Bata India

The Directors have pleasure to present the 75th Annual Report of your
 Company covering the operating and financial performance for the year
 ended December 31, 2007.
 
 During the year, your Company achieved an important milestone of
 completing 75 years of service to the Indian consumer which has enabled
 it to earn the love and respect of Indians, both urban and rural, rich
 and poor, through provisions of quality products at fair prices at
 easily accessible outlets in every part of the country. Your Directors
 wish to acknowledge that this success is the result of lot of hard work
 and dedication by people involved in the operations of the Company and
 the trust and confidence of investors, banks, financial institutions
 and continued support and guidance from Central and State Governments.
 
 FINANCIAL REVIEW:
 
                                                  2007          2006
                                              (in Rs 000)  (in Rs 000)
 
 Turnover                                       8,907,886    7,948,220
 Less: Excise Duty                                233,052      246,167
 Net Turnover                                   8,674,834    7,702,053
 Other Income                                     130,163      271,566
                                                8,804,997    7,973,619
 Profit / (Loss) before Depreciation & Tax        711,607      627,996
 Less : Depreciation                              160,107      136,174
 Profit / (Loss) before Taxation                  551,500      491,822
 Provision for Taxation :
 -   Current Tax                                   50,944       77,310
 -   Deferred Tax-(Net credit)                    (20,320)       --
 -   Fringe Benefit Tax                            10,000       13,000
 Profit after Taxation & Before Prior Period 
 Items                                            510,876      401,512
 -   Prior Period Items                            36,436        --
 Net Profit                                       474,440      401,512
 Available for Appropriation                      875,952      401,512
 
 DIVIDEND
 
 The Directors have recommended a dividend of 15% on equity shares with
 an additional dividend of 5% to celebrate 75 years of BATA in India,
 aggregating to a total dividend of 20%.
 
 OPERATIONS
 
 The sustained restructuring and re-engineering initiatives adopted by
 the management in the last four years, have yielded positive results
 reconfirming / reinforcing the Companys belief that it is on a
 sustainable growth and profit path.  The Board would like to thank its
 shareholders, its bankers, suppliers, employees and associates for
 their full support and confidence in the initiatives taken by the
 Management, during these difficult times. All the sustainable growth
 for the Company, will translate into better profits, hopefully enhance
 share price, and greater market capitalization.
 
 One of the very significant achievement of the Company, in 2007, is the
 successful retail restructuring. Your Directors hope that our
 shareholders have been noticing the improved service from our
 modernized / new stores, making us more competitive and in a position
 to serve our customers better.
 
 Your Company has achieved a net turnover of Rs.8,674.8 million in 2007
 as compared to Rs.7,702.0 million in 2006, which is a growth of 12.6%.
 
 The results of the year 2007 reflect the sustainability of the
 Companys turnaround which began in 2004 with restructuring efforts &
 subsequent innovation (in product and retail formats), both of which
 still continue. The Company has made a Profit before tax of Rs.551.5
 Million in the year 2007. Profits of 2006 included Rs.171.3 million one
 time exceptional item.  Without considering the exceptional item of
 2006, the increase in Profit before tax for the year 2007 is 72.1% over
 the previous year. The increase is attributable to stricter cost
 control, improved product mix, new shoe designs, renovation of existing
 stores, consolidation & specialization of factories and continued
 transformation of the wholesale business.
 
 All these improvements were possible, as a result of the following new
 initiatives taken by the management during the year in addition to the
 other initiatives which had begun in the earlier years:
 
 * Retail Restructuring.
 
 * Franchisee model has been introduced in all the new stores.
 
 * Staff cost has reduced (20.6% of turnover in 2007 against 23.3% of
 turnover in 2006) and the retail business has been focusing on
 continued flexibility through restructuring measures taken by the
 management.
 
 * Cash Drain Stores have been reduced to 74 in 2007 against 140 in
 2006.
 
 * The wholesale business has started generating higher EBIT, 4.04%
 (2007) against 1.72% (2006).
 
 * The credit has been restricted to a maximum of 45 days sales.
 
 * Creation of three independent distribution channels in the wholesale
 business: (1) Urban (2) Institutional / Safety (3) Branding.
 
 * Focus on distributors who have the requisite capability of powering
 growth.
 
 * Specializing production in factories.
 
 * Building a strong team of dedicated employees through in-house and
 outside the Company training, besides recruiting high caliber
 personnel.
 
 The Company continues its endeavour to strengthen its relationships and
 gain confidence and trust of the Banks, credit rating agencies,
 investors, shareholders, suppliers and employees.
 
 The management is also focusing on improving performance by renovating
 existing stores, which were not renovated for the last several years,
 and aggressive retail expansion. This will enable the Company to grow
 faster than the industry.
 
 AWARDS AND RECOGNITION
 
 Your Company has won the following Awards in 2007 which signifies the
 strong perception and preference of its brand vis a vis other competing
 brands.
 
 The Awards won by the Company in 2007 are as follows :-
 
 Award                                      Date
 
 AMITY Corporate Excellence          21st February, 2008
 Award 2008
 IMAGES Retail Award                 6th September 2007
 Outstanding Sales Awards            17th - 19th May 2007
 Super Brands Award                  12th April 2007
 Lycra Images Fashion Awards         25th January 2007
 
 Details
 
 This award has been given for Batas excellent performance and retail
 growth during 2007. This award has been given after extensive research
 and is backed by information available from primary and secondary
 sources and it has been awarded by an eminent panel of judges.
 
 Bata received the countrys most coveted Retail Award at the 4th IMAGES
 Retail Awards (IRA) 2007.
 
 This award was given by Wolverine World Wide, for increase of sales by
 21% of Hush Puppies Brands during 2006.
 
 Bata has been rated as one of the Top Ten Super Brands in India. Super
 brand signifies the recognition that the consumer is giving to the
 Brand Image, Brand Value and Brand Delivery. The award ceremony was
 held in Mumbai by Superbrands.
 
 Bata was honoured with Most Admired Brand of the year in Footwear
 Category Year 2006-07.
 
 RETAIL
 
 Retail business during the year increased by Rs. 862.9 million, i.e. by
 14%. Retail business has grown mainly due to the following measures
 taken by the management on an ongoing basis :
 
 * Improvement in shoeline including Ladies Fashion Lines.
 
 * Renovation of the existing stores and opening of new stores.
 
 * Focus on Customer Service.
 
 * Continuing to maximize sale of value for money products.
 
 * Extending Shopping hours.
 
 * Improving communication with customers and employees.
 
 WHOLESALE
 
 The Wholesale business has shown a considerable improvement and the
 margins in this business are gradually increasing. The Company is
 concentrating its Wholesale business with only the top 300 wholesalers
 who are in a position to carry on business on commercial terms
 introduced by the Company in 2005. Business with wholesalers who have
 defaulted in paying the Company have been curtailed or totally stopped.
 With the introduction of better shoelines which will give improved
 margins to the Company, the wholesale business will gradually improve
 in the years ahead.
 
 EXPORT
 
 Export Sales in 2007 were Rs. 94.1million compared to Rs.108.2 million
 in 2006. The Companys focus is on exports which yield profits which
 are the same or better than the domestic market.
 
 LOGISTICS
 
 The Company has a well organized Logistics Team at Gurgaon which
 controls the distribution process and ensures that footwear of the
 right size is available at the right place at the right time to
 consumers all over the country. The Companys endeavour is to keep
 improving its distribution taking into account the rapid changes in
 consumer preference and shopping practices through greater use of IT
 inputs.
 
 CAPITAL EXPENDITURE
 
 The Capital Expenditure incurred during the year amounted to Rs. 273.0
 million as against Rs. 170.9 million in 2006. The increase in capital
 expenditure was due to opening a number of new stores and modernization
 of old stores. Capital Expenditure has also been incurred for
 machinery, moulds and information technology.
 
 INDUSTRIAL RELATIONS AND PERSONNEL
 
 The Industrial Relations in the factories were peaceful and cordial
 during 2007.  
 
 In the new fiercely competitive business environment nothing endures
 but change. Only those companies which change fast internally and
 externally will survive as winners.
 
 Your company is facing immense competition from imported footwear,
 particularly from China, organized domestic manufacturers and the
 unorganized sector. The restructuring of the Retail operations of the
 Company last year has given the Company more flexibility to carry on
 its business driven by market environment such as keeping many shops
 open for longer hours and on all days wherever permissible. Concept of
 productivity has been introduced in the retail stores. Manpower
 rationalization has been completed thereby optimizing cost in the
 stores.
 
 To develop the culture of entrepreneurship, the Company has encouraged
 existing employees to take the new stores as a franchisee.  Most of the
 new stores have been given to our existing employees.
 
 Long Term Agreements have been arrived at with the unions at Bataganj
 and Southcan manufacturing units with emphasis on productivity and
 flexibility in operations.
 
 The Company has continued to improve the performance of its employees
 through various training and development programmes conducted in India
 and abroad.
 
 Information in terms of Section 217 ( 2A) of the Companies Act, 1956
 read with Companies ( Particulars of Employees) Rules 1975 is set out
 in an Annexure to this Report.
 
 FINANCE
 
 Bank borrowings at the year end 2007 are Rs.450.7 million against
 Rs.560.8 million for the corresponding period in the year 2006.  This
 is a significant reduction and reflects the Companys improved
 management of its financial resources.
 
 R&D ACTIVITIES AND ENERGY CONSERVATION
 
 The Company continued R&D activities during the year in the key areas
 of product, process, material development, footwear moulds, leather and
 tannery technology with emphasis on creating a pollution-free work
 environment. Total expenditure incurred on R & D was Rs.19.25 million
 during the year.
 
 The company continues to pursue energy conservation measures.
 
 STATUTORY AUDITORS
 
 The Auditors of the Company Messrs. S R Batliboi & Co., Chartered
 Accountants, Kolkata retire at the ensuing Annual General Meeting of
 the Company and have given their consent for re-appointment. The
 Company has also received a Certificate from them under Section
 224(1-B) of the Companies Act, 1956.
 
 COST AUDITORS
 
 In compliance with the Central Government Order your Board has
 appointed Messrs. Mani & Co.-, Cost Accountants to carry out the Cost
 Audit of the Company in respect of Footwear. This appointment has to be
 made in each financial year and an application has been forwarded to
 the Centred Government to renew the appointment for the current
 financial year.
 
 DIRECTORS
 
 In accordance with the provisions of the Companies Act, 1956 and the
 Articles of your Company, Mr. P. M. Sinha and Mr.  R. Rizzo, Directors
 of the Company, retire by rotation at the ensuing Annual General
 Meeting of the Company and being eligible offer themselves for
 re-appointment to the Board of your Company.
 
 Mr M K Sharma was appointed as an Additional Director on the Board of
 your Company with effect from January 24, 2008. The Company has
 received a notice in writing from a Member of the Company under Section
 257 of the Companies Act, 1956 signifying his intention to propose the
 appointment of Mr M K Sharma as a Director of the Company.
 
 BATANAGAR PROJECT
 
 Your Company is developing around 262 acres of its surplus land at
 Batanagar. For the purpose of developing this land a Special Purpose
 Vehicle named Riverbank Holdings Private Limited (RHPL) has been
 created which is a 50:50 joint venture between your Company and
 Calcutta Metropolitan Group Limited (CMGL).
 
 In order to capitalize on the positive investment climate a strategic
 equity partner, viz. Saffron Assets Advisors (SAA) has been inducted
 with 50% stake for the development of IT SEZ over a land area of 25
 acres for a sum of Rs. 1176.0 M. This infusion of equity will largely
 help ease out the burden on financing, mortgage, for our entire Real
 Estate Project.
 
 Consequently, the development of 262 acres has been split into two
 parts, IT SEZ for 25 acres to be developed by RHPL and the rest of the
 development of 237 acres, will be done by a new Company, Riverbank
 Developers Pvt. Ltd. (RDPL).
 
 For accomplishing this new arrangement steps have been taken by RHPL to
 alter its Memorandum and Articles of Association and to also increase
 its Paid Up Share Capital by inducting Yatra which is managed by
 Saffron Assets Advisors and the Fund operates in the name of K2A
 Commercial.
 
 After all the above re-structuring your Company and CMGL will hold the
 equity of RDPL on 50:50 basis and RDPL and K2A Commercial will hold the
 equity in RHPL (IT SEZ) on 50:50 basis.
 
 The development of Batanagar Township has won the prestigious CNBC
 International Property Award 2008 (Asia- Pacific) :-
 
 - Best Development Category in India : The Princep, Calcutta Riverside
 
 - Best Golf Development Category : Golf Green, Calcutta Riverside.
 
 DIRECTORS RESPONSIBILITY STATEMENT PURSUANT TO SECTION 217 (2AA) OF
 THE COMPANIES ACT, 1956.
 
 The Directors hereby confirm :-
 
 i) that in the preparation of the annual accounts, the applicable
 accounting standards had been followed along with proper explanation
 relating to material departures;
 
 ii) that the Directors had selected such accounting policies and
 applied them consistently and made judgments and estimates that are
 reasonable and prudent so as to give a true and fair view of the state
 of affairs of the Company at the end of the financial year and of the
 profit or loss of the Company for that period ;
 
 iii) that the Directors had taken proper and sufficient care for the
 maintenance of adequate accounting records in accordance with the
 provisions of this Act for safeguarding the assets of the Company and
 for preventing and detecting fraud and other irregularities;
 
 iv) that the Directors had prepared the Annual Accounts on a going
 concern basis.
 
 SUBSIDIARY COMPANIES
 
 As required under Sec 212 of the Companies Act, 1956, the Audited
 Balance Sheet and Profit & Loss Account along with the respective
 Reports of the Board of Directors and the Auditors thereon of the
 subsidiary companies for the year ended 31 December 2007 are attached.
 
 CORPORATE GOVERNANCE
 
 The Company believes that Corporate Governance is a way of business
 life than legal compulsion. The Company is committed to the application
 of best management practices, compliance with law, adherence to ethical
 standards and discharge of social responsibilities.
 
 Corporate Governance Report as well as Corporate Governance Compliance
 Certificate are provided as separate Annexures to this Report.
 
 MANAGEMENT RESPONSE TO AUDITORS COMMENTS & QUALIFICATIONS MADE IN THE
 AUDITORS REPORT
 
 In response to the Audit qualification mentioned in the Annual Report -
 2007, the Company has since collected the required information under
 the Micro, Small and Medium Enterprises Development Act, 2006, and
 there is no liability on account of this any longer.
 
 MANAGEMENT DISCUSSION AND ANALYSIS REPORT :-
 
 INDUSTRY STRUCTURE AND DEVELOPMENT 
 
 The Indian Footwear market is estimated to be about Rs. 10,000 crore in
 value terms and is growing at the rate of 10 per cent annually. Mens
 footwear accounts for almost half of the total market with womens
 shoes constituting 40 per cent and kids footwear making up for the
 remainder.
 
 India is the second largest footwear manufacturer in the world next
 only to China. Nearly 58 per cent of the industry, which is by and
 large labour intensive and concentrated in the small and cottage
 industry sectors, remains unbranded.  However, as part of its effort to
 play a lead role in the global trade, the Indian Leather Industry is
 now focusing on key deliverables of innovative designs,
 state-of-the-art production technology and unfailing delivery
 schedules.
 
 OPPORTUNITIES AND THREATS
 
 The footwear retailing in India has remained largely focused on Mens
 shoes. There exists a huge opportunity in the exclusive Ladies and
 Kids footwear segments with no organized retailing chain having a
 national presence in either of these categories. It is expected that in
 line with the global trends, women segment has a good opportunity to
 grow. Of the total footwear market, Ladies shoes accounts for almost 40
 per cent and the unorganized sector controlling a major portion of this
 market, indicating that there is a significant marketing opportunity
 for the organized players in this segment.
 
 With increasing number of educated working women joining the workforce
 they are becoming increasingly brand conscious which will ultimately
 bring in more and more internationally renowned players to the Indian
 market. Further, given Indias sizeable young population, the market
 for childrens footwear is yet to be fully explored. Your Company has
 taken note of these opportunities and we will be filling this need-gap
 to capitalize on the emerging opportunities in the organized Retail
 segment. With the emergence of a wealthier middle class who are fashion
 conscious, there will be a demand in the sports and casual wear
 segments, which throws open great opportunities for your Company. We
 would also like to offer the best shopping experience to our customers
 and make our presence felt in prime locations, best located urban Malls
 and cities.
 
 In the face of growing competition from leading multinational players
 domestic footwear retailers have also risen to the opportunities. They
 are realizing that exposure of the domestic consumers to shopping
 standards abroad have made Indian consumers demand the same formats and
 experience in this country. Your Company is responding to this
 challenge and we have significantly transformed the Retail formats
 which are comparable to any other retail formats of the Company in the
 other parts of the world.
 
 To face the growing competition, your Company would need to make more
 investments in new stores and to train and retain the workforce. Cost
 and quality are indispensable elements of doing business in this
 competitive regime. Towards this end, your Company will pursue
 induction of modem technology and if necessary, adapt further
 automation and mechanization in its operations to ensure improvements
 in product quality and reduce variability in the same. Manpower
 productivity both in factories and stores, will need to be
 significantly improved if the Company has to remain competitive in the
 current market context so as to ensure that wage costs for production
 and servicing as a percentage of sales are contained while paying fair
 wages to its employees.
 
 With the opening up of the FDI in retailing, the Company will face even
 stiffer competition from foreign and domestic retail players who plan
 to enter the footwear market in a big way. However, your Company enjoys
 a significant brand loyalty with the Indian consumers which has been
 established over a period of seven-decades and this will insulate the
 Company to a certain extent from the onslaught of new competition.
 Threats exist from small, medium enterprises, which due to their low
 cost of production and tax advantage have a price advantage. There are
 threats also from low cost Chinese, Korean and Taiwanese footwear. Your
 Company needs to focus on specialized production, rationalization of
 manpower and to effectively manage the supply chain wherever necessary
 through appropriate IT systems to ensure that not a single customer is
 dissatisfied due to non availability of size and style. As competition
 becomes more and more intense success of any retail format will be to
 convert footfalls into sales.
 
 SEGMENT WISE OR PRODUCT WISE PERFORMANCE
 
 The Company operates in two segments, Manufacturing & Sale of Footwear
 and Investment in Joint Venture for Surplus Property Development. The
 Company has chosen footwear business as its primary segment,
 considering the dominant source and nature of risks and returns and
 continues to improve the internal organization and management
 structure.
 
 OUTLOOK
 
 2007 has shown that the Company has been on the( right track and as a
 result of the restructuring process the Company has shown the best
 results ever in its history. The management believes that this
 turnaround is sustainable and the Company will continue on a growth
 trajectory. Your Company has the potential to perform even better by
 expanding aggressively both in its retail and wholesale operations.
 Your Company has entered into Long Term Agreements with the Factory
 Unions with special emphasis on productivity and flexibility.
 
 The Company believes that its human resources are its best assets and
 employees are being encouraged to come out with innovative ideas and
 suggest better ways of doing things.
 
 With the development of 262 acres of surplus land at Batanagar the
 Company will get substantial funds to expand the business.
 
 RISKS AND CONCERNS
 
 Contingent Liability
 
 There are some claims against the Company which has not been
 acknowledged as debts which is mentioned in note no.  16 of schedule 21
 of the schedules to the Statement of Accounts. On the basis of current
 status of these cases and legal advise obtained, the Company is
 confident that no provision is required in respect of these cases at
 this point in time.
 
 Litigation
 
 The Company is defending several legal cases connected with or
 incidental to its business operations. These include civil cases,
 excise and customs cases, labour cases, etc. and the outcome of these
 could affect Companys profitability.  Your Company is pursuing /
 defending these cases with due diligence based on professional legal
 advice and believes that its submissions are sound and the outcome of
 these cases is unlikely to cause a materially adverse effect on the
 Companys performance.  ,
 
 The Company seeks to protect the intellectual property rights used in
 its business through appropriate measures including civil and criminal
 legal actions against infringers and counterfeiters of such IPR. The
 Company has to a significant extent, through these measures, succeeded
 in containing the menace of infringements and counterfeiting.
 
 Trade Unions
 
 The Company has several recognized Trade Unions. Any adverse
 relationship with the employees can affect the operations of the
 Company.  However, the Company enjoys harmonious relationship with all
 employees.
 
 The Company operates in globally competitive business environment
 
 The Company operates in a globally competitive business environment.
 With the opening of the Indian economy and competition maintaining its
 market share is a major challenge.
 
 Risk related to changes in Laws and Regulations
 
 Any change in the laws and regulations governing the leather and
 footwear industry could adversely affect the business and financial
 condition of the Company.
 
 INTERNAL CONTROL SYSTEMS AND THEIR ADEQUACY
 
 The Company has an adequate system of internal controls in place to
 ensure that all assets are safeguarded and protected and that
 transactions are authorized, recorded and reported correctly.
 
 The internal controls are constantly monitored by an extensive program
 of internal audits.
 
 DISCUSSION ON FINANCIAL PERFORMANCE WITH RESPECT TO OPERATIONAL
 PERFORMANCE
 
 The Company has returned to profitable growth for the third consecutive
 year and the Management believes that this is sustainable, barring
 unforeseen circumstances.
 
 The Company is in a position to declare a dividend after not doing so
 for the past five years.
 
 The Company has opened 67 new stores and remodeled 40 existing stores
 during the year. Better shoeline, aggressive sales pricing, optimum
 procurement of finished goods and better negotiation on raw materials
 has resulted in the improvement in margins.
 
 MATERIAL DEVELOPMENTS IN HUMAN RESOURCE / INDUSTRIAL RELATIONS FRONT,
 INCLUDING NUMBER OF PEOPLE EMPLOYED
 
 People Employed
 
 Total no of permanent employees are - 7854 on December 31, 2007.  Human
 Resources / Recruitment / Training
 
 * The company is re-enforcing Performance Linked Salary at all levels
 of employees so that a culture of accountability can be developed. All
 the executives & managers have been given clear goals / objectives for
 the year.
 
 * We have a robust selection process and antecedent verification has
 been made mandatory for all selected candidates.
 
 * A strategy is being formulated to retain best talent in the company
 and reduce attrition rates.
 
 * Training and development of employees has been the focus area of the
 company.
 
 * Evaluation of our employees performance has been improved so that
 promotion and recognition are awarded only to deserving candidates.
 
 Industrial Relations 
 
 Manufacturing
 
 * The company has entered into Long Term Agreement with the unions at
 Bataganj and Southcan manufacturing units with emphasis on productivity
 and flexibility in operations.
 
 Retail
 
 * Retail Restructuring has been implemented and concept of productivity
 per person has been introduced in the stores.
 
 * Manpower rationalization has been done in the retail stores. Shop
 Managers have signed individual agreements and have been given
 Performance linked salary increase.
 
 * Wherever possible we are keeping our major stores open for 365 days
 in a year in States where we have permission to do so to serve our
 customers better.
 
 * Shop Managers who had been terminated for insubordination and
 indiscipline have approached the Central Labour Commissioner for
 relief. Labour Department has referred the case to National Industrial
 Tribunal. We have obtained stay against the reference from Delhi High
 Court.
 
 * Terminated shop employees case is pending in the Mumbai Labour Court.
 
 CAUTIONARY STATEMENT
 
 Statements in the Managements discussion and analysis report
 describing the Companys estimates, expectations or predictions may be
 forward-looking statements within the meaning of applicable
 securities laws and regulations. Actual results could differ materially
 from those expressed or implied. Important factors that would make a
 difference to the Companys operations include demand-supply
 conditions, raw material prices, changes in Government regulations, tax
 regimes, economic developments within the country and other factors
 such as litigation and labour negotiations.
 
 CONCLUSION
 
 The Directors place on record their sincere appreciation for the
 cooperation and support received from investors, customers, business
 associates, bankers, vendors as well as regulatory and governmental
 authorities. The Directors also thank the employees for the significant
 contribution made by them to enable the Company to turnaround. Your
 Directors now look to the future with confidence and optimism.
 
                                          For and on behalf of the 
                                          Board of Directors
 
                                              P M Sinha
 Gurgaon, 
 March 28, 2008                               Chairman