026 1,978 1,746 1,555 1,198
Financial ratios
Gross margin 41.07% 40.63% 39.07% 39.09% 37.11% 36.07%
Operating margin 14.19% 14.42% 13.94% 13.63% 12.54% 10.96%
Net margin 9.56% 9.78% 9.73% 9.65% 8.89% 7.62%
Return on equity 21.64% 23.89% 25.49% 27.38% 26.04% 22.83%
Price to earning ratio (times) 22.60 17.10 19.70 17.13 9.99 8.27
Dividend yield 2.55% 2.69% 2.23% 3.15% 3.71% 2.44%
Earnings per share (Rs) 190.74 191.20 177.17 163.02 135.03 98.96
Current ratio (times) 3.35 3.33 2.99 2.98 3.04 3.18
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Source: Company accounts
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BATA: Latest financials
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Rs (mn) 1QCY17 1QCY16 Chg
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Sales 3,064 3,223 -5%
Gross profit 1,302 1,306 -0.3%
Operating profit 331 391 -15%
Net profit 223 267 -17%
Earnings per share 29.46 35.34 -17%
Gross margin 42% 41%
Operating margin 11% 12%
Net margin 7% 8%
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Source: Company accounts
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