Initiating Coverage Bloomberg Code BJCOR IN Key · PDF fileApart from Bajaj Almond Drops hair oil, other oils are Bajaj Kailash Parbat Cooling Oil, Bajaj Brahmi Amla Hair oil, Bajaj

Anand Rathi Research

Time Horizon – 12 Months

May 6, 2015

Bajaj Corp Ltd. Initiating Coverage

Source: Company, Anand Rathi Research, Bloomberg

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Light Hair Oil has the largest opportunity in non-coconut hair oil

segment.

Bajaj group – A strong Brand of hair care and skin care portfolio.

Bajaj Almond Drops is a premium brand and a market leader with

60.5% (FY14-15) market share.

Consistent financials – Debt free, good cash flows & higher return

ratios.

Strategy for inorganic growth opportunities & increasing rural

scale.

Analyst: Shweta Prabhu [email protected]

Relative stock performance (Dec’13=100)

CMP: 442

Target: ̀ 573

(In ` mn) FY13 FY14 FY15 FY16E FY17E

Net Sales 6,067 6,717 8,213 9,979 12,024

EBITDA 1,728 1,867 2,427 2,994 3,487

EBITDA Margin 28.5% 27.8% 29.6% 30.0% 29.0%

EPS (`) 11.3 10.2 11.8 14.8 19.1

EV/Sales 10.2 9.2 7.5 6.2 5.1

EV/EBITDA 35.7 33.0 25.4 20.6 17.7

P/E (x) 38.8 43.1 37.4 29.8 23.1

Price Performance CY11 CY12 CY13 CY14 YTD

Absolute -8% 137% -6% 62% 24%

Relative 17% 110% -13% 30% 25%

NIFTY -25% 28% 7% 31% -1%

Key Data

RISK Medium

Bloomberg Code BJCOR IN

NSE Code BAJAJCORP

Sector FMCG

Industry Household & Personal

Face Value (`) 1

BV per share (`) 33

Dividend Yield (%) 1.5%

52 Week H/L(`) 500 / 204

Market Cap. (` mn.) 64,900

Shareholding Mar-15 Dec-14 Sep-14 Jun-14

Promoters 66.9% 66.9% 75.0% 75.0%

FII 24.5% 23.5% 15.2% 14.8%

DII 1.6% 2.1% 1.9% 1.8%

Bodies Corporate 3.4% 3.7% 3.7% 4.1%

Others 7.1% 7.6% 7.9% 8.4%

Total 100.0% 100.0% 100.0% 100.0%

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Bajaj Crop Nifty

2 Anand Rathi Research

Bajaj Corp Ltd.

Light Hair Oil has the largest opportunity in non-coconut hair oil segment

Source: Company

FMCG (Rs. 2,38,016crs)

Hair care (Rs. 17,102crs)

Perfumed Oil 29%

Shampoo 31% Coconut Based oil 22%

Hair dyes 16%

Hair conditioners 2%

Coconut based 43%

Light Hair oils 17%

Amla Based hair oil 17%

Cooling oils 10%

Others 13%

Hair Oil market CAGR growth in volume of 9.8% in FY07-15

Perfumed Hair Oil Segment

7%

Light Hair Oil market CAGR growth in volume of 15.3% in FY07-15

Almond drops is the brand which is driving light hair oils and in turn the overall market

It has total market share of 58.8%


Part of Bajaj Group which has business interests in varied industries including sugar, FMCG, power generation &

infrastructure development

Subsidiary of Bajaj Resources Ltd (BRL), BCL is the exclusive licensee of brands owned by BRL. Brands are licensed to BCL

for 99 years from 2008.

Key brand is Bajaj Almond Drops Hair Oil which is 2nd largest brand in the overall hair oils segment with over 58% market

share in light hair oil.

Strong management Chairman Mr. Kushagra Nayan Bajaj, MD Mr. Sumit Malhotra.

Bajaj Almond Drops is a premium brand and a market leader with 60.5% (FY14-15) market share, though not compromising

on the pricing power.

Hair care portfolio & Skin care portfolio

Apart from Bajaj Almond Drops hair oil, other oils are Bajaj Kailash Parbat Cooling Oil, Bajaj Brahmi Amla Hair oil, Bajaj

Amla, Bajaj Jasmine Hair Oil and they also have Bajaj Kala Dant Manjan.

Bajaj Nomarks Creams, Face washs, Soaps and Scrubs are available.

Strong distribution.

It has 9 factories – 3 owned at Himachal Pradesh and Uttarkhand and 6 third Party at Himachal Pradesh, Rajasthan,

Uttarkhand and Guwahati. The company reaches consumers through 2.78mn retail outlets services by 7234 distributors

and 15122 wholesalers.

Bajaj group – A strong Brand of hair care and skin care portfolio

Bajaj Corp Ltd.


Consistent financials

Source: Company

The company has been performing

consistently on top line, EBITDA and bottom

line over the years as given in the table.

The adjacent graph shows the quarterly

performance over 16 quarters where EBITDA

margins have been maintained above 25%.

Company operates a negative working

capital generating a good cashflow and

higher return ratios like that of ROCE and

ROE.

Company is a debt free company.

Changes in the prices of key ingredients like

that of LLP (Liquid Light Perrafin) and refined

vegetable oil which has contributed to the

EBITDA margins.

Company has been a consistent dividend

payer and for FY15 it has given a dividend of

Rs. 11.50 per share.

Bajaj Corp Ltd.

Details Mar-10 Mar-11 Mar-12 Mar-13 Mar-14

EBITDA margins % 33.1% 30.3% 24.6% 28.5% 27.8%

PAT margins % 28.5% 23.4% 25.4% 27.6% 22.4%

CAGR growth % Sales EBITDA PAT

5 years 22.4% 29.3% 26.2%

3 years 23.2% 19.7% 21.4%

Consistent performance over last 16 successive quarters


Talking points

Strategy of growth through inorganic growth opportunities as done for NOMARKS which has build up a good Skin care

portfolio. It has funds of Rs. 317 crs for FY15.

Stability in raw material prices like that of LLP (Liquid light Peraffin) and vegetable oil (refined mustard oil and ground

nut oil) will be the key parameters for further improving gross margins.

The company does believe that LLP prices have bottomed out and they have locked in LLP supply for Q1FY16 as said in

the concall by the management.

In FY13 company started with objective of increasing rural sales by piloting VAN operations , currently operating 101

vans which cover 7705 uncovered towns and villages on monthly basis. In April-Feb 2015 Bajaj Almond Drops Hair oil

got 39.7% of its sales from Rural India with volume growth in rural India of 5.6% and market share in rural India at

62.9% (urban + rural = 58.8%)

Bajaj Corp Ltd.


Bajaj Corp has taken price hikes from Apil 1st 2015 in Almond

Drops of 5% and 6.8% in Nomarks. Also on advertising expense

front the company has reached the peak and hence forth it

would concentrate on sales promotions.

Company is also continuously working on strengthening

international business which is 3% of the revenue. The company

has presence and planning to expand in the areas of Gulf region

South East Asia and Africa mainly through Nomarks.

Currently the stock is trading at 29.8x FY16E earnings and 23.1x

FY17E earnings. We therefore assume a current PE of 30x on

FY17E earnings to arrive at a target of ` 573. Though there was

a healthy run up in the stock in last 2-3 months we still feel

there is still a buying opportunity in the stock as it is one of the

company which is consecutively increasing its volume growth of

more than 20% which shows a high quality business.

Also Nomarks has been performing well and with lower and

final write off from PL in FY17 will make the FY17 numbers very

attractive. We therefore recommend BUY on Bajaj Corp Ltd

with a target price of ` 573 per share.

Relative stock performance (Dec’13=100)

Valuation and Recommendation:

Source: Bloomberg, Anand Rathi Research

Source: Company, Anand Rathi Research

Bajaj Corp Ltd.

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Bajaj Crop Nifty


Net Sales 6,067 6,717 8,213 9,979 12,024

EBITDA 1,728 1,867 2,427 2,994 3,487

EBITDA Margin 28.5% 27.8% 29.6% 30.0% 29.0%

EPS (`) 11.3 10.2 11.8 14.8 19.1

EV/Sales 10.2 9.2 7.5 6.2 5.1

EV/EBITDA 35.7 33.0 25.4 20.6 17.7

P/E (x) 38.8 43.1 37.4 29.8 23.1


Financials:

Source: Company, Anand Rathi Research

Bajaj Corp Ltd.


Net Sales 6,067 6,717 8,213 9,979 12,024

Operating expense 4,339 4,851 5,786 6,985 8,537

EBIDTA 1,728 1,867 2,427 2,994 3,487

Depreciation 33 37 42 42 42

EBIT 1,695 1,830 2,385 2,951 3,445

Interest 1 59 1 1 1

EBT 1,695 1,771 2,384 2,950 3,444

Other Income 401 401 316 399 399

PBT 2,095 2,172 2,663 3,349 3,843

Tax 421 382 460 703 845

PAT 1,674 1,790 2,203 2,646 2,997

Exceptional item - (286) (470) (470) (184)

PAT 1,674 1,504 1,733 2,176 2,814

Margins FY13 FY14 FY15 FY16E FY17E

Sales Growth % -61.5% 10.7% 22.3% 21.5% 20.5%

Operating Margin % 28.5% 27.8% 29.6% 30.0% 29.0%

Net Margin % 27.6% 22.4% 21.1% 21.8% 23.4%


Liabilities

Shareholder's Funds

Equity Share Capital 148 148 148 148 148

Reserves & Surplus 4,691 5,073 5,310 5,801 6,815

Minority Interest - - - - -

Non Current Liabillities:

Long-term borrowings - - - - -

Deferred tax liabilities

(net) 13 - - - -

Current Liabillities: 710 596 605 620 640

Total Liabilities 5,560 5,817 6,063 6,568 7,603

Assets

Non Current Assets:

Net Fixed Assets 458 1,609 1,600 1,500 1,500

Other Non-Current Assets 523 539 550 550 550

Long Term L&A 265 262 262 262 262

Current Assets: 4,314 3,407 3,404 4,256 5,291

Total Assets 5,560 5,817 6,063 6,568 7,603


Volatility in raw material prices may fluctuate the gross margins trend.

Higher dependency on the single product Bajaj Almond Hair drops oil.

Key Risks:

Bajaj Corp Ltd.


Rating and Target Price history:

Bajaj Corp rating details Bajaj Corp rating history & price chart

Source: Bloomberg, Anand Rathi Research Source: Bloomberg, Anand Rathi Research

NOTE: Prices are as on 04th May, 2015 close.

Bajaj Corp Ltd.

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Bajaj Crop NiftyDate Rating Target Price (` ) Share Price (` )

06-May-15 BUY 573 442


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aspects of any potential investment.

Continued…

Bajaj Corp Ltd.


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Contd. Opinions expressed are our current opinions as of the date appearing on this Research only. We do not undertake to advise you as to any change of our views expressed in this Report. Research Report may differ between ARSSBL’s RAs and/ or ARSSBL’s associate companies on account of differences in research methodology, personal judgment and difference in time horizons for which recommendations are made. User should keep this risk in mind and not hold ARSSBL, its employees and associates responsible for any losses, damages of any type whatsoever. ARSSBL and its associates or employees may; (a) from time to time, have long or short positions in, and buy or sell the investments in/ security of company (ies) mentioned herein or (b) be engaged in any other transaction involving such investments/ securities of company (ies) discussed herein or act as advisor or lender / borrower to such company (ies) these and other activities of ARSSBL and its associates or employees may not be construed as potential conflict of interest with respect to any recommendation and related information and opinions. Without limiting any of the foregoing, in no event shall ARSSBL and its associates or employees or any third party involved in, or related to computing or compiling the information have any liability for any damages of any kind. Details of Associates of ARSSBL and Brief History of Disciplinary action by regulatory authorities & its associates are available on our website i. e. www.rathionline.com Disclaimers in respect of jurisdiction: This report is not directed to, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction where such distribution, publication, availability or use would be contrary to law or regulation or which would subject ARSSBL to any registration or licensing requirement within such jurisdiction(s). No action has been or will be taken by ARSSBL in any jurisdiction (other than India), where any action for such purpose(s) is required. Accordingly, this Report shall not be possessed, circulated and/or distributed in any such country or jurisdiction unless such action is in compliance with all applicable laws and regulations of such country or jurisdiction. ARSSBL requires such recipient to inform himself about and to observe any restrictions at his own expense, without any liability to ARSSBL. Any dispute arising out of this Report shall be subject to the exclusive jurisdiction of the Courts in India.

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Contd.

Bajaj Corp Ltd.


Disclaimer:

Contd. Statements on ownership and material conflicts of interest, compensation - ARSSBL and Associates

Sr. No.

Statement

Answers to the Best of the knowledge and belief of the ARSSBL/ its Associates/ Research Analyst who is preparing this report

1 ARSSBL/its Associates/ Research Analyst/ his Relative have any financial interest in the subject company? Nature of Interest (if applicable), is given against the company’s name?. NO

2

ARSSBL/its Associates/ Research Analyst/ his Relative have actual/beneficial ownership of one per cent or more securities of the subject company, at the end of the month immediately preceding the date of publication of the research report or date of the public appearance?. NO

3 ARSSBL/its Associates/ Research Analyst/ his Relative have any other material conflict of interest at the time of publication of the research report or at the time of public appearance?. NO

4 ARSSBL/its Associates/ Research Analyst/ his Relative have received any compensation from the subject company in the past twelve months. NO

5 ARSSBL/its Associates/ Research Analyst/ his Relative have managed or co-managed public offering of securities for the subject company in the past twelve months.

NO

6 ARSSBL/its Associates/ Research Analyst/ his Relative have received any compensation for investment banking or merchant banking or brokerage services from the subject company in the past twelve months. NO

7

ARSSBL/its Associates/ Research Analyst/ his Relative have received any compensation for products or services other than investment banking or merchant banking or brokerage services from the subject company in the past twelve months. NO

8 ARSSBL/its Associates/ Research Analyst/ his Relative have received any compensation or other benefits from the subject company or third party in connection with the research report. NO

9 ARSSBL/its Associates/ Research Analyst/ his Relative have served as an officer, director or employee of the subject company. NO

10 ARSSBL/its Associates/ Research Analyst/ his Relative has been engaged in market making activity for the subject company. NO

Bajaj Corp Ltd.

Documents

Initiating Coverage Bloomberg Code BJCOR IN Key · PDF fileApart from Bajaj Almond Drops hair oil, other oils are Bajaj Kailash Parbat Cooling Oil, Bajaj Brahmi Amla Hair oil, Bajaj