BDT : 317.00

Bangladesh Equities Corporate Update

BATA SHOE COMPANY (BANGLADESH) LTD

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PROFILE

a Bata Shoe Company (Bangladesh) Limited is a 70% owned subsidiary of

the Bata Shoe Company, the worlds largest footwear manufacturing and

marketing organization. Operations began in Bangladesh in 1962 prior to

independence with the company being incorporated in Bangladesh in 1972.

The company operates two manufacturing plants in Tongi and Dhamrai in

the outer regions of the Dhaka Division. The company produces

approximately 110,000 pairs of shoes per day and also has a modern

Tannery processing 5 million square feet of leather each year. The company

continues to be backed by sound management sourced from an experienced

pool of professionals within Bata Shoe Companys’ global network.

MARKET PROFILE

a The footwear market in Bangladesh s estimated to be around BDT 18bn

growing at approximately 18% to 20% each year with branded shoes among

the fastest growing segments. The demographics of the country present

obvious potential for sustained long term growth for footwear

manufacturers. Bata Shoe Company (Bangladesh) Ltd, the single largest

player in the sector has a market share of approximately 25.3% in terms

of value. The company’s largest organized competitor operating at the

upper end of the market is Apex Tannery, a listed local manufacturer with

75 stores producing high quality footwear exported to Italy with 25% of

its output sold locally. While Apex tannery is almost exclusively in leather,

Apex Adelchi and a few other Indian brands also compete in the same

space for share in both branded footwear as well as basic functional footwear.

MARKETING AND DISTRIBUTION

a We expect sustained growth in urban areas with demand for branded shoes

growing. Bata Shoe Bangladesh is the exclusive distributor for several brands

including Nike and Reebok sold at selected stores. Sales from these brands

amount to less than 5% of total sales but is recording strong growth.

Advertising campaigns have focused on increasing demand particularly in

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Yolan Seimonyolan@lbsbd.comyolan@jkstock.keells.com

March 2009

John Keells Stock Brokers (Pvt) Ltd

Company No. PV 89130, Glennie Street, Col. 2 Sri Lanka.

Tel: 941 244 6694/5,941 234 2066/7,

Fax: 941 2342 068Email: jkstock@keells.com

LankaBangla Securities Ltd

DSE Annex building (1st Floor)

9/E, Motijheel C/A, Dhaka-1000Bangladesh.

Tel: 880 29561868, 880 27174256880 27174315, 880 29570496

Fax: 880 29555384Email: lbsldhk@accesstel.net

BATA SHOE COMPANY (BANGLADESH) LIMITED

Share Price BDT

Ordinary Voting Shares

Free Float 30%

12 mth High/Low (BDT.)

Average Daily Volume (Shares)

Market Capitalisation (Voting) BDT. mn

Price Performance (%)

1 mth 6 mth 12 mth

DSI (1.03) (9.06) (11.19)

BATASHOE LIMITED (6.05) (18.03) 48.06

317.00

Issued Share Capital (Shares)

13,680,000

441.7 / 218.7

35,394

4,337

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Volume

Price

BATASHOEPRICE / VOLUME GRAPH

2005 3,062 207 15.11 16.43 20.99 5.81 37.31 54.60

2006 3,865 277 20.25 34.06 15.65 5.30 39.70 59.85

2007 4,550 325 23.75 17.26 13.35 5.27 41.50 60.13

2008E 5,510 393 28.74 21.05 11.03 4.96 42.00 63.88 2009E 6,059 455 33.27 15.74 9.53 4.39 44.00 72.14 2010E 7,045 546 39.93 20.03 7.94 3.64 44.00 87.08 2011E 8,192 655 47.88 19.91 6.62 2.88 44.00 109.96

NAV Per

Share

Financial

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Revenue

(BDT. Mn)

PAT

(BDT.mn)

EPS

(BDT)

EPS

Growth %PER (x) P/BV

Gross

Margin %

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the promotional campaigns for seasonal and festival products. Action taken

along with government authorities has also been successful in curtailing

the distribution of counterfeit products. Legal action has also been initiated

against offenders of Trade Marks, Copyrights and Designs. While focusing

on increasing volumes in traditional product lines consisting of Thongs,

Sandals and Summer Lines, the perception of the Bata brand has also

been elevated, with the introduction of a number of designer collections

for men, women and children. Internationally renowned brands such as

Claire, Hush Puppies, Schol, Bubble gummers, Sandak, Weinbrenner, Island,

Power and B’first have been introduced into Bangladesh.

a The companys distribution network includes both retail and wholesale

channels. The company has 240 retail sales outlets, as well as 420 wholesale

dealers and 566 Dealer Support program stores. The retail outlets are

segmented according to the profile of the different market segments and

include modern Bata City Stores along with other outlets such as Bata

Bazaar, Bata Super Stores and Bata Family Stores. The company is expected

to add an additional 22 retail stores in 2009 with a greater emphasis being

paid to the higher margin retail segment.

REVENUE GROWTH

a Volume growth in 2008 was stagnant affected partially by a slowdown in

business in the run up to the December general elections as well as a drop

in volumes due to a transition of wholesale dealers from credit to cash

only, which resulted in some wholesalers holding back on purchases. Revenue

growth was driven almost entirely by an increase in prices by an average

of 20% across its range of products. This resulted in a 2% increase in the

company’s market share in terms of value in 2008. Volumes among

wholesalers have picked up at the start of the year with revenue growth

expected at approximately 10% for 2009 with growth arising predominantly

from its retail segment.

MARGINS

a The increase in volumes of designer footwear in the company’s product

mix has resulted in a gradual increase in gross margins. Furthermore a

reduction in raw materials including PVC resin and chemicals is expected

to result in a further widening of gross margins to 44.0% in 2009. We

expect gross margins of 44% continue into 2010 and 2011 with the gradual

shift in the company’s product mix toward higher margin designer footwear

expected to continue. offsetting a rise in raw material costs.

a The company has also managed to improve its working capital cycle with

all wholesale sales being carried on a ‘cash only’ basis. The company suffered

a modest drop in volumes in 2008 with the change in policy, but volumes

have now picked up to normal levels. Therefore issues faced with receivables

are no longer present. The company does sell to the government, particularly

to the Navy, on a 45 day credit term amounting to approximately 10% of

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its revenue. The company has not experienced any delays to date in receiving

funds from the government.

Valuations

a Modest earnings growth of 16% is expected in 2009 amid tighter economic

condition revenue expected to be driven by a 4.5% increase in volume

and an expected average price increase of 6.5% across its product range.

Expected earnings per share of BDT 15.74 and BDT 20.03 for FY 09E

and FY10E correspond to a P/E ratio of 9.53x and 7.94x respectively.

The counter currently trades at a 31.3% discount to the market and a

47.9% discount to the sector.Income Statement 2004 2005 2006 2007 2008E 2009E 2010E 2011E

For the year ended 31st December BDT' mn BDT' mn BDT' mn BDT' mn BDT' mn BDT' mn BDT' mn BDT' mn

Turnover 2,599 3,062 3,865 4,550 5,510 6,059 7,045 8,192

Cost of Sales (1,557) (1,920) (2,331) (2,662) (3,196) (3,393) (3,945) (4,588)

Gross Profit 1,042 1,143 1,534 1,888 2,314 2,666 3,100 3,605

Admin. Selling and Distribution Expenses (756) (814) (1,138) (1,398) (1,768) (2,033) (2,338) (2,689)

286 329 396 491 546 633 762 916

Other Income 6 9 34 29 32 35 39 43

WPPF (15) (17) (21) (26) (29) (33) (40) (48)

Profit Before Tax 277 321 408 494 549 635 760 910

Tax Expense (103) (120) (134) (157) (151) (175) (209) (250)

Deferred Tax 3 5 3 (13) (5) (5) (5) (5)

Profit After Tax 177 207 277 325 393 455 546 655

Balance Sheet 2004 2005 2006 2007 2008E 2009E 2010E 2011E

As at 31st December BDT' mn BDT' mn BDT' mn BDT' mn BDT' mn BDT' mn BDT' mn BDT' mn

Property, Plant and Equipment 356 342 369 416 453 497 514 511

Capital Work in Progress 1 6 0 1

Deferred Tax Assets 12 15 3

357 360 384 420 453 497 514 511

Current Assets

Inventories 1,100 901 989 1,312 1,352 1,492 1,745 2,025

Accounts Receivable 271 190 116 40 48 53 62 72

Advances, deposits and prepayments 101 100 156 181 219 241 280 325

Cash and cash equivalents 122 317 402 300 474 495 592 841

1,594 1,507 1,663 1,832 2,093 2,281 2,679 3,263

Total Assets 1,951 1,867 2,047 2,252 2,545 2,777 3,192 3,774

Current Liabilities and Provisions

Bank overdraft 102

Creditors for goods 331 218 199 346 496 545 634 737

Creditors for expenses 216 249 308 337 408 449 522 607

Creditors for other finance 79 88 108 105 127 139 162 188

Provision for tax 328 360 392 411 406 429 464 505

Unpaid Dividend 64 64 73 90 90 90 90 90

1,120 979 1,080 1,289 1,526 1,653 1,872 2,127

Non Current Liabilities

Deferred Tax (7)

Deferred Liability 128 138 148 140 145 138 130 142

Finance Lease 4 2 0 -

125 140 148 140 145 138 130 142

Total Liabilities 1,245 1,120 1,228 1,429 1,671 1,791 2,002 2,269

Share Capital and Reserves

Share Capital 137 137 137 137 137 137 137 137

Reserves and Surplus 570 610 682 686 737 850 1,054 1,367

707 747 819 823 874 987 1,191 1,504

Total Capital and Liabilities 1,951 1,867 2,047 2,252 2,545 2,777 3,193 3,774

Cashflow Statement 2004 2005 2006 2007 2008E 2009E 2010E 2011E

As at 31st December BDT' mn BDT' mn BDT' mn BDT' mn BDT' mn BDT' mn BDT' mn BDT' mn

Cashflow from Operating activities 277 321 408 306 606 480 537 654

Cashflow from Investing activities

Acquistion of property, plant and equip. (29) (26) (64) (96) (95) (110) (90) (75)

Sale of property, plant & equip. 0 4 2 2

Interest received 20 15

(28) (22) (42) (78) (95) (110) (90) (75)

Cashflow from Financing activities

Bank Over Draft 102 (102)

Interest received 4 4

Repayment of finance lease (1) (6) (2) (2) 5 (7) (8) 12

Dividend distribution tax paid (18)

Dividend paid (167) (164) (197) (325) (342) (342) (342) (342)

(81) (268) (199) (326) (337) (349) (350) (330)

Net Cash during the year (149) 190 83 (102) 173 21 97 249

Operating net cash & cash equivalents 269 122 317 402 300 474 495 592

Effect of changes in forex rate 3 5 2 (0) - - - -

Closing net cash & cash equivalents 122 317 402 300 474 495 592 841

This document is published by LankaBangla Securities Ltd and John Keells Stock Brokers (Pvt) Ltd for the exclusive use of their clients. All information has been compiledfrom available documentation and LBSL's and JKSB’s own research material. Whilst all reasonable care has been taken to ensure the accuracy of the contents of thisdocument, neither LBSL or JKSB nor its employees can accept responsibility for any decisions made by investors based on information herein.