Bata boasts its presence with more than 373 retail outlets and 12 wholesale depots in Pakistan alone. The company keeps on innovating to provide full assortment of shoes ranging from newborn to adults in all the categories. To cater the middle upper income segment of the market, 13 city concept stores were opened in Karachi, Peshawar, Rawalpindi, Mirpur, Gujranwala, Gujrat and Quetta.
The footwear industry of Pakistan is not working with its full potential. This is because the sector is relatively small because of inward/domestic market demand-oriented nature of the industry. Some inherent weaknesses that the industry faces are high cost of production, due to high cost of dyes and chemicals and lack of innovation in designs.
Thus, the sector in general has to face stiff competition from imported products, which are relatively cheap and of better quality. Only few footwear-manufacturing units are working in the formal sector due to high capital investment that it requires in terms of plant, machinery, labour and marketing. Leather and leather products manufactured in Pakistan have a sizeable market around the world. Being an agrarian economy, Pakistan has a natural advantage in the area of livestock population, which is the major input (hides and skins) in the leather sector.
RECENT RESULTS 3Q'07:
Bata Pakistan improved its performance during the third quarter of 2006 with total net sales at Rs 970 million compared to Rs 706.9 million in the corresponding period of 2007, the strong sales growth trend has continued to be maintained. In the retail division, 10 new stores were opened during this quarter and another four were renovated. Although sales continue to exceed the budget, and turnover in the quarter was 33% better than the corresponding period of last year, it would appear that the current political uncertainty and tension is having some adverse effect on traffic flow in the market place and consequently on sales. Most retailers reported that business in the first 20 days of Ramadan was well below expectations and despite an expected increase in the last days, the Eid trading period did not exhibit the same growth patterns reflected in business prior to this period.
The wholesale division achieved remarkable sales in the third quarter as demand for the best selling factory produced PU articles was particularly high.
During the period under review, manufacturing units were fully loaded to meet the high demand for popular items. Newly acquired PU machine was fully operational and will assist in meeting the increased demand for these products. With all divisions performing well, the company was able to achieve year to date profit after tax of Rs 134 million as compared to Rs 29.2 million in the corresponding period of last year.
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BRAND DETAILS
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Bubble gummers Bubblegummers is the leading children's footwear
brand in Latin America and has development
an extensive presence in Asia and in Europe
Bubblegummers also carry a wide range of
accessories eg, Full range of casual bag,
school bag, stationary and others.
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Bata COMFIT Comfort is an important feature in design and
assembly of all the comfit shoes. Unit rubber,
PVC, PU or TPR sole are commonly used
"Get Comfortable Today" is a tagline commonly
associated with these range of shoes.
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Marie Claire Marie Claire shoes are for women with an active
lifestyle who seek contemporary modern styles,
Marie Claire shoe stores successfully
opened in Latin America and Asia
Bata Brands is the trademark owner of
Marie Claire for shoes worldwide
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POWER Power embodies diversity with ranges in
running, training, court, basketball,
football and Outdoor that combines
function with creativity.
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WEINBRENNER The Weinbrenner line is made up of leather
shoes and boots, low, mid and high cut
Cuts or design are dictated by fashion,
but can include Goodyear welt construction,
rugged moccasin and other strongly outdoors
associated cuts but always in casual style
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Brand details
Bubblegummers is children's leading footwear brand in Latin America and has developed extensively in Asia and in Europe. Bubblegummers also carry a wide range of accessories, eg, casual bags, school bags, stationery and other items.
Comfort is an important feature in design and assembly of all the comfit shoes. Unit rubber, PVC, PU or TPR sole are commonly used. "Get Comfortable Today" is a tagline commonly associated with these shoes.
Marie Claire shoes are for women with an active lifestyle, who seek contemporary modern styles, Marie Claire shoe stores are successful in Latin America and Asia. Bata brands is the trademark owner of Marie Claire for shoes worldwide.
Power embodies diversity with ranges in running, training, court, basketball, football and outdoor, that combines function with creativity. The Weinbrenner line is made up of leather shoes and boots, low, mid and high cut. Cuts or design are dictated by fashion, but can include Goodyear welt construction, rugged moccasin and other strongly outdoors associated cuts but always in casual style.
Bata Pakistan has posted a declining trend in its production and installed capacity. The number of retail outlets as well as wholesale had decreased as well. This might be because of the increased competition and opening of other similar outlets. Bata therefore, is gradually losing its brand recognition. Apart from the school shoes variety, Bata should capitalize on its other brands as well. One noteworthy issue is the lack of variety at all retail outlets. To augment its sales further, aggressive advertising in all shoes' categories should be its first priority.
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2003 2004 2005 2006
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Retail Outlets 371 372 385 373
Wholesale Depots (No) 23 21 21 12
Installed Capacity (Pairs '000) 17700 17700 14700 12450
Actual Production (Pairs '000 14262 12306 10669 10398
Capacity Utilization (%) 80.58 69.53 72.58 83.52
Capital Expenditure (Rs'000) 51413 44218 57689 91515
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The liquidity is commendable in the sense that it has improved over the years. However, excessive liquidity signifies increasingly high amount of cash and current assets that are currently underutilized. On the other hand, Bata has significantly reduced its liabilities. Furthermore, the analysis of quick ratio shows that Bata is presently holding a large amount of unsold inventory. To improve its quick ratio and bring the current ratio at a competent level, the company must focus on increasing its sales through aggressive marketing since there is a stiff competition in the industry owing to low entry barriers and competition from cheap imported shoes.
During 3Q'07, the current ratio of the company decreased as a result of increase in liabilities as compared to the current assets. Decline in current ratio might be an indicative of decrease in opportunity cost of the company, which was previously higher than the usual sine, a large amount of current assets accumulated on the company's balance sheet.
Sales turnover posted an increasing trend. The increase in sales is mainly price-driven. Increased cost of production and advertising, along with increase in population has all contributed towards high demand and consequently higher sales revenue. This has not only been reflected in the sales of the retail division, but now also in the Wholesale division whose sales in the first half had suffered due to the strict measures being employed to reduce outstanding receivables. Export sales were however flat compared with the previous year but this was more than compensated by the increase in domestic sales.
Net profit margins and gross profit margins have increased marginally over the years. ROA and ROE have also increased after dropping in FY05. The dip was due to a decline in the net income of the company resulting from the extraordinary cost of the Voluntary Retirement Scheme and the sales tax settlement. The increasing trend has continued in 3Q'07 although not significant as a result of political instability in the country depressed sales units of the company. The increase in sales as posted on company's profit and loss statement may be attributed to the cost of the shoes and related leather items.
Bata doesn't rely on debt financing as much as it does on equity financing. Hence it has a large shareholder base. Its total debt is also near to the ground thereby accumulating low amount of financial charges. As a result, the interest cover ratio of the company is adequate enough to cover its interest expenses. Majority of the expansions and assets are financed through equity rather than long-term debt as evident from lower long-term debt to equity and debt-asset ratios. Although mark-up rates rose during the year, the company's financial costs were lower resulting from the improvements made in reducing the working capital needs. All in all, Bata Pakistan is in a safer position and is not prone to interest rate risk since the amount of liabilities on its balance sheet is relatively on a lower side.
The trade-debt burden of the company has been significantly reduced over the past 2 years owing to company's strict control on credit and reducing the outstanding receivables.
This is reflected in the company's overall reduction in trade debts. Even though the wholesale division's performance slowed down, yet the company was able to augment its financial position to a greater extent. Now the company operates primarily on cash or near cash basis as evident from near to the ground DSO ratio. In consequent of this, the company's operating cycle is declining depicting efficiency on part of the company to quickly convert its inventory into cash. Better marketing can further supplement the operating cycle since the company has a large amount of unsold inventory.
Total assets turnover and sales/equity have posted a bullish trend owing to increased amount of sales revenue. However, both ratios declined in 3Q'07 in consequent of lower sales as compared to the total assets and sales respectively.
Bata Pakistan has strengthened its position on the stock exchange as evident from increasing P/E ratio and market per share. Backed by increase in demand, EPS has shown an upward trend as well until recently when it declined owing to instability in the country, which depressed the turnout to the retail stores of the company. The net worth of the company however is very low. The company proposed a higher dividend in FY'06 due to better results. It raised the final dividends by 50%, thus increasing the investor's confidence.
Dividend yield as measured by EPS/market price has been declining owing to better market price that the company is able to fetch. Higher market price has outpaced any increase in dividend amount, thus reducing the ratio on the whole.
FUTURE OUTLOOK:
Increase in the cost of production primarily because of the hike in prices of raw materials, interest rates, and transportation cost might pose a challenge to the company. The increased costs might depress sales for the company along with affecting the top-line and bottom-line. Furthermore, Bata Pakistan should increasingly divert its focus towards innovation, new designs and maintenance of its retail outlets in order to keep its customer base intact. The cut-throat competition from the imported items and many new local outlets has significantly affected the branding of the company as compared to what it was a long time ago.
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BATA PAKISTAN LIMITED-FINANCIALS
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Income Statement (Rs '000) FY'03 FY'04 FY'05 FY'06 3Q'07
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Total Revenue 2,225,171 2,279,556 2,543,344 2,989,474 2,587,550
Cost of Goods Sold 1,457,653 1,443,722 1,605,938 1,876,653 1,583,022
Gross Profit 767,518 835,834 937,406 1,112,821 1,004,528
Operating Profit (EBIT) 174,222 183,578 184,469 262,586 269,942
Net Income Before Taxes 137,091 178,197 128,535 166,820 202,663
Net Income After Taxes 88,501 121,872 83,916 109,621 133,989
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Balance Sheet (Rs '000) FY'03 FY'04 FY'05 FY'06 3Q'07
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Property plant & Equipement 252,146 266,487 282,645 332,726 369,984
Total Current Assets 985,219 961,057 1,019,177 1,013,982 1,387,694
Total Non Current Assets 302,259 313,851 346,004 400,749 456,498
Total Assets 1,287,478 1,274,908 1,365,181 1,414,731 1,844,192
Total Current Liabilities 760,146 643,619 658,696 628,422 959,970
Total Non Current Liabilities 80,918 85,683 88,303 88,746 90,468
Authorized Capital 1,000,000 1,000,000 1,000,000 1,000,000 1,000,000
Total Liabilities 841,064 729,302 746,999 717,168 959,970
Paid Up Capital 75,600 75,600 75,600 75,600 75,600
Total Equity 446,414 545,606 618,182 697,563 793,752
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LIQUIDITY RATIO FY'03 FY'04 FY'05 FY'06 3Q'07
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Current Ratio 1.30 1.49 1.55 1.61 1.45
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ASSET MANAGEMENT FY'03 FY'04 FY'05 FY'06 3Q'07
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Inventory Turnover(Days) 131.87 135.85 128.57 126.76 143.60
Day Sales Outstanding (Days) 54.00 50.00 45.00 16.00 14.21
Operating Cycle (Days) 185.87 185.85 173.57 142.76 157.80
Total Asset turnover 1.73 1.79 1.86 2.11 1.40
Sales/Equity 4.98 4.18 4.11 4.29 3.26
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DEBT MANAGEMENT FY'03 FY'04 FY'05 FY'06 3Q'07
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Debt to Asset(%) 65.33 57.20 54.72 50.69 52.05
Debt/Equity (Times) 0.49 0.31 0.35 0.00 0.00
Interest Cover 6.20 9.96 4.21 6.03 6.03
Long Term Debt to Equity(%) 18.13 15.70 14.28 12.72 11.40
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PROFITABILITY (%) FY'03 FY'04 FY'05 FY'06 3Q'07
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Gross Profit Margin 34.49 36.67 36.86 37.22 38.82
Net Profit Margin 3.98 5.35 3.30 3.67 5.18
Return on Asset 6.87 9.56 6.15 7.75 7.27
Return on Common Equity 19.82 22.34 13.57 15.71 16.88
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PER SHARE FY'03 FY'04 FY'05 FY'06 3Q'07
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Earning per share 11.71 16.12 11.10 14.50 17.72
Price earning ratio 4.36 4.40 8.11 8.90 7.05
Market price per share 51.00 71.00 90.00 129.00 125.00
Dividend Yield(%) 7.84 6.34 4.44 3.88 -
Book value 0.06 0.07 0.08 0.09 0.10
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COURTESY: Economics and Finance Department, Institute of Business Administration, Karachi, prepared this analytical report for Business Recorder.
DISCLAIMER: No reliance should be placed on the [above information] by any one for making any financial, investment and business decision. The [above information] is general in nature and has not been prepared for any specific decision making process. [The newspaper] has not independently verified all of the [above information] and has relied on sources that have been deemed reliable in the past. Accordingly, the newspaper or any its staff or sources of information do not bear any liability or responsibility of any consequences for decisions or actions based on the [above information].