MANAGEMENT DISCUSSION AND ANALYSIS REPORT (a) Industry structure and developments The Global Footwear Market, by geography, is divided into four regions: North America, Europe, Asia Pacific and Rest of the World. In terms of volume, Asia Pacific is the largest contributor to the market, accounting for a market share of approximately 40%. The major reason is attributed to increasing middle class population and rapid expansion of footwear industry in emerging countries such as China and India among others. Presently, in terms of revenue, Global Footwear Market is valued at approx. USD 210 Billion and is expected to grow at a CAGR of 2.5% from 2015 to 2023. In terms of volume, Global Footwear Market is approx. 10 Billion pairs, which may cross 12 Billion pairs in 2023 by growing ataCAGR of2.3%. India is the second largest producer of footwear in the world, next to China and has an ever-growing domestic market. Annually, India produces about 2.1 Billion pairs and it is estimated that production of footwear will exceed 4 Billion pairs by 2020. The per capita consumption of footwear in India is set to grow rapidly from its existing level of 1.7 pairs per annum. The global average per capita consumption of footwear is 3 pairs per annum, whereas the same for developed countries in the World is more than 5 pairs per annum. The footwear industry is an important driver in the economic growth of India and is a significant segment of the leather industry. The Indian Footwear Market is divided into organized and unorganized segment, where the latter occupies about 65% of the overall market. In the recent past, the organized footwear sector has witnessed a faster growth and is expected to grow at 15% over the next few years. The Government of India now allows 100% Foreign Direct Investment (FDI) in Footwear manufacturing sector through the Automatic Route. The Indian Government is also boosting the Footwear Industry by reducing excise duty on certain category of footwear. Government of India in its Finance Budget 2016, has proposed reduction in excise duty for rubber sheets for soles and heels from 12.5% to 6% and an increase in abatement from retail sales price for calculating excise duty for footwear from 25% to 30%. Such step by the Government is creating a conducive investment climate towards attracting overseas investments and increasing employment potential within the Country. (b) Opportunities and Threats While India is the second largest footwear manufacturers of the World, only 10% footwear produced in India are being exported and the remaining 90% of the production are sold within the Country for domestic consumption. China continues to be leading country in the World as an exporter. Indian footwear industry is exploring ways to increase exports and the growth in export of footwear will depend on quality and cost competitiveness. India is attracting various established fashion brands of the World as well as retailers who are re-orienting their focus on the domestic footwear market, which has led to a significant increase in the number of retail outlets nationwide. Furthermore, growing fashion consciousness and increasing demand for innovation in design and technology of footwear products is increasing competitiveness in the Markets. Your Company has enjoyed a brsence in the Indian Footwear Industry for more than eight decades and has established an integrated manufacturing, supply chain and distribution network. Your Company understands the latest trends in footwear industry and will exploit its leadership position in the organized footwear industry and take appropriate steps to overcome the challenges in the footwear industry to achieve its objectives. (c) Segment wise or product wise performance Your Company operates in two segments - Footwear & Accessories and Surplus Property Development. Your Company has chosen Footwear & Accessories as its primary segment. Performances of major business categories and key brands of your Company during the financial year ended March 31, 2016 are highlighted below: Retail Business During the twelve month period ended March 31, 2016, your Company opened 26 new retail stores across India. The new stores are larger in size and are based on global design, making them look complete and enticing with adequate space to display the products. Your Company plans to add around 30 new retail stores every year to increase its brsence in the Malls and High Street Markets and 30 new Franchisee stores also in the Tier-2 and Tier-3 cities across India. Your Company plans to open 5 destination stores each year to provide a unique shopping experience with wide collection to the consumers. Such destination stores will comprise of very large retail space located at the outskirts of the cities with all amenities like ample parking space, children's play area and food-court. In addition, your Company shall continue to make investment on renovating existing stores hence creating a delightful shopping experience for the customers by improving store layouts and creating an emphasis on key products within the retail stores. India has witnessed exponential growth in e-commerce business with customers brferring to shop online. This leads to a lesser footfall and decreasing conversion rate, impacting the retail business across the Country. Your Company believes that the brsent business model of e-commerce players offering huge discount is not sustainable in the long run and expects the customers' footfall in retail store shall increase. In order to cater to the customers who brfer online shopping, your Company has been exploring various plans to facilitate their shopping choices through on-line kiosks from the retail stores of the Company. Digital Multi-Channel Business The business world is being digitized rapidly adding value to the customers on existing product offerings. Technical innovations and web-based transactions have become the key to success. Your Company's Digital Multi-Channel Business has quickly adopted these changes in consumer buying pattern and invested in strengthening this segment of business. Your Company's online business has grown well during the year under review. Your Company sold more than 3.8 lacs pairs of footwear through online channels achieved a turnover of approx. Rs.360 Million. Your Company's e-commerce brsence has penetrated in more than 2000 cities across India. During the year under review, your Company's e-commerce Division mainly focused on increasing its customer database by reaching out to new set of target audience and also establishing successful association with many reputed companies and banks, e.g., HDFC Bank, Standard Chartered Bank, State Bank of India, Deutsche Bank, Samsung, SpiceJet Airlines, etc. Such alliances helped your Company increase its brand awareness and customer database. Your Company's products continued to be sold through its partners' websites including Amazon, Myntra, Jabong, Flipkart, etc. Your Company has launched a 'Click and Collect' service for its Stores in Delhi NCR Region. The customers can now shop the entire range of products available online with the click of a button and have their brferred footwear or accessories delivered to the local Bata retail store of their choice. Your Company has launched online exclusive product lines for both Spring-Summer Season and Autumn-Winter Season generating a good response from the customers. The website of the Company has been made more user-friendly in order to provide better interface. The website now provides facilities like easy navigation, simplistic designs, effortless checkout process and effective product shots. Your Company has also launched Bata Mobile Application with interactive user-interface which has also been well accepted in the market. Your Company has strengthened its e-commerce team and had recently launched Bata Blog, which acts as a style inspiration for the young audience and also provides frequent online customer surveys and customer feedback for improved services. Going forward, your Company shall expand its Digital Multi-Channel Business through various measures including placement of online kiosks in major retail stores, tie-up with payment banks and also increasing the brsence of its product offerings through partners' websites. Hush Puppies Your Company's international brmium brand 'Hush Puppies' continues to live up to its brand image of comfort, quality and style. The year 2015-16 was a milestone year for Hush Puppies as your Company sold over a Million pair in the year 2015 itself. In addition to being available through the retail stores, wholesale network and e-commerce channel of your Company, the brand has been expanding its brsence through 68 exclusive stores and 37 shop- in-shops in brmium departmental stores. During the year under review, Hush Puppies embarked on a journey of re-positioning itself as an International Premium Lifestyle Casual Footwear brand. Your Company shall continue to focus on offering unique products under this brand, which will be more comfortable with contemporary fashionable style, making 'Hush Puppies' the most desired lifestyle footwear brand in India. Footin Recognizing needs of the young consumers, your Company's new retail concept - Footin was created in the year 2012. It is a new business model with a different approach to cater to the young customers who are style conscious and trend-savvy shoppers and need quality merchandise at affordable price. Foot in has become the source for current fashionable footwear at great value. Foot in business is fast growing, featuring new and exciting store environments, trendy shoes and accessories designs at the right price. At brsent, your Company has 35 exclusive Foot in stores across the Country, which are strategically located to cater to the target group of young shoppers. Bubblegummers and Disney In order to cater to the children category of customers, your Company has been introducing many new designs and innovative footwear for the children. Through Bubblegummers brand of footwear, your Company has always been striving to make quality shoes with uncompromising comfort and features that safeguard their little feet. Bubblegummers is retailed through all Bata stores across the Country and has been the first point of contact to start our consumers' journey and long term association with Bata. With 18% of the Country's population below the age of 10 years, potential to grow in the children category of footwear is huge. Therefore, it is one of the key focus areas for your Company today. With a revamped collection, a dedicated team to drive this brand, experience of being associations with brands like Angry Birds in the past and Walt Disney at brsent, your Company has robust plans to make Bubblegummers the best children footwear brand in the Country. Your Company has established an association with The Walt Disney Company India Pvt. Ltd. and working with a set of designers from Disney, to create a complete collection covering all types of footwear ranging from casual shoes, canvas shoes and ballerinas to everyday-wear sandals and chappals. Your Company has been exploring the possibilities to create exclusive 'Disney Corners' in some of the key retail stores across major cities in India to highlight the collection and add value to the children category of footwear range. Your Company is confident that the young little customers will be excited and thrilled to see their favorite characters on their favorite shoes. Non-Retail Business Your Company's urban wholesale business has recorded a good growth in turnover and profitability during the year under review. The urban wholesale business of your Company has been penetrating the markets through a wide network of more than 325 distributors across India. Your Company offers various incentive / loyalty rewards to its existing and new distributors for promoting the Company's brands of footwear in the areas where the Company does not have retail brsence of its own. During the year under review, your Company has strengthened its urban wholesale business monitoring team and efforts are being made to increase its market share in the wholesale footwear business. During the year under review, your Company's Industrial business division has recorded a good growth in turnover and is now recognized as one of the foremost suppliers in the safety footwear market catering to the requirements of different industries in India. The division has expanded its coverage in the market and also continues to remain focused towards upgrading the market with newer technology products. The product range has been refreshed by launching new designs and new sole patterns as well as new PU-Rubber sole collection. Your Company provides more than 100,000 pairs of safety shoes for Indian Navy and other defence services. Your Company's Institutional business has recorded better results during the financial year ended March 31, 2016 as compared to the brvious financial period. The focus is to cater to segments like defense, aviation, education, corporate, etc. A new range for the healthcare segment has been launched with specialized footwear to be used in hospitals for doctors, nurses, front office staff, maintenance team, etc. Customer Care Initiatives Your Company has a dedicated customer care team with a toll free number to attend customer grievances and to resolve the same amicably. In the financial year 2014-15, your Company introduced a new initiative of customer loyalty program viz., 'The Bata Club'. During the year under review, this loyalty program has been introduced in more than 800 retail stores across 47 cities in India. Since its introduction, approx. 6.7 Million Club Memberships have already been added to 'The Bata Club'. These Club members are communicated on priority about various new marketing offers and promotions as and when planned by your Company. Several personalized offers have been customized for these 'The Bata Club' Members on the basis of their purchase behaviour and trends, e.g., Raksha Bandhan Campaign, Naturalizer product promotion, Pay less - Get more Offer, etc. Your Company aims to provide best in class support to its customers by addressing their queries and feedback through a dedicated helpdesk. (d) Outlook Despite a challenging retail environment and increase in competitive intensity, your Company continued to deliver steady improvement in its performance.. Your Company is taking appropriate steps to leverage its position to achieve good growth in terms of volumes and profitability. Your Company has been investing to strengthen its Digital Multi-Channel Business Division along with Logistics Division with due importance for delivery of footwear and accessories to the customers through 'delivery services', 'cash on delivery' and 'click and collect' services. India has a good potential for the footwear industry in view of rapid change in lifestyle, increase in disposable income of middle-class people and continuous growth in number of working women. Customers' brference for branded products is providing a better opportunity to the players in organized footwear markets in India. e) Risks and concerns Your Company through its Audit Committee and recently constituted Risk Management Committee monitors its major risks and concerns at regular intervals. Appropriate steps are taken in consultations with all concerned to mitigate such risks. In addition to the business risks, some of the major risks and concerns are summarized as under: i. Globally competitive business environment Ever increasing competition from local and overseas players in the footwear industry remains a major challenge for your Company. In addition to the above, your Company is concerned about the current sluggish retail growth and slow infrastructural development in India. Many of your Company's retail stores are large formats stores located in Malls. Increases in rental costs and high cost of raw materials may negatively impact business performance of your Company. In order to overcome these risks and concerns, your Company has taken appropriate measures, e.g., long term lease agreement for retail stores, alternative sources of raw materials, ensuring availability of skilled laborers, etc. Your Company believes such measures are adequate to mitigate the aforesaid risks and concerns. ii. Risk related to changes in law and regulations Your Company operates in a complex regulatory environment and fully abides by the laws and regulations of the Country it operates in. Any change in the laws and regulations governing the leather and footwear industry may affect the business and financial performance of your Company. iii. Contingent Liabilities involving Litigations During the normal course of its business operations, your Company has been subjected to several legal cases in connection with or incidental thereto. These litigations include civil cases, excise and customs related cases, etc. filed by and against the Company. These cases are being pursued with due importance and in consultation with legal experts in respective areas. Your Board believes that the outcome of these cases is unlikely to cause a materially adverse effect on the Company's profitability or business performance. Your Company has a Contingent Liability of Rs. 949.43 Million as on March 31, 2016 as compared to Rs. 767.15 Million as on March 31, 2015. Attention of the Shareholders is drawn to the explanations mentioned in point no. 31 of the Notes to Financial Statements as attached.. In view of the brsent status and based on legal advice received, your Board is of the opinion that no provision is required to be made against these Contingent Liabilities during the year under review. iv. Trade Unions related risks Your Company has several recognized Trade Unions and enjoys harmonious relationship with all its employees. During the year under review, your Company has entered into long term agreements with its Workers' Unions at Manufacturing Units. During the year, your Company successfully negotiated Long Term Settlements with the Workers' Union at Bataganj and with the Shop Employees' Union. The industrial relations at all the units of the Company have been harmonious and peaceful with active involvement of the employees in the collective bargaining process. (f) Internal Control Systems and their adequacy Your Company has an adequate system of internal controls commensurate with its size and scale of operations, to ensure that all assets of the Company are safeguarded and protected and that all transactions are authorized, recorded and reported appropriately. The Internal Audit Report and Risk Inventory Report are reviewed periodically by the Audit Committee of the Board of Directors. The Chief Internal Auditor is a permanent invitee to the Audit Committee Meetings. The Audit Committee advises on various risk mitigation exercises on a regular basis. Your Company has been maintaining a separate Internal Audit Team headed by the Chief Internal Auditor. (g) Discussion on financial performance Your Company has been able to achieve profitable growth continuously for a decade now and believes that this is sustainable, barring unforeseen circumstances. The Earning per Share (EPS) (Basic and Diluted) of your Company for the financial year ended March 31, 2016 was at Rs. 17.02. The EPS forthe fifteen month period ended March 31, 2015- the brvious financial year of the Company was Rs. 17.99. The EPS for the twelve month period ended March 31, 2015 was approx. Rs. 14.92. As informed through earlier Annual Reports, your Company does not have any Bank Borrowings since April-2010 and the entire capital expenditure has been funded through internal sources. Capital Expenditure incurred during the year under review amounted to Rs.794.41 Million as compared to Rs.1538.77 Million during the fifteen month period ended March 31, 2015. (h) Material developments in human resource / industrial relations front, including number of people employed Industrial Relations and Personnel Your Company has been continuously working to improve human resources skills, competencies and capabilities in the Company, which is critical to achieve results as per our strategic business ambitions. Some key initiatives have been taken in the year 2015-16 in this direction. These are summarized below: (i) Building up the best team in all functional areas During the year, your Company has hired over 25 middle and senior level Executives in various functional areas like Retail Operations, Non Retail and Merchandising. These professionals come with rich and varied domain experience within and across industries. Addition of these skills and competencies will address the gaps and take the Company towards further growth. (ii) Creating bench strength and building up capability for future growth Management Training Program Your Company has put in place a structured Management Training program for roles in Retail Operations, Merchandising and Product Design. As part of the program, the Company has recruited design and fashion professionals as well as Management Graduates from well-known Institutes. After a 12 month long training under the mentorship of experienced leaders, these Management Trainees are now ready for independent responsibilities. Your Company continues to recruit Summer Interns who worked on very specific business impact initiatives. (iii) Training and Development Retail Training Academy Your Company had set up a Retail Training Academy in February -2014. The Academy designs and delivers specialized courses for different roles like Sales Promoters, Store Managers, District Managers and Retail Managers. The courses have been designed to ensure combrhensive learning of Product as well as Business operations. In the year 2015-16 the Retail Training Academy trained: • 31 District Managers and Retail Managers under 13.5 weeks duration Advanced District Administration Professional Training (ADAPT) program • 109 Store Managers under 7.5 weeks duration Store Managers Advance Retail Training (SMART) program • 204 experienced Store Managers under a week long Fully Integrated Retail Store Training (FIRST) program Currently, the Academy conducts programs at Gurgaon, Bangalore, Kolkata and Mumbai. 'Passion to Serve' Training to Store Employees and Store Managers In order to improve customer experience at our Stores, your Company rolled out 'Passion to Serve' Program across Stores in key metro cities. The objective of the program is to retain and grow existing customers as well as attract new customers. The Store Managers and the Sales Promoters along with District Managers were trained in this two days' training session. The training was also followed by mystery shopping in order to assess the impact. As part of the program a career path was also laid out for a performing Sales Promoter. During the year, over 100 Store Managers and 1011 Sales Promoters were trained. Product Training Retail Training Academy (RTA) imparts in-store Product Category specific training program to Sales Promoters across stores. Currently three different programs namely Power Champs, Comfort Champs and Non-Footwear Products Champs are being conducted that covers all technologies and products available in the Stores. So far more than 300 Sales Promoters were trained under the Champs Training Program. This program helps Sales Promoters understand products, technologies and any special features thus acquiring the product specific selling skills. People employed As on March 31, 2016, there were 4,796 permanent employees on the rolls of your Company. CAUTIONARY STATEMENT Statements in the Management Discussion and Analysis Report describing the estimates, expectations or brdictions may be 'forward-looking statements' within the meaning of applicable laws and regulations. Actual results could differ materially from those exbrssed or implied. Important factors that would make a difference to the Company's operations include demand-supply conditions, raw material prices, changes in Government Regulations, tax regimes, economic developments within the Country and outside the Country and other factors such as litigation and labor negotiations. CORPORATE GOVERNANCE In compliance with the provisions of Regulation 34 of the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 read with Schedule V to the said Regulations, the Corporate Governance Report of your Company and a Certificate on Corporate Governance Compliance received from M/s. S. R. Batliboi & Co., LLP, Chartered Accountants, the Statutory Auditors of your Company, are annexed to this Annual Report. ACKNOWLEDGEMENTS Your Board acknowledges the support and co-operation received from all its stakeholders including our dear shareholders as well as regulatory authorities of the Central Government and all State Governments in India as they endeavour to create an enabling environment for industry and commerce to prosper. Your Board continues to remain thankful to Bata Shoe Organization for their continuous support, guidance and cooperation in conducting the business operations of the Company in India. Your Board wishes to place on record its deep apbrciation of the Independent Directors. All of them, despite their busy schedule and other exigencies, immensely contribute to the Company through their strategic guidance and valuable suggestions in improving the business performance of the Company. Your Board apbrciates the relentless effort of the Management Team lead by the Managing Director who steers the Company in achieving better performances year-on-year. Our employees are our biggest strength and we gratefully acknowledge their contribution to the Company in achieving its objectives to serve our customers. For and on behalf of the Board of Directors UDAY KHANNA Chairman (DIN:00079129) Place : Gurgaon Date : May 30, 2016 |