If you look back into the annals of time, trace a path all the way to the present and dare to peek into the future as well, you’d be surprised to find that no article of clothing has been, is or will be more ubiquitous than the humble shoe. Ever since prehistoric times, Man has always felt the need to protect his feet from everything that Mother Nature could throw at him and ancient cultures, ranging from the Native Americans to the Egyptians and all the way to Ancient China, developed their own forms of primitive footwear. While shoemaking as a trade only picked up speed during the Industrial Revolution, the global footwear market today is pegged at a size of around $190 – 200 billion, clocking a sub – 5% annual growth. While the luxury segment is still a minuscule portion of the entire pie, it is growing in double – digits, with some brands even growing at over 30% - 70% annually, albeit on a small base. Speaking of the luxury footwear industry, names like Jimmy Choo, Louis Vuitton, Christian Louboutin, Gucci, Prada, Steve Madden, Yves Saint Laurent, Manolo Blahnik and Brian Atwood are now the soles that legends are made of and every shoe cabinet desires. 
Bata entered India in the 1930s when it began sourcing rubber from the country and capitalized on the huge market that the country presented. Batanagar came up near Kolkata and it soon became a major shoe – producing centre. Meanwhile, Bata had entered several markets in South Asia but India continued to be one of its largest and by far, the most important. Following the nationalization of its factories in Czechoslovakia after the World Wars, Bata found a new home in Canada but in 2004, it moved its headquarters to Switzerland. The year 2004 was also when Bata announced that it would eventually move to a single global holding company, an announcement that did excite several markets around the world.
Today, with a topline of around Rs. 2800 crores and a bottomline a little shy of Rs. 230 crores, Bata India might be back on the growth path but as far as the company’s position over the course of the past two decades goes, the same cannot be said. In the years following 1991, Bata tackled issues relating to its labour unions and supply chains, even as it struggled to grow sales and infuse some life into a stagnant stock price. From 2005 onwards, Bata’s turnaround story began to kick in, with sales rising, more stores opening and everything seemingly going its way. And then, in 2010 – 11, a new wave hit the Indian market, one which left Bata high and dry.
When the e – commerce euphoria enveloped the Indian market, discounting was the order of the day and footwear was one of the hardest hit categories. While most companies jumped on the online bandwagon to boost sales, albeit at the cost of profits, Bata stubbornly stayed away, in a bid to protect its margins. MNC peers such as Puma, Nike and Adidas took to e – commerce readily, grew their sales and captured market share. However, Bata’s move of shunning e – commerce initially resulted in the spectre of slowing sales coming back to haunt it. While the company focused on safeguarding its margins, a lacklustre stock market only wanted companies that were growing their topline, at a time when the European sovereign debt crisis was threatening to bring about a double dip recession. And Bata’s reluctance to go the e – commerce way was kicking the company right where it hurt.
While Bata India’s scrip was struggling to find favour with the markets, help came from an unexpected quarter. In the aftermath of the global financial crisis, with growth hard to come by overseas, most MNCs resorted to increasing their stakes in their Indian subsidiaries, sending their scrips skywards. While open offers from the foreign parents flooded the Indian markets one by one, the trend was hardly surprising. With interest rates near zero overseas, most MNCs would have realized that instead of parking their cash piles in bank deposits, a better return could be obtained by simply borrowing overseas, bringing the cash to India, absorbing the foreign exchange loss and then raising the promoter stake in the Indian subsidiary. The double – digit return earned in a growing Indian market, minus the forex loss and the cost of borrowing would have easily overshadowed the return that an idle pile of cash in a bank deposit would have earned overseas. Incidentally, it was HSBC that managed almost every foreign parent’s open offer.
As far as Bata India was concerned, its stagnant stock price and attractive valuations of around 30 times earnings was just too good to resist. Bata BN NV, the parent and global holding company, sauntered in and picked up a 1% stake in Bata India, increasing its holding from 51% to 52%, which infused some life back into the scrip. A few months later, a new revelation kicked Bata’s stock price sky – high and it almost turned out to be a shoo – in.
With Bata India trading at a multiple of 30 times earnings, the market suddenly took cognizance of the fact that most of Bata’s showrooms were company – owned and its vast real estate holdings weren’t factored into the valuations or the stock price. Moreover, with most MNCs trading in the 40 – 70 times earnings range, Bata India had some steam left in it, to say the least. Bata India soon began climbing and if that wasn’t enough, Bata BN NV bought another 1% of its Indian subsidiary, taking its holding to 53%. Over the course of the next 12 months, Bata India’s scrip doubled and the markets cheered its announcement to enter the e – commerce channel, albeit in a limited manner. With Bata’s sales and profits sprinting once again, the company’s stock price soon rose to an exalted price multiple of 45 – 50 times earnings. Over the next two years, Bata India continued to climb and after overcoming a dull three year period by a buy – in from Bata BN NV and a re – rating on the bourses, it seemed as if the boot was firmly on the other foot. 
Ronak Ravindran is a PGDM 2014-16 student at SPJIMR, Mumbai specialising in Finance. Connect with him on https://in.linkedin.com/in/ronakravindran. You can also follow his blog, http://corporateprophet.blogspot.in/
To know more about the PGDM programme of SPJIMR and the various specialisations it offers, click here.
Bata entered India in the 1930s when it began sourcing rubber from the country and capitalized on the huge market that the country presented. Batanagar came up near Kolkata and it soon became a major shoe – producing centre. Meanwhile, Bata had entered several markets in South Asia but India continued to be one of its largest and by far, the most important. Following the nationalization of its factories in Czechoslovakia after the World Wars, Bata found a new home in Canada but in 2004, it moved its headquarters to Switzerland. The year 2004 was also when Bata announced that it would eventually move to a single global holding company, an announcement that did excite several markets around the world.
Today, with a topline of around Rs. 2800 crores and a bottomline a little shy of Rs. 230 crores, Bata India might be back on the growth path but as far as the company’s position over the course of the past two decades goes, the same cannot be said. In the years following 1991, Bata tackled issues relating to its labour unions and supply chains, even as it struggled to grow sales and infuse some life into a stagnant stock price. From 2005 onwards, Bata’s turnaround story began to kick in, with sales rising, more stores opening and everything seemingly going its way. And then, in 2010 – 11, a new wave hit the Indian market, one which left Bata high and dry.
When the e – commerce euphoria enveloped the Indian market, discounting was the order of the day and footwear was one of the hardest hit categories. While most companies jumped on the online bandwagon to boost sales, albeit at the cost of profits, Bata stubbornly stayed away, in a bid to protect its margins. MNC peers such as Puma, Nike and Adidas took to e – commerce readily, grew their sales and captured market share. However, Bata’s move of shunning e – commerce initially resulted in the spectre of slowing sales coming back to haunt it. While the company focused on safeguarding its margins, a lacklustre stock market only wanted companies that were growing their topline, at a time when the European sovereign debt crisis was threatening to bring about a double dip recession. And Bata’s reluctance to go the e – commerce way was kicking the company right where it hurt.
While Bata India’s scrip was struggling to find favour with the markets, help came from an unexpected quarter. In the aftermath of the global financial crisis, with growth hard to come by overseas, most MNCs resorted to increasing their stakes in their Indian subsidiaries, sending their scrips skywards. While open offers from the foreign parents flooded the Indian markets one by one, the trend was hardly surprising. With interest rates near zero overseas, most MNCs would have realized that instead of parking their cash piles in bank deposits, a better return could be obtained by simply borrowing overseas, bringing the cash to India, absorbing the foreign exchange loss and then raising the promoter stake in the Indian subsidiary. The double – digit return earned in a growing Indian market, minus the forex loss and the cost of borrowing would have easily overshadowed the return that an idle pile of cash in a bank deposit would have earned overseas. Incidentally, it was HSBC that managed almost every foreign parent’s open offer.
As far as Bata India was concerned, its stagnant stock price and attractive valuations of around 30 times earnings was just too good to resist. Bata BN NV, the parent and global holding company, sauntered in and picked up a 1% stake in Bata India, increasing its holding from 51% to 52%, which infused some life back into the scrip. A few months later, a new revelation kicked Bata’s stock price sky – high and it almost turned out to be a shoo – in.
With Bata India trading at a multiple of 30 times earnings, the market suddenly took cognizance of the fact that most of Bata’s showrooms were company – owned and its vast real estate holdings weren’t factored into the valuations or the stock price. Moreover, with most MNCs trading in the 40 – 70 times earnings range, Bata India had some steam left in it, to say the least. Bata India soon began climbing and if that wasn’t enough, Bata BN NV bought another 1% of its Indian subsidiary, taking its holding to 53%. Over the course of the next 12 months, Bata India’s scrip doubled and the markets cheered its announcement to enter the e – commerce channel, albeit in a limited manner. With Bata’s sales and profits sprinting once again, the company’s stock price soon rose to an exalted price multiple of 45 – 50 times earnings. Over the next two years, Bata India continued to climb and after overcoming a dull three year period by a buy – in from Bata BN NV and a re – rating on the bourses, it seemed as if the boot was firmly on the other foot.
Ronak Ravindran is a PGDM 2014-16 student at SPJIMR, Mumbai specialising in Finance. Connect with him on https://in.linkedin.com/in/ronakravindran. You can also follow his blog, http://corporateprophet.blogspot.in/
To know more about the PGDM programme of SPJIMR and the various specialisations it offers, click here.