Initiating Coverage | 3 June 2013 Sector: Consumer

Bata India Bata India: All the right steps Page No. Summary ........................................................................ ................................ 3-4 Story in charts................................................................. ................................... 5 A foreign brand's success story in India ....................................... .................... 6 Massive restructuring - Bata's recipe for success .............................. .......... 7-8 Post restructuring, focus on aggressive growth ................................. ....... 9-10 Strong retail presence set to strengthen further ............................... ..... 11-12 Outsourcing, K Stores expansion to check employee cost ..................... 1316 Gross margin expansion on the cards ............................................ .......... 17-19 Strong brand, to scale up with focused branding ................................ ... 20-21 Indian footwear industry ....................................................... ................... 22-24 Global footwear industry ....................................................... ................... 25-26 Financial outlook .............................................................. ......................... 27-28 Valuation and view ............................................................. ............................. 29 Key risks ...................................................................... ...................................... 30 Management details ............................................................. ........................... 31 Financials and valuation ....................................................... .................... 32-33 3 June 2013

3 June 2013 Update | Sector: Consumer Bata India BSE SENSEX S&P CNX 19,610 5,939 CMP: INR811 TP:INR975 Buy Bloomberg BATA IN Equity Shares (m) 64.3 M.Cap. (INR b)/(USD b) 52.1/0.9 52-Week Range (INR) 989/688 1,6,12 Rel. Perf. (%) 5/-13/-29 Financial summary (INR b) Y/E December 2013E 2014E 2015E Sales 21.1 25.0 29.6 EBITDA 3.1 3.8 4.7 NP 2.0 2.5 3.2 EPS (INR) 30.7 39.0 49.2 EPS Gr. (%) 14.8 26.8 26.2 BV/Sh.(INR) 131.4 161.1 199.8 EV/Sales (x) 2.3 1.9 1.5 RoE (%) 25.6 26.7 27.3 RoCE (%) 37.8 39.3 40.1 Valuation P/E (x) 26.4 20.8 16.5 P/BV (x) 6.2 5.0 4.1 EV/EBITDA (x) 15.9 12.5 9.8 Divid. Yield (%) 0.9 1.0 1.1 Shareholding pattern (%) As on Mar-13 Dec-12 Mar-12 Promoter 52.01 52.01 52.01 Dom. Inst 10.24 10.19 14.02 Foreign 20.2 20.43 17.12 Others 17.56 17.37 16.85

Stock performance (1 year) All the right steps Expect strong earnings and growth visibility .....Restructuring leads to sales CAGR of 14.7% over CY05-12, with EBITDA and PA T growth of 47.6% and 51.6%. .....Focus on aggressive growth by expanding presence in Tier II, III cities and rural India. .....Outsourcing, K Stores expansion to contain employee cost; Margins set to in crease. .....Bata India (BATAIN) trades at a PE of 26.4x/20.8x/16.5x CY13E/14E/15E EPS. We value the stock at 25x CY14E EPS and arrive at a target price of INR975, with a Buy ra ting. Strong brand + aggressive store expansion to drive market share Backed by eight decades of operation, Bata enjoys strong brand equity in India and is the market leader with ~16% share in the organized footwear segment. It has a strong distribution network of 1,388 stores comprising of 250 MEP stores (Market Extension Programme), 450 K Stores, 31 exclusive Hush Puppies, 28 SIS stores, 10 exclusive Footin stores and balance being company-owned stores. It also serves the non-retail segment (institutional and defence through its urban wholesale division with 180 large distributors and 30,000 direct dealers spread across India. It plans to open 100 new large format stores (3,000 sq ft) every y ear over the next two years (75% to be K stores), which include adding 15-20 exclusi ve Hush Puppies stores and 10-15 Footin stores which will drive growth and market share gain. Focus on retail segment - the right strategy going forward Bata derives ~85% of revenue through retail networks, 14.2% from non-retail channels (dealers/institutional/industrial sales) and balance 0.8% through exports. Over the last six years, retail segment posted 20% CAGR, exports 5.6% and the wholesale business growing at 2.2% over CY06-12. Company realizes 40% of revenue from South India and the North, East and Western regions contribute 20% each. About 80-90% of the retail revenue is from Tier I and II cities, prese nting a huge opportunity to tap rural and semi-urban markets, which are mainly service d through dealer networks. Bata has been present in towns with a population of 500,000 and above and plans to expand to 400 plus cities, with a population of more than 100,000, to improve presence in Tier III and rural markets through the wholesale division. Increased contribution from women and child segment to drive growth To increase the contribution from women and child footwear segments, Bata

increased the display area for both segments across all stores, complimented by launching newer trendy designs under brands like Marie Claire, Hush Puppies, North Star etc. This improved the contribution of high margin women's segment from 25% in CY08 to ~35% in CY12. Also, to increase child segment contribution from 8-9% of sales to 12-13% over the next few years, it recently in-licensed th e Angry Birds trade mark from Rovio and is selling 10,000 pieces a week.

Bata India Premiumization to drive sales per store Company intends to increase sales per store by improving value mix with a focus on the high margin leather segment that includes accessories such as ladies bags, c aps, belts among others. With parent Bata Shoe Organization (BSO) enjoying 20% market share worldwide in the industrial shoes segment, Bata plans to leverage the expe rtise and technology in India for industrial and defence shoes. The defence sector req uires 12m footwear every year, which is supplied by unorganized players, thus providin g greater scope for an organized player like Bata. Company recently got a large or der from the Indian Air Force. Gross margin expansion on the cards To improve margins, Bata phased out INR69/pair rubber Hawaiians' (a low margin) and shifted to Sunshine range (INR199-399) with better margins. It increased foc us on high value products within the leather segment such as Hush Puppies (growing at 40%). Leather contribution is set to increase from 72% of sales in CY12 to 76% g oing forward, thereby improving margins. Bata's plans to increase contribution from accessories segment (60% gross margin) comprising of belts, ladies bag, wallets, caps from 5% in CY12 to 10% over few years. It launched a programme from FY13 to modernize three factories (Patna, Batanagar and Bangalore) over FY13-15, with a total capex of INR500m, and expects to improve gross margin by 500bp. Massive restructuring places Bata on a strong footing Bata scripted a successful turnaround story in 2005, post three consecutive year s of losses. Key initiatives were: 1) revamp of retail operations from CY05-12 by ope ning 718 new large format stores, remodeling of 296 stores and closure of 524 cash-dr ain stores, 2) extended working hours and keeping stores open on Sundays lead to sal es improvement, 3) drastic reduction in employee headcount (9,631 in CY05 to 5,162 in CY12) by providing voluntary retirement and option to move to K Stores format an d 4) outsourcing labor-intensive operations to prune costs. Valuation and view We estimate Bata's revenue would increase by ~17% and net profit by ~22.5% over CY12-15E. It has a strong balance sheet, with cash of INR1.9b and healthy return ratios of 27% RoE and 39% RoCE in CY12. With limited capex of INR2b over the nex

t three years, we believe the company will generate free cash flow in excess of IN R5.9b over CY13-15E. All these factors make a strong case for re-rating. At CMP of INR 811, Bata trades at a PE of 26.4x/20.8x/16.5x CY13E/14E/15E EPS. We value the stock a t 25x CY14E EPS and arrive at a target price of INR975, with a Buy rating. 3 June 2013

Bata India Story in charts All the right steps #1 Realization across segment on uptrend driven by price increases and change in product mix. #2 Increase in outsourcing to reduce employee cost percentage sales further. #3 Incremental demand in leather footwear to be met through outsourcing. #4 Increase in rubber segment outsourcing to improve margins going forward. #5 Focus to improve revenue/store to lead to operating leverage and better margins. #6 Outsourcing in volume terms expected to increase further, thereby improving margins. #1 Segment-wise realizations #2 Employee cost percentage sales to improve furthe r #3 Outsourcing in leather to continue going forward #4 Outsourcing in rubber and canvas to increase going forward #5 Revenue per store on an increasing trend (INR m) #6 Outsourcing v/s inhouse Source: Company/MOSL 3 June 2013

Bata India A foreign brand's success story in India Bata, a 51% subsidiary, is the largest company for BSO for sales pairs and the s econd largest in revenue (15% of BSO revenues). It has cornered ~16% market share in the organized sector and almost 99% of reve nue is from the domestic market, with exports accounting for the balance. Bata sells 50m pair of shoes every year serving 1.5lac customers everyday. Bata Shoe Organization (BSO) is a large shoemaker that traces its history back t o 1894 and a Czech cobbler named Tomas Bata. With more than 30,000 employees, 5,000 international retail stores and a presence in over 90 countries and five contine nts. Bata, a 51% subsidiary, is the largest company for BSO for sales pairs and the s econd largest in revenue (15% of BSO revenues). Company went public in 1973 and change d its name to Bata India Ltd. It has cornered ~16% market share in the organized s ector and almost 99% of revenue is from the domestic market, with exports accounting f or the balance. Company receives guidance and managerial support for its functions including purchase, manufacturing and training of managers from BSO for a techni cal fee of 1.5% of gross revenue. Bata India has a retail network of 1,388 stores spread across 500 cities, which gives it a reach/coverage that no other footwear company can match, and employs more than 7,000 people. Company also has 16 wholesale depots spread across the countr y, with more than 30,000 dealers. It sells more than 50m pairs of shoes every year and also serves 150,000 customers every day. Bata has the widest footwear retail net work in India, with 40% exposure in South India and 20% each in other three regions. Company has capacity to manufacture 64m pairs of shoes across five plants locate d at Batanagar, Faridabad, Bangalore, Patna and Hosur supported by two tanneries for leather supply in Bihar and West Bengal. Although global brands such as Adidas a nd Reebok are trying to catch up with India's young urban population, Bata figures as the first choice for footwear across India for all age groups. Bata's brands in India Bata sells a wide range of footwear in canvas, rubber, leather and plastic cater ing to masses. Company has licensed brands (Hush Puppies and Dr Scholl, licensed respectively from Wolverine Worldwide and Dr Scholl's) besides those of its pare nt

(Power, Marie Claire and Bubblegummers). It has also built brands like Weinbrenner, North Star, Bubblegummers, Ambassador , Comfit, Mocassino and Wind India. For the women's segment, Bata's popularity continues to grow with the trendy Marie Claire range. The youth focused brand No rth Star and specialty outdoor brand Weinbrenner present new trendy designs with an increased focus on casual styles. The new dress shoe collection under its famous Ambassador and Mocassino brands has seen significant demand. 3 June 2013

Bata India Massive restructuring - Bata's recipe for success Restructuring helps to post sales CAGR of 14.7% over CY05-12, with EBITDA and PAT growth of 47.6% and 51.6% A comprehensive revamp of retail operations by remodeling existing outlets and c losing down cash-drain stores. During CY05-12, Bata added 718 stores, closed down 524 a nd remodeled 296, thus taking the total count to 1,388 stores from 1,174 in CY05. Extended working hours from 10am to 9pm, instead of 10am to 7pm, and keeping sto res open on Sundays lead to sales improvement and better inventory management. Drastic reduction in employee headcount from 9,631 in CY05 to 5,162 in CY12. Outsourcing labor-intensive operations to prune costs. Extensive retail restructuring... As part of the retail restructuring plan of CY04, Bata opened new stores, remode led existing outlets and closed cash-drain stores to offer a graded choice of produc ts to diverse consumer segments. At the top were flagship stores situated in upmarket locations in metro cities, with a product line targeted at the higher income gro ups. The next in line, city stores, covering metros and mini-metros, cater to the nee ds of the middle and high income groups. In the third tier are family stores in high t raffic, commercial locations, displaying basic and middle range footwear. Retail structure Parameter Flagship stores City stores Family stores Location Metros Metros and mini metros Commercial locations, high traffic Target cus tomer s Higher income groups Fashion oriented upper Low to middle cla ss income groups middle class groups Product profile Top of the line brands, Targeted at buyers with Basic and middle range, mass product fashionable shoe line high aspirations Store design Air-conditioned, well Non air-conditioned Non air-conditioned with a commercial look appointed with an international look Source: Company, MOSL ...extended working hours lead to sales improvement and inventory management... Most Bata stores were closed on Sundays and functioned from 10am-7pm on weekdays. As buyers prefer to buy on a Sunday or post office hours on weekdays,

company lost on sales, which led to higher inventory build-up. Hence, it extende d the shopping hours and augmented its shoe line, including women and children's collection. These initiatives enabled Bata to revitalize the brand and establish as one of the largest footwear retail plays in India. complimented by mega store facelift led to turnaround During CY05-12, Bata added 718 stores, closed down 524 and remodeled 296, thus taking the total stores count to 1,388 from 1,174 in CY05. Hence, the share of r evenue from retail segment also increased from 67.3% in CY05 to 85% in CY12. The restru cturing helped it to post sales CAGR of 14.7% over CY05-12, with EBITDA and PAT growth o f 47.6% and 51.6% respectively. 3 June 2013

Bata India Revamping operations from CY05-CY09 CY05 CY06 CY07 CY08 CY09 CY10 CY11 CY12 No of stores 1,174 1,172 1,173 1,165 1,161 1,209 1,259 1,388 New stores 40 37 67 62 69 108 146 189 Closed 60 39 66 70 73 60 96 60 Remodelled 78 40 38 40 20 30 50 Source: Company, MOSL 3 June 2013

Bata India Post restructuring, focus on aggressive growth To expand presence in Tier II, III cities and rural India Bata has a strong distribution network of 1,388 stores comprising of 250 MEP sto res, 450 K Schemes, 31 exclusive Hush Puppies, 28 SIS, 10 exclusive Footin and balance be ing company-owned stores. Over the last three to four years, Bata focused to open large format stores with an international layout and size of 3,000 sq ft and close down stores with less tha n 1,000 sq ft area or turnover below INR5m. It plans 100 new large format stores (3,000 sq ft) every year over the next two years, which include adding 15-20 exclusive Hush Puppies and 10-15 Footin stores. Aroun d 7075% of new openings will be in K Stores format. Company realizes 40% of its revenue from South India, while the North, East and Western regions contribute 20% each. Large format stores - mantra for aggressive growth going forward With the company on a strong footing, we believe management plans to focus on aggressive growth. Over the last three to four years, Bata increased its focus t o open large format stores with international layout and a size of 3,000 sq ft and also close down shops with less than 1,000 sq ft area or turnover below INR5m. Over the las t four years, it closed smaller shops and relocated to a larger format in the same locality. We believe the large format stores will help display the shoe line collection ac ross segments and various brands. This not only helps to be a one-stop solution for b rands like Bata, Hush Puppies, Marie Claire, Ambassador, Power etc, but leads to effic ient inventory management. What are K Stores? K Stores denote commission stores. To encourage entrepreneurship, Bata introduce d K Stores two to three years ago. Under this scheme, existing employees are encou raged to become entrepreneurs by enrolling for franchisee operations. Company provides support for location, retail space, rent, furniture, stocks and promotional mate rials, while the agent bears all employee costs associated with it. In return, the K St ore

agent gets a commission of 7-8% depending on the turnover, which is much lower than the cost of employee for a company-owned store which stands at 10-12%, ther eby leading to ~200bp margin improvement. Of the 100 new store additions planned ove r next two years, management guided that 70-75% would be K Stores, which should help to improve margins. Strong distribution network Bata has 1,388 stores comprising of 250 MEPs, which is akin to the franchisee mo del where dealers buy from Bata on cash-and-carry basis and no inventory is owned by the company, 450 K Stores, 31 exclusive Hush Puppies, 28 SIS, 10 exclusive Footi n and the balance being company-owned stores. It also sells over 15m pair of shoes thr ough 16 depots and 150 large distributors, thus catering to more than 30,000 wholesal e dealers. 3 June 2013

Bata India to improve through aggressive store expansions Company plans to open 100 new stores every year over the next two years, which include adding 15-20 exclusive Hush Puppies and 10-15 Footin stores. Around 70-7 5% will be under K Stores format. Management guided that all new Bata stores will b e in the large format of 3,000 sq ft, with mapping of high street location to increas e market share. It also plans to open flagship stores of 1,000 sq ft in major metros and expand the concept, store-in-store for Hush Puppies and aggressively add Footin stores (significant success in Thailand) in the affordable fashion category targeted fo r youth. It will focus on footwear with price points of INR400-1,000 with new inventory e very three to four months, thereby improving asset turnover. Bata has a 10,000 sq ft store in Ahmedabad and Mumbai and plans to expand, going forward. These stores have a premium ambience, wide variety of footwear and accessories and elements like child play area. Company plans to open a 20,000 sq ft store in Mumbai and other metros, going forward. A 20,000 sq ft store in Dhaka (Bangladesh) is delivering annual revenue in excess of USD5m. To expand presence in Tier II, Tier III cities and rural India Bata increased brand penetration in smaller markets such as Ahmedabad, Coimbator e, Jaipur, Trichy, Lucknow, Ujjain, Dhanbad, Nagpur, Hubli and Patiala among others . So far it was present in towns with a population of 500,000 and above. Company plan s to expand to 400 plus cities with a population of more than 100,000 to improve pres ence in Tier III and rural markets through the wholesale division. This will not only improve penetration but also reduce rent cost as Tier II and III markets would have a lo wer rent compared to T ier I. Bata plans to penetrate smaller cities and rural marke ts through its dealer network, which is currently at over 30,000. Company realizes 40% of revenue from South India, while North, East and Western regions contribute 20 % each. 3 June 2013

Bata India Strong retail presence set to strengthen further Non-retail segment, a scalable business model Bata derives ~85% of its revenue through retail networks, 14.2% from non-retail channels (dealers/institutional/industrial sales) and the balance through exports. About 80-90% of the retail revenue is from Tier I and II cities, presenting a hu ge opportunity to tap rural and semi-urban markets, which are mainly serviced through dealer ne tworks. Plan to increase sales per store by improving value mix by focusing more on the highmargin leather segment that includes accessories such as ladies bags, caps and b elts among others. With BSO enjoying 20% market share worldwide in the industrial shoes segment, Ba ta plans to leverage on the expertise and technology in India for industrial and de fence shoes. Strong retail presence - a sustainable growth model Bata derives ~85% of its revenue through retail networks, 14.2% from non-retail channels (dealers/institutional/industrial sales) and balance through exports. A bout 80-90% of the retail revenue is generated from Tier I and II cities, presenting a huge opportunity to tap rural and semi urban markets, which are mainly serviced throu gh dealer networks. We believe with increased penetration in Tier II and III segmen ts, Bata will be able to grow in excess of 20% over the next three to four years in the retail segment, which contributes 85% to its revenue. Retail continues to drive growth Bata CY05 CY06 CY07 CY08 CY09 CY10 CY11 CY12 Retail 4,769 5,301 6,164 7,138 9,020 10,400 12,860 15,660 Exports 69 108 94 101 78 118 169 150 Wholesale 2,245 2,293 2,417 2,631 1,826 2,070 2,393 2,615 Total revenues 7,083 7,702 8,675 9,870 10,924 12,588 15,422 18,425 % of sales Retail 67.3 68.8 71.1 72.3 82.6 82.6 83.4 85.0 Exports 1.0 1.4 1.1 1.0 0.7 0.9 1.1 0.8 Wholesale 31.7 29.8 27.9 26.7 16.7 16.4 15.5 14.2 % growth Retail 11.2 16.3 15.8 26.4 15.3 23.7 21.8 Exports 56.5 -13.0 7.4 -23.1 51.5 43.9 -11.5 Wholesale 2.1 5.4 8.9 -30.6 13.3 15.6 9.3 Source: MOSL

Focus to increase sales per store to drive top line growth With plans to open 100 large format stores over CY13-14, the focus is to increas e revenue per store, going forward. Management expects to achieve it by improving the value mix of stores, with more focus on the high margin leather segment that includes accessories such as ladies bags, caps and belts among others. Company's thrust on Hush Puppies is a part of this strategy. Bata plans to increase the di splay of women and child footwear across all stores given these segments are growing at a faster rate. All these measures would lead to an increase in sales per store, th us driving growth and margins. 3 June 2013

Bata India Revenue per store on an increasing trend (INR m) Source: Company, MOSL Non-retail segment - scalable business model Bata's non-retail segment comprises of urban wholesale, industrial and safety, institutional sales and e- commerce. Urban wholesale: The division 0 large distributors, with more more than 49m pairs of shoes every plans to add more direct dealers in nd rural areas. sells over 15m pair of shoes through 16 depots, 18 than 30,000 dealers on pan India basis. Bata sells year and also serves 150,000 customers per day. It this segment to increase penetration in Tier III a

Industrial and safety segment: The division caters to industries like constructi on, steel, power etc, with special product features like impact and heat resistance, oil resistance and use of lightweight materials. With BSO enjoying 20% market share worldwide in the industrial shoes segment, Bata plans to leverage on the experti se and technology in India. A first time launch of a product with PU-rubber sole fo r chemicals and smelter industry in 1QCY13 has been well-received. Institutional sales: Institutional sales focus on the special requirements of de fense and paramilitary forces, hospitality, airlines, retail, construction, hospitals, mining and other industries. Based on the expertise and technical knowhow from BSO, Bat a has installed new machines at its Batanagar plant to manufacture safety footwear required by defence, mining and other industries. It recently got a large order from Indian Air Force. The defence sector requires 12m footwear a year, which is supp lied by unorganized players, thus providing greater scope for an organized player lik e Bata. Store level performance measurement Bata keeps a strict vigil on performance of each store. It sets a target of 10% PBT in the first year from a new large format store. The finance team meets the retail oper ations team on a monthly basis to determine the list of stores that consistently underp erform. A remedial plan is devised for such stores, which includes renegotiating with th e

concerned landlord for store rentals or reorganization of merchandise within the store. The store is kept under observation for a few months and is closed if the re is no satisfactory improvement. 3 June 2013

Bata India Outsourcing, K Stores expansion to check employee cost Expect capacity utilization to fall but margins to increase With employee expenses up to 25.6% of sales in CY05, Bata took the twin steps to rationalize costs by closing certain businesses which were more labor-intensive and increase outsourcing. Employee headcount was pruned from 9,631 in CY05 to 5,162 in CY12 by providing V RS, translating to significant savings in employee cost from 25.6% in CY05 to 10.6% in CY12. Launch of K Stores 3.5 years ago for ex-Bata employees helped to reduce employee cost as a K Store agent is paid 6-8% of turnover as commission, compared to 11-12% of sales as employee cost if taken by the company on its books, thus leading to a saving of 300bp. Contribution from outsourcing increased from 23.2% of sales and 46.7% of cost of goods sold (COGS) in CY05 to 32.7% and 69.4% in CY12. This mix is likely to improve as incremental demand going forward will be met through outsourcing, thus improving margins. Employee cost to remain under check A key cost component for footwear manufacturers is employee cost, given the labo rintensive nature of the business. With employee expenses mounting to 25.6% of sales in CY05, management took the twin steps to rationalize costs. Company clos ed certain lines of business which were more labor-intensive and had limited scope for automation and began to outsource them. It outsourced labor-intensive lines of operation such as cutting, threading and stitching, and only critical manufactur ing processes were retained in-house, including leather selection, sole manufacture, design, cutting and finishing. The jobs retained by Bata were machine work and l ess labor-intensive. To facilitate these changes, management offered a VRS to affect ed blue collar and white collar employees. Hence, the headcount was pruned from 9,6 31 in CY05 to 5,162 in CY12, translating to significant savings in employee cost, w hich reduced to 10.6% in CY12. Focus to open more K Stores to reduce employee cost To reduce employee cost further, Bata is setting up more outlets in the form of K Stores since the past 3.5 years. Given that a K Store agent is paid 6-8% of turn

over as commission, compared to 11-12% of sales as employee cost if taken by Bata on its books, the savings on this count can improve margin by ~2% per K Store. Hence, we expect employee cost to further reduce from 10.6% of sales in CY12 to 9.4% in CY15E as outsourcing as a percentage of sales increases and management's guidance to open 70-75% of 100 large format stores over the next two years in K format stores. 3 June 2013

Bata India Reduction in employee count Expect further improvement in employee cost % of sal es Source: Company, MOSL Increase presence through online sales To improve customer service, company introduced home delivery of shoes. Customer s can now place orders for any footwear which they are unable to find in a store a nd get it home delivered at no extra cost. Bata derives less than 1% of its sales onlin e. Company recently tied up with online portals like Jabong, Snapdeal, India Times, Rediff, Junglee, etc., to attract potential customers online. etc. Any significa nt increase in the contribution of online sales will lead to meaningful improvement in margi ns due to negligible cost, as compared to sales through retail stores. Outsourcing - a key fitness mantra Outsourcing of certain manufacturing operations has been a key component of Bata 's business reorganization strategy. As mentioned earlier, outsourcing increased significantly from 23.2% of sales and 46.7% of COGS in CY05 to 32.7% and 69.4% i n CY12. We expect outsourcing to increase significantly, thereby lowering the cost of production and improving margins. From CY05, it outsourced labor-intensive jobs and retained machine operation, thus utilizing installed capacity to the fullest . This implies the incremental increase in volume was met through outsourcing. Outsourced percentage of total volumes sold on an increasing trend Source: Company, MOSL 3 June 2013

Bata India Outsourcing as a percentage of sales for leather increased from 23% in CY05 to 4 5% in CY11, while outsourced proportion for rubber and canvas increased from 9% in CY0 5 to 59% in CY11 in volume terms. Bata outsources 100% of its plastic footwear and accessories requirements. The strategy going forward is to raise outsourcing of cheaper items such as rubber, canvas and plastic footwear and manufacture high value-add ed leather footwear in-house. Hence, we expect capacity utilization to further redu ce across segments as most employees will shift to K Stores format, albeit leading to higher margins. Company guided that with the likely opening of 100 stores every year, the increm ental demand for footwear will be met through increased outsourcing across segments. We believe this move will not only help Bata to increase margins but also focus on its brand strategy and improve the mix of women and child segment. Falling capacity utilization suggests increase in outsourcing CY01 CY02 CY03 CY04 CY05 CY06 CY07 CY08 CY09 CY10 CY11 Installed capacity (m pairs) Leather and other footwear 20.3 20.3 20.3 20.3 20.3 20.3 20.3 20.3 20.3 20.3 20. 3 Rubber and canvas footwear 42.5 42.5 42.5 42.5 42.5 42.5 42.5 42.5 42.5 42.5 42. 5 Finished Leather from hides 1.6 1.6 1.6 1.6 1.6 1.6 1.6 1.6 1.6 1.6 1.6 Total installed capacity 64.4 64.4 64.4 64.4 64.4 64.4 64.4 64.4 64.4 64.4 64.4 Production (m pairs) Leather and other footwear 10.7 11.8 10.8 9.6 10.6 9.5 9.3 9.5 13.5 14.4 13.6 Rubber and canvas footwear 20.2 24.9 21.7 20.9 20.5 16.8 16.4 15.7 12.6 8.0 6.6 Finished Leather from hides 0.8 0.8 0.6 0.5 0.5 0.3 0.3 0.2 0.2 0.1 0.1 Total production 31.7 37.5 33.2 31.0 31.6 26.6 25.9 25.4 26.3 22.6 20.3 Capacity utilization (%) Leather and other footwear 52.9 58.2 53.3 47.2 52.1 46.8 45.9 46.7 66.9 71.0 67. 0 Rubber and canvas footwear 47.6 58.6 51.1 49.3 48.3 39.6 38.5 36.9 29.6 18.9 15. 6 Finished Leather from hides 48.7 47.7 39.8 33.1 30.0 20.3 16.8 14.4 11.5 8.1 6.9 Total 49.3 58.2 51.5 48.2 49.1 41.4 40.3 39.4 40.9 35.0 31.6 Quantative details (m pairs) Rubber/Canvas Footwear Opening 7.9 6.2 7.0 6.2 5.6 6.0 6.1 5.6 4.9 5.1 5.0 Purchase 8.9 2.5 0.2 1.8 2.5 0.1 3.2 2.6 4.2 7.7 9.6 Production 20.2 24.9 21.7 20.9 20.5 16.8 16.4 15.7 12.6 8.0 6.6 Sales 30.9 26.7 22.8 20.3 22.6 16.9 20.0 19.0 16.6 15.8 16.2 Closing Stock 6.2 7.0 6.2 8.6 6.0 6.1 5.6 4.9 5.1 5.0 5.1 Leather & Leather Look alike Footwear Opening 6.9 5.9 8.7 10.1 8.1 9.4 9.1 10.1 8.2 8.0 7.5 Purchase 4.9 4.6 9.0 6.2 4.4 5.9 6.4 6.8 5.9 8.8 12.2 Production 10.7 11.8 10.8 9.6 10.6 9.5 9.3 9.5 13.5 14.4 13.6

Sales 16.6 13.7 18.4 20.8 13.7 15.7 14.7 18.2 19.6 23.7 24.6 Closing Stock 5.9 8.7 10.1 5.1 9.4 9.1 10.1 8.2 8.0 7.5 8.7 Plastic Footwear Opening 2.1 2.1 2.4 2.0 2.4 2.5 2.0 2.8 2.3 2.4 2.2 Purchase 12.2 12.2 10.5 10.4 10.6 10.3 9.7 9.8 9.4 8.6 7.3 Sales 12.2 11.9 10.9 10.0 10.6 10.7 9.0 10.3 9.3 8.8 8.1 Closing Stock 2.1 2.4 2.0 2.4 2.5 2.0 2.8 2.3 2.4 2.2 1.4 Source: Company, MOSL 3 June 2013

Bata India Segment-wise outsourcing contribution (m pairs) CY01 CY02 CY03 CY04 CY05 CY06 CY07 CY08 CY09 CY10 CY11 Leather Opening stock 6.9 5.9 8.7 10.1 8.1 9.4 9.1 10.1 8.2 8.0 7.5 Add :- Purchases 4.9 4.6 9.0 6.2 4.4 5.9 6.4 6.8 5.9 8.8 12.2 Less :- Closing stock 5.9 8.7 10.1 5.1 9.4 9.1 10.1 8.2 8.0 7.5 8.7 Total purchase of traded goods (Leather) 5.9 1.9 7.6 11.2 3.1 6.2 5.4 8.7 6.0 9. 3 11.0 Leather sales 16.6 13.7 18.4 20.8 13.7 15.7 14.7 18.2 19.6 23.7 24.6 Outsourced (%) 35 14 41 54 23 40 37 48 31 39 45 Rubber and canvas Opening stock 7.9 6.2 7.0 6.2 5.6 6.0 6.1 5.6 4.9 5.1 5.0 Add :- Purchases 8.9 2.5 0.2 1.8 2.5 0.1 3.2 2.6 4.2 7.7 9.6 Less :- Closing stock 6.2 7.0 6.2 8.6 6.0 6.1 5.6 4.9 5.1 5.0 5.1 Total purchase of traded goods 10.6 1.8 1.0 -0.7 2.0 0.1 3.6 3.3 4.0 7.7 9.5 (rubber and canvas) Rubber and canvas sales 30.9 26.7 22.8 20.3 22.6 16.9 20.0 19.0 16.6 15.8 16.2 Outsourced (%) 34 7 5 -3 9 0 18 18 24 49 59 Plastic Opening stock 2.1 2.1 2.4 2.0 2.4 2.5 2.0 2.8 2.3 2.4 2.2 Add :- Purchases 12.2 12.2 10.5 10.4 10.6 10.3 9.7 9.8 9.4 8.6 7.3 Less :- Closing stock 2.1 2.4 2.0 2.4 2.5 2.0 2.8 2.3 2.4 2.2 1.4 Total purchase of traded goods 12.2 11.9 10.9 10.0 10.6 10.7 9.0 10.3 9.3 8.8 8. 1 Plastic sales 12.2 11.9 10.9 10.0 10.6 10.7 9.0 10.3 9.3 8.8 8.1 Outsourced (%) 100 100 100 100 100 100 100 100 100 100 100 Source: Company, MOSL Outsourcing in leather to continue going forward (m pairs) Outsourcing in rubber , canvas to rise going forward (m pairs) Source: Company, MOSL 3 June 2013

Bata India Gross margin expansion on the cards Betting big on women and child segment To increase the contribution from women and children footwear segment, Bata enha nced the display area at all stores and launched trendy designs under various brands. Thus, women's segment contribution rose from 25% in CY08 to ~35% in CY12. It increased focus on high-value products in the leather segment with a thrust o n Hush Puppies (growing at 40%), thereby improving its mix from 62.8% of sales in CY05 to 72% in CY12. The mix is likely to improve to 76% of sales, thus improving margins. Bata plans to increase the contribution from accessories (belts, ladies bag, wal lets, caps) segment from 5% in CY12 to 10% over the next few years. Accessories segment has the highest gross margin of 60%, with 100% outsourcing model. Company launched a programme from FY13 to modernize three factories (Patna, Bata nagar and Bangalore) over FY13-15, with a total capex of INR500m. This is likely to im prove gross margin by 500bp, according to the management. Betting big on women and child segment The women's category is largely unorganized in India. As per industry data, clos e to 86% is unorganized, compared to the organized global nature of the segment. Thus , seizing the opportunity and with BSO's technical expertise, Bata over the last f our years improved its designs and collections. To increase the contribution from wo men and child footwear segment, it enhanced the display area for the segment across all stores and launched trendy designs under brands like Marie Claire, Hush Puppies, North Star etc. Management stated that the designs/collections for women at its Indian stores match those at its stores in Singapore, Thailand or the US. Revenue break-up - CY12 Source: Company, MOSL These measures improved the contribution of high margin women's segment from 25% in CY08 to ~35% in CY12. To increase the contribution from children's segmen t from 8-10% of sales to 12-13% over the next few years, Bata recently in-licensed the Angry Birds trade mark from Rovio, which is selling 10,000 pairs a week. The col lection

is an assortment of rubber thongs, slippers range along with school shoes and so cks. Management expects the women and child segment to grow at a faster pace (25%30% growth) than men's footwear, thereby increasing gross margin. 3 June 2013

Bata India Lower margin products discontinued... In CY05, ~65.4% of volumes was driven by low margin rubber/canvas and plastic footwear segment, mainly low value slippers, where lower price point was the mai n driver for demand compared to brand pull. Thus, realization within rubber/canvas and plastic stood at INR86 and INR96 respectively in CY05, compared to INR309 fo r leather footwear. Company phased out the INR69/pair rubber Hawaiians', where it incurred a small loss and shifted to the Sunshine range (INR199-399) with colorf ul designs. Now, these account for better margins and are sold throughout the year, compared to earlier monsoon sales. Segment-wise realizations (INR/per pair) Source: Company, MOSL ...Focus on premiumization Post CY05, however, Bata focused to increase the share of higher value products. The leather segment had higher margins, compared to rubber/canvas and plastic segmen t. Within leather segment, thrust was on Hush Puppies (growing at 40%), thereby improving its mix from 34.5% of total volumes and 62.8% in value in CY05 to 55.1 % and 72% respectively in CY12. We expect the mix to improve to 74% of revenue in CY15 E, thus increasing gross margin. Increase in mix of high value leather segment Plastic segment gross margin Source: Company, MOSL 3 June 2013

Bata India Greater focus on high margin accessories segment Over the last three years, Bata focused to increase the proportion of revenue fr om accessories segment. This segment has the highest gross margin of 60%, with 100% outsourcing model. Revenue pie for accessories (belts, ladies bag, wallets, caps ) increased from 2.7% in CY05 to 5% in CY12. We expect revenue from accessories to increase to 7.5% by CY15E, thus driving gross margin. Management plans to increa se the share of non-footwear segment from 5% in CY12 to 10% over the next few years . Benefit from plant modernization - icing on the cake The technology in Bata's factories is relatively obsolete and hence it makes hig her gross margin through outsourced manufacturing, compared to in-house. Company launched a programme from FY13 to modernize three factories over FY13-15, with a total capex of INR500m. In the first year, it will focus on the Patna facility, Batanagar in West Bengal (sports wear and sandals) in the second year, and lastly Bangalore ( school shoes, Hush Puppies). Under the modernization programme the company has plans to install state of art plant and machinery and plans to improve throughput and productivity and hence, management expects overall gross margin to improve by 500bp over the next three years. Global support gives an edge over peers Bata has seamless access to the benefits of technical research and innovative programmes of BSO from the Global Footwear Services for which it paid a fee of INR179m during CY12. Company continues to receive guidance and managerial suppor t for functions, including store layout, marketing, shoe line, upgradation of fact ories, training of managers and guidance from senior-most managers of the group. The technical collaboration, which expired on December 31, 2010, has been renewed fo r 10 years. GST, a game changer As per the Financial Budget 2012, the rate of excise duty has been increased to 12%. The concessional rate of excise at 5% for footwear with retail price exceeding I NR250 and up to INR750 per pair has been withdrawn and the abatement has been reduced from 40% to 35%. The effective rate is one of the highest and puts the footwear industry almost at par with luxury goods and products where the government expec ts to curb consumption, such as tobacco. Footwear industry is paying maximum taxes amounting to 24% (excise 8%, VAT 13% (average) and service tax and others 3%). W e

believe with the introduction of Goods and Services Tax (GST) (both central and state), overall cost will decline to 16-18% and result in significant savings. 3 June 2013

Bata India Strong brand, to scale up with focused branding Presence across price points to hedge against recessionary environment Backed by eight decades of operation, Bata enjoys strong brand equity in India a nd is the market leader with ~16% share in the organized footwear segment. Company's ad spends as percentage of sales fell from 1.7% in CY08 to 0.8% in CY1 2. However, to increase brand recall and educate consumers on the new offerings, it has hired DDB Mudra for advertisement and marketing initiatives. Bata is present across price points starting INR199 to INR7,000. With a presence across price points and brands, we believe Bata is hedged against the risk of down-trad ing in a recessionary environment. Strong brand franchise and market leader Backed by eight decades of operation, Bata enjoys strong brand equity in India a nd is the market leader with ~16% share in the organized footwear segment. Due to a business restructuring, it lost market share over the last few years. However, w ith the company on a strong footing and focus on aggressive growth, we believe it is poi sed to gain a significant market share, going forward. Focus on advertisement to enhance brand pull Bata traditionally advertised through local stores, and as it was well-known, di d not advertise nationally. Ad spends as a percentage of sales declined from 1.8% in C Y08 to 0.9% in CY12. To increase brand recall and educate consumers on the new offering s, company has hired DDB Mudra for advertisement and marketing initiatives. Bata pl ans to do a prime time television, radio and print campaign in 2HCY13 and expects to spend ~1.5-2% of sales on advertisements, going forward. Ad spends as percentage of sales to increase (INR m) Source: Company, MOSL Presence across price points to hedge against recessionary environment With the growth of premium segment, Indian footwear market, that traditionally h as been price driven, is slowly evolving into a quality and fashion conscious indus try. Bata straddles at both ends of this spectrum and in between (comfort and value-t opremium). Among them, it covers all metros, mini metros and every town with a population of half a million or more. Company sells footwear from price points o

f INR199-7,000. We believe the presence across price points and brands hedges it a gainst the risk of down-trading in a recessionary environment. 3 June 2013

Bata India Portfolio pyramid Source: Company, MOSL Improvement in inventory days to improve working capital going forward Bata over the years has been focusing to improve its working capital days, espec ially on the inventory front. It had increased stores timings on weekdays and also on Sundays, thereby leading to an increase in footfalls. Currently, company has a w ell organized logistics team at Gurgaon which controls the distribution process and ensures that footwear of the right size is available at the right time and place across the country. Due to these, inventory days improved from 266 in CY08 to 179 in CY12. To support and deliver growth projections, company is strengthening its supply c hain through restructuring and consolidation of the regional distribution centre spac e, introduction of modern infrastructure and new technologies, reduction in product transit lead-times and faster and more frequent deliveries to stores. We expect an improvement in the distribution process through greater use of technology inputs to track the changes in consumer tastes, preferences and shopping trends. Bata has already restructured five regional distribution centers (RDCs) and expects benef its of the same going forward, thus leading to an improvement in inventory days by additional 15 days. Cashing out of real estate to focus on core business Bata had a cumulative 309 acres of land in Batanagar, Kolkata. It transferred th e excess 262 acres to a special purpose vehicle (SPV) called Riverbank Developers Pvt Ltd (RDPL) to build an integrated township. SPV was owned equally by Bata and Calcutta Metropolitan Group (CMGL). In 1QCY10, company restructured the agreements with revised terms for development of the modern integrated township at Batanagar to ensure faster development of the project and maintain its focus only on core bus iness. The revision was completed in 1QCY11 and as part of the restructuring, Bata sold its investment and rights in the joint development agreement and made a gain of INR1.09b. Also, it would receive 0.324m sq ft (~160 flats) from the JV amounting to ~INR1.3-1.5b. We have not factored any gain from real estate in our target price . 3 June 2013

Bata India Indian footwear industry Per capita consumption of footwear in India on the rise According to Assocham, the Indian footwear industry is pegged at INR240b and is expected to reach ~INR387b by 2015, marking a CAGR of 17.3% over CY12-15. While Indian footwear industry is dominated by men's segment comprising of 55%, women at 30% and child at 15% respectively, globally women's segment comprises of 60% of the overall market. Women's footwear market in Indian remains mostly untapped, with nearly 80-90% sa les in the unorganized market, thus providing huge opportunity for organized players like Bata. The men's segment is growing at 10-12%, while women and child segments are incre asing at 20% per annum. According to Assocham, the Indian footwear industry is pegged at INR240b and is expected to reach ~INR387b by 2015, marking a CAGR of 17.3% over CY12-15. Online shoe shopping is a significant segment that is fast emerging and accounts for ~8 % of the overall industry and is expected to reach ~20% by 2015. Globally, women's se gment comprises of 60% of the overall footwear market, and the Indian footwear industr y is dominated by men's segment comprising of 55%, women at 30% and child at 15% respectively. Women's footwear market in Indian remains mostly untapped with 809 0% sales being in the unorganized market, with a focus on colors and designs than o n comfort and durability. Women's footwear segment growing at a faster rate than men The men's segment is growing at 10-12%, while women and child segments are growi ng at 20% per annum. Thus, share of men's footwear is likely to decline to 48% and women and child footwear segments' contribution is likely to increase to 35% and 17% respectively. Casuals comprise of 60% of the footwear market, with the balan ce contributed by sports, formal and semi formal footwear. Average annual spend on men's footwear higher than women As per Images-AC Neilson study, the average annual spending on men's footwear is ~INR2,300 (with 29% of the household spend on an average or below INR1,000 and

another 36% of the purchases are in the range of INR1,001-2,000). Average annual spending on women footwear is ~INR1,300 (with more than 50% of purchases at or below INR1,000 and another 40% of purchases in the range of INR1,001-2,000). Indian footwear market is categorized in Economy - prices below INR750 (USD17), Value - prices between INR750 and INR1,500 (USD17-34), Premium - prices between INR1,500 and INR3,000 (USD34-70), Super Premium - prices more than INR3,000 (USD 70 and above). The share of Economy and Value segments up to INR1,500 (USD34) is ~INR230b (USD5.1b). 3 June 2013

Bata India Per capita consumption of footwear in India on the rise India is the world's second largest footwear producing country, second to China and the third largest market. Even though the per capita shoe consumption in India h as risen from 1.4 pairs a year in 2004 to 2.5 pairs per year in 2012, it is still m uch below the average per capita pair consumption of 5.5 in developed countries. With increasi ng consumption, growing popularity of online shopping, higher affordability and ris ing income level, per capita footwear consumption is expected to rise to 3.5 from th e present 2.5 by FY15E. Driven by larger penetration to Tier II and III cities and a growing rural marke t, various premium footwear brands are foraying into India's non-metro markets that hold growth potential and account for ~55% of the overall footwear industry. With cha nging lifestyles and increasing affluence, domestic demand for footwear in Tier II and III is expected to grow at a faster pace than urban India. In the non-leather footwear segment, there is huge demand for slippers as it is cheap, convenient and suits the needs of rural consumer as it can be used as multi purp ose footwear. Rural India accounts for ~60% of slippers manufactured in the Indian f ootwear market. Organized v/s unorganized footwear Total retail market size Note: Assumed currency rate at INR50/USD for 2010 and INR55/USD for 2012 and 2015. Source: Assocham, MOSL Share of verticals in overall and organized retail Total retail FY12 Organized retail FY12 Verticals Market size share Market size share (INR b) (%) (INR b) (%) Food and grocery 16,342 66.2 390 2.4 Apparel 2,727 11.1 563 20.6 Consumer durables, mobile and IT 1,358 5.5 320 23.6 home dcor and furnishing 1,014 4.1 60 5.9 beauty , personal and healthcare 1,238 5.0 160 12.9 Pharmacy 298 1.2 30 10.1 Jewellery, watches and e ye care 940 3.8 130 13.8 Footwear 605 2.5 98 16.2 Books and music 149 0.6 16 10.7 Total 24,671 1,767 Source: CSO, NSSO, Assocham 3 June 2013

Bata India Organized footwear retailing, comprises e the industry growth rate on account of : 1) Tier I and II cities where consumption power sly growing women and child sections (women respectively). With rising urbanization 16% of the industry, is growing at doubl growing presence of organized players in remains high, 2) expanding and continuou at 40% and child 10% of industry and better education levels among women,

there has been a marked increase in women workforce, thus creating demand for branded footwear, 3) rising online shopping (8% of industry at INR20b) among 2035 age group. Market leaders Bata and Relaxo are even looking at opening dedicated stores for women/children in the future. Bata's e-commerce business is less than 1% of its total revenue, which it intends to grow faster. Company recently tied up with online portals like Jabong, Snapdeal, India Times, Rediff, Junglee etc to attrac t potential customers online. Segment-wise breakup of footwear industry Geographical-wise contribution to foot wear industry Source: Company, MOSL Transforming from manual to automated manufacturing systems The footwear sector has matured from the level of manual manufacturing methods to automated systems. Many units are equipped with in-house design studios incorporating state-of-the-art CAD systems having 3D shoe design packages that a re intuitive and easy to use. Many Indian factories have also acquired the ISO 9000 , ISO 14000 and SA 8000 certifications. 3 June 2013

Bata India Global footwear industry Asia continues to be the powerhouse of footwear industry The global footwear market was worth ~USD182.2b in 2011 and is expected to reach USD223.6b in 2015, clocking a CAGR of 5% from 2011 to 2015. Worldwide production of footwear reached 21b pairs in 2011, with India's share p egged ~13%. Asia pacific region holds ~42% of overall market share in value terms. The worldwide production of footwear reached 21b pairs in 2011, with India's sha re pegged ~13%. Asia continues to be the powerhouse of footwear industry, with an overall share close to 90%. Seven Asian countries figure among the world's top 1 0 producers, a list in which China's leadership is undisputable. Brazil is the onl y nonAsian country among the top five producers. China is the world's largest market for footwear in terms of quantity, closely followed by the US and India. Low cost of production, abundant availability of raw material, ever evolving retail ecosyste m, buying patterns and a huge consumption market are certain basic features that se t apart the Indian footwear market. According to Assocham, the global footwear mar ket was worth ~USD182.2b in 2011 and is expected to reach USD223.6b in 2015 (USD211. 5b in 2018), clocking a CAGR of 5% from 2011 to 2015. Asia pacific region holds ~42 % of the overall market share in value terms. Global footwear market share breakup production-wise Global footwear market share breakup consumption-wise Source: World footwear year book 2012 3 June 2013

Bata India World share percentage of top 10 countries in production World share percentage of top 10 countries in consumption of of footwear footwear Source: World footwear yearbook 2102, MOSL 3 June 2013

Bata India Financial outlook Top line to post 17% CAGR over CY12-15E We estimate Bata's sales will increase from ~INR18.4b in CY12 to INR29.6b by CY1 5E, a CAGR of 17%, primarily driven by strong growth in women, children and accessorie s segment. Also, retail (contributes 85% to revenue) has been posting a CAGR of 20 % over CY06-12 and is likely to grow at 20% over CY13-15E primarily driven by 100 new large format stores addition. Revenue growth trend (INR m) Source: Company, MOSL Margins to improve going forward We assume Bata's EBITDA will increase from ~INR2.7b in CY12 to INR4.74b by CY15E , a CAGR of 20%. We expect margins to improve from 14.9% in CY12 to 16% in CY15E primarily driven by an increase in value-added products in favor of high-end lea ther products, increased share of higher margin women, child and accessories segment, increase in outsourcing as a percentage of revenue and modernization of plants. EBITDA margins set to improve going forward (INR m) Source: Company, MOSL PAT CAGR of 22.5% over CY12-15E Given top line of 17% CAGR over CY12-15E driven by 100bp margin expansion, we expect PAT to post 22.5% CAGR over CY12-15E. We also expect depreciation and int erest to remain subdued as the company focuses on outsourcing model and generates free cash flow of INR5.7b over CY13-15E. 3 June 2013

Bata India PAT growth to be higher driven by better margins (INR m) Source: Company, MOSL Bata India: 1-year going forward P/E Bata India: 1-year going forward P/BV Source: Company, MOSL 3 June 2013

Bata India Valuation and view We estimate Bata's revenue would increase by 17% and net profit by 22.5% over CY 1315E. Given the strong brand with 16% market share in the organized footwear market, strong distribution network, focus on aggressive growth, improvement in margin profile, transformation into fashion footwear retailer, we believe Bata has stro ng earnings and growth visibility. It has a strong balance sheet, with cash of INR1 .9b and healthy return ratios of 27.1% RoE and 39.3% ROCE in CY12. With limited capex of INR2b over CY13-15E, we believe the company will ss of INR5.9b over CY13-15E. All these factors make t CMP of INR810, Bata trades at a PE of 26.4x/20.8x/16.5x stock at 25x CY14E EPS and arrive at a target price of Key assumptions Sales (Volumes) CY06 CY07 CY08 CY09 CY10 CY11 CY12 CY13E CY14E CY15E Leather and other footwear 15.7 14.7 18.2 19.6 23.7 24.6 27.0 28.9 31.6 34.5 Rubber and canvas footwear 16.9 20.0 19.0 16.6 15.8 16.2 15.0 14.3 13.9 13.5 Plastic footwear 10.7 9.0 10.3 9.3 8.8 8.1 7.0 6.3 6.0 5.8 Total 43.3 43.7 47.5 45.5 48.3 48.8 49.0 49.4 51.5 53.9 Volume Growth (%) Leather and other footwear -2.7 -6.4 23.6 7.7 20.9 3.6 10.0 7.0 9.5 9.0 Rubber and canvas footwear -16.0 18.6 -5.0 -12.6 -5.1 2.5 -7.2 -5.0 -2.5 -2.5 Plastic footwear 1.5 -16.4 14.7 -9.4 -5.6 -8.2 -13.3 -10.0 -5.0 -2.5 Total -7.5 0.9 8.7 -4.1 6.0 1.1 0.4 0.9 4.2 4.6 Realization (INR/Pair) Leather and other footwear 318 363 355 382 377 444 500 550 605 666 Rubber and canvas footwear 103 119 124 138 153 186 218 229 252 277 Plastic footwear 91 100 100 108 116 138 148 157 166 176 Average 178 197 207 237 256 308 363 407 459 515 Realization Growth (%) Leather and other footwear 2.8 14.4 -2.3 7.7 -1.3 17.7 12.7 10.0 10.0 10.0 Rubber and canvas footwear 19.0 15.5 4.5 11.5 10.3 22.0 17.1 5.0 10.0 10.0 Plastic footwear -1.4 10.3 0.0 7.7 7.9 19.0 7.0 6.0 6.0 6.0 Average 8.1 11.0 5.1 14.3 8.1 20.2 18.1 12.1 12.6 12.2 Gross sales (INR m) Leather and other footwear 4,992 5,345 6,454 7,486 8,933 10,891 13,500 15,890 19 ,139 22,948 Rubber and canvas footwear 1,736 2,378 2,360 2,300 2,406 3,008 3,270 3,262 3,498 3,752 Plastic footwear 974 897 1,029 1,004 1,023 1,117 1,036 988 995 1,029 Accessories, Garments & Others 214 253 233 313 393 619 938 1,313 1,773 2,304 Sale -Sundry Store/R.M./Scrap 16 20 34 15 13 11 14 18 22 28 Income from Repair Shop/Chiro. 16 14 13 9 2 0 1 1 1 1 Total gross sales 7,948 8,908 10,123 11,126 12,771 15,646 18,759 21,471 25,428 3 0,061 Growth (%) Leather and other footwear 0.0 7.1 20.8 16.0 19.3 21.9 24.0 17.7 20.5 19.9 Rubber and canvas footwear 0.0 37.0 -0.8 -2.6 4.6 25.0 8.7 -0.2 7.3 7.3 Plastic footwear 0.0 -7.8 14.7 -2.5 1.9 9.2 -7.3 -4.6 0.7 3.3 generate free cash flow in exce a strong case for re- rating. A CY13E/14E/15E EPS. We value the INR975, with a Buy rating.

Accessories,Garments & Others 0.0 18.5 -7.8 34.1 25.7 57.4 51.5 40.0 35.0 30.0 Total top line growth 0.0 12.1 13.6 9.9 14.8 22.5 19.9 14.5 18.4 18.2 3 June 2013

Bata India Key risks Volatility in raw material prices Hide skin, leather and chemicals are key inputs for footwear and play an importa nt role in its pricing. Any sharp increase in raw material prices might affect marg ins in the short term as it is passed on with a lag period of two to three months. Availability of skilled labor Footwear industry is labor-intensive and involves manual work to carry out stitc hing, fitting, finishing, stamping etc. The organized footwear industry is growing at a robust 20% and may fall short of skilled labor with more than 30% of the workforce comp rising of women. Slowdown in economy Any significant slowdown in the economy is likely to affect Bata's growth prospe cts. But in case of any down-trading in the industry, it should not materially affect due to its presence across price points. Increased competitive intensity The Indian organized footwear industry faces stiff competition from unorganized players, especially in the mass segment. There will also be competition from cou ntries like China, Indonesia, Thailand, Vietnam and Brazil as products are more competi tive compared with India. Increase in lease rentals Lease rentals form 9% of the company's revenue and have posted a CAGR of 30% ove r CY05-10. Within the retail vertical, the main distribution channel, steep escala tion in lease rentals can erode margins and also deter new store roll-outs, thus affecti ng revenue growth and operating leverage. Sparx litigation BSO owns the Sparx footwear brand, which is available in 27 countries. Bata regi stered the brand in India in 1978 but never used it. Relaxo Footwear started using the Sparx brand since 2004-05 and since then has been making continued investments in it. Of late, Bata started to sell footwear under the Sparx brand at its outlets. Relaxo moved

court in 2009 on Bata's rights on Sparx and the outcome is still pending. Sparx brand's contribution to revenue is very low for Bata and hence the impact would be insignificant if the court's verdict goes in favor of Relaxo. 3 June 2013

Bata India Management details Mr Uday Khanna - Chairman & Independent Director Mr Uday Khanna is currently the President of the Bombay Chamber of Commerce & Industry and non-executive Chairman of Lafarge India and Bata India. He also ser ves on the boards of Castrol India Ltd, Pfizer Ltd and Coromandel International Ltd. Mr Khanna was the Managing Director & CEO of Lafarge India from July 1, 2005 to Jul y 2011. Mr Rajeev Gopalakrishnan - Managing Director He joined Bata Shoe Organization (BSO) in 1990 and has since been associated til l date. Mr Gopalakrishnan has an experience of 22 years in retail/wholesale and ru nning company operations and has been the Director - Wholesale Channels, Sales & Marketing with Bata International - Canada and Vice-President of Bata India in R etail Operations and Wholesale Division. Prior to that he was working as the Managing Director of Bata Bangladesh for a year and before that as Managing Director for Bata Thailand for three years when he turned around the company to a healthy position . Mr Ranjit Mathur - Director Finance Mr Ranjit Mathur is a finance professional with over 19 years of experience. Mos t of his experience has been with Unilever, where the last position he held was of Ca tegory Finance Director for Foods in Asia and Africa based out of South Africa. Before joining Bata India, Mr Mathur was the Head of Finance at Dow Corning in India. Mr Jack G. N. Clemons - Non-Executive Director Mr Jack Clemons is the Group Chief Executive Officer (CEO) of Bata Shoe Organiza tion (BSO). Mr Clemons joined Bata in 2006 and served for a number of years as Group Chief F inancial Officer (CFO) and President of Bata brands. Mr Clemons has live d and worked in Europe, Asia, North America and Australia and currently teaches strate gic finance and corporate governance at various European Business Schools, including EPFL and HEC Geneva. Mr Jorge Carbajal - Non-Executive Director Mr Jorge Carbajal is the President of Bata Emerging Markets (BEM), responsible f or the overall business operations in Asia, Africa and Latin America regions. He ha s held

various senior positions in different Bata companies in Latin America starting w ith Chief F inance Officer and Group F inance Officer (Mexico, Bolivia & Ecuador) an d in Asia Pacific regions (Sri Lanka and Malaysia as Managing Director). 3 June 2013

Bata India Financials and Valuation Consolidated - Income Statement (INR Million) Y/E December CY11 CY12 CY13E CY14E CY15E Net Sales 15,422 18,425 21,149 25,047 29,611 Change (%) 22.5 19.5 14.8 18.4 18.2 Total Expenditure 13,040 15,675 18,040 21,207 24,873 EBITDA 2,382 2,750 3,109 3,840 4,738 Margin (%) 15.4 14.9 14.7 15.3 16.0 Depreciation 412 514 571 619 672 EBIT 1,969 2,236 2,538 3,221 4,066 Int. and Finance Charges 103 10 8 7 5 Other Income - Rec. 1,654 301 376 470 587 PBT bef. EO Exp. 3,520 2,526 2,905 3,684 4,648 PBT after EO Exp. 3,520 2,526 2,905 3,684 4,648 Current Tax 967 907 930 1,179 1,487 Deferred Tax -31 -101 0 0 0 Tax Rate (%) 26.6 31.9 32.0 32.0 32.0 Reported PAT 2,584 1,721 1,976 2,505 3,160 PAT Adj for EO items 2,584 1,721 1,976 2,505 3,160 Change (%) 189.2 -33.4 14.8 26.8 26.2 Net Profit 2,584 1,721 1,976 2,505 3,160 No of fully diluted sh. (Mn - FV: INR10) 64.3 64.3 64.3 64.3 64.3 Adj EPS 40.2 26.8 30.7 39.0 49.2 E quit y Di vi d e n d 386 386 450 514 578 Corporate Dividend Tax 62 62 72 82 93 Corp Div Tax (%) 16.0 16.0 16.0 16.0 16.0 Dividend per Share 6 6 7 8 9 Total Div Payout (INR m) 447.1 447.1 521.8 596.4 670.9 Payout (%) 17.3 26.0 26.4 23.8 21.2 Consolidated - Income Statement (INR Million) Y/E December Equity Share Capital To ta l Res e r ves Net Worth Total Loans Capital Employed CY11 643 5,083 5,725 194 5,919 CY12 643 6,348 6,990 0 6,990 CY13E 643 7,802 8,444 0 8,444 CY14E 643

9,710 10,353 0 10,353 CY15E 643 12,200 12,843 0 12,843 Gross Block Less: Accum. Deprn. Net Fixed Assets Capital WIP 5,028 2,817 2,211 81 5,636 3,202 2,434 181 6,136 3,773 2,363 127 6,886 4,392 2,495 150 7,636 5,063 2,573 178 3 June 2013 Curr. Assets, Loans&Adv. 7,203 Inventory 3,913 Account Receivables 314 Cash and Bank Balance 1,240 Loans and Advances 1,736 Curr. Liability & Prov. 3,917 Account Payables 2,588 Provisions 1,329 Net Current Assets 3,285 Appl. of Funds 5,919 E: MOSL Estimates; * Adjusted for treasury stocks 8,236 4,621 449 1,877 1,289 4,305 3,507 798 3,931 6,990 9,857 5,022 579 2,712

1,543 4,346 3,780 566 5,510 8,444 12,199 5,714 618 4,021 1,847 4,935 4,285 650 7,264 10,353 15,421 6,531 730 5,775 2,385 5,773 5,038 735 9,648 12,843 32

Bata India Financials and Valuation Ratios Y/E December CY11 Basic (INR) * EPS 40.2 Cash EPS 46.6 BV/Share 89.1 DPS 6.0 Payout (%) 17.3 Valuation (x) * P/E Cash P/E P/BV EV/Sales EV/EBITDA Dividend Yield (%) Return Ratios (%) RoE 53.5 RoCE 68.3 Working Capital Ratios Asset Turnover (x) 2.6 Inventory (Days) 92.6 Debtor (Days) 7 Leverage Ratio (x) Current Ratio 1.8 Debt/Equity 0.0 * Adjusted for treasury stocks Consolidated - Cash Flow Statement Y/E December CY11 Net Profit / (Loss) Before Tax 3,525 Depreciation 412 Interest & Finance Charges 16 Direct Taxes Paid -908 (Inc)/Dec in WC -1,421 CF from Operations 1,624 EO Expense -1,427 CF from Operating incl EO 197 (inc)/dec in FA -764 (Pur)/Sale of Investments 200 Others 615 CF from Investments 51 Interest Paid -14 Dividend Paid -256 Others -163 CF from Fin. Activity -398 Inc/Dec of Cash -149 Add: Beginning Balance 1,389 Closing Balance 1,239 CY12 26.8 34.8 108.8 6.0 26.0 30.3

23.3 7.5 2.7 18.3 0.7 27.1 39.3 2.6 91.5 9 1.9 0.0 CY12 2,526 514 10 -788 -441 1,822 23 1,845 -833 -540 91 -1,282 -10 -446 531 75 637 1,240 1,877 CY13E 30.7 39.6 131.4 7.0 26.4 26.4 20.5 6.2 2.3 15.9 0.9 25.6 37.8 2.5 86.7 10 2.3 0.0 CY13E 2,905 571 8 -930 -744 1,811 0 1,811

-446 0 0 -446 -8 -522 0 -530 836 1,877 2,712 CY14E CY15E 39.0 49.2 48.6 59.6 161.1 199.8 8.0 9.0 23.8 21.2 20.8 16.5 16.7 13.6 5.0 4.1 1.9 1.6 12.5 9.8 1.0 1.1 26.7 27.3 39.3 40.1 2.4 2.3 83.3 80.5 9 9 2.5 2.7 0.0 0.0 (INR Million) CY14E CY15E 3,684 4,648 619 672 7 5 -1,179 -1,487 -445 -630 2,685 3,208 0 0 2,685 3,208 -773 -777 0 0 0 0 -773 -777 -7 -5 -596 -671 0 0 -603 -676 1,309 1,754 2,712 4,021 4,021 5,775 3 June 2013 33

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