Financials/Valu FY15 FY16 FY17 FY18E FY19E. Almond Drops Hair Oil (ADHO) volume declined by 7% YoY and 120 BAJAJCORP NIFTY

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14-Jul-17 INDUSTRY - Con. Staples BSE Code - 533229 NSE Code - BAJAJCORP NIFTY - 9892 Company Data CMP 406 Target Price 410 Previous Target Price 455 Upside 1% 52wk Range H/L Mkt Capital (Rs Cr) Av. Volume (,000) RoE & ROCE 5,994 Key Highlights of the Report: BAJAJCORP has reported mixed set of numbers for 1QFY18. Reported sales Rs 197 cr (Vs our expectation of Rs 207 cr) whereas PAT remained in line to our estimates. Financials/Valu FY15 FY16 FY17 FY18E FY19E Net ation Sales 826 876 797 691 804 EBITDA 239 274 264 205 231 EBIT 234 269 258 197 223 PAT 211 235 233 178 198 1QFY18 4QFY17 3QFY17 EPS (Rs) 11.7 13.3 14.8 12.0 13.4 Promoters 66.9 66.9 66.9 EPS growth (%) 16% 14% 11% -19% 12% Public 33.1 33.1 33.1 ROE (%) 3 41% 44% 3 38% Total 100.0 100.0 100.0 ROCE (%) 48% 5 51% 38% 42% BV 33 33 34 34 35 Stock Performance % P/B (X) 10.3 11.8 12.1 11.8 11.5 1Mn 3Mn 1Yr P/E (x) 29.1 29.0 27.4 33.6 30.1 Absolute 8.2 (3.5) 3.2 Rel.to Nifty 5.3 (11.0) (13.6) Segment wise Revenue and Volume Analysis: Almond Drops Hair Oil (ADHO) volume declined by 7% YoY and 120 BAJAJCORP NIFTY realization improved by 4% YoY in Q1FY18. 115 110 105 100 Shareholding patterns % 95 90 85 80 6 5 4 34% 3 3 29% ROE 48% 3 ROCE 5 41% 51% 44% 436/340 38% 3 FY13 FY14 FY15 FY16 FY17 FY18E FY19E 73 42% 38% Sales declined by 3% YoY to Rs 197 cr led by 7% YoY decline in volume of Almond Drop Hair Oil(ADHO). EBITDA margin declined by 402 bps YoY to 30.7% led by 40 bps,179 bps, 184 bps increase in COGS, employee ex. and other expenses Key respectively. positive remained, regaining of market share in ADHO by 30 bps (YTD Jun17) which was lost in FY17. Presently company is trading at 30 times of FY19E EPS of Rs13.4. In our opinion it is fairly valued at this price. Considering GST related uncertainties we have downgraded this stock from HOLD to Neutral and changed our target from Rs 455 to Rs 410. Kailash Parvat Cooling Oil s volume declined by 1% YoY and realization improved by 49% YoY in Q1FY18. Volume of Nomarks declined by 1 YoY in Q1FY18 whereas realization improved by 11%. The company is prototyping Nomarks in two states but planning to extend it 4 more states going forward. Amla Hair Oil s volume declined by 29% YoY while realization remained flat in this quarter. Brahmi Amla Hair Oil s volume declined by YoY while realization improved by 4% in Q1FY18. RAJEEV ANAND rajeev.anand@narnolia.com

40 38 42 55 47 47 49 54 52 58 58 53 55 Quarterly Performance Financials 1QFY17 2QFY17 3QFY17 4QFY17 1QFY18 YoY % QoQ% FY16 FY17 YoY % Net Sales 204 197 187 205 197-3% -3% 876 797-9% Other Income 8 15 14 2 11 32% 377% 29 39 38% COGS 70 66 64 67 69-2% 3% 298 269 - Employee Cost 14 15 16 15 17 22% 11% 48 61 Other Expenses 49 49 46 56 51 4% -9% 257 203-21% EBITDA 71 67 61 66 61-1 -8% 274 264-4% Depreciation 1 1 1 1 2 51% 5 5 9% Interest 0 0 0 0 0-4% 0 1 348% PBT 78 81 73 67 70-11% 297 297 Tax 14 16 16 14 15 54 60 11% PAT 52 58 58 53 55 4% 196 218 11% Q1FY18 Result Highlights: LLP price increase by 33% YOY to Rs 58.28/kg from Rs 43.91/kg BAJAJCORP has reported mixed set of numbers for 1QFY18. Reported sales Rs 197 cr (Vs our expectation of Rs 207 cr) whereas PAT remained in line to our estimates. Sales declined by 3% YoY to Rs 197 cr led by 7% YoY decline in volume of Almond Drop Hair Oil(ADHO). Gross Margin declined by 40 bps YoY to 65.1% due to 33% increase in the price of Light Liquid Paraffin (LLP), one of the key input. During the quarter average price of LLP increased to Rs 58.28/Kg from Rs 43.91/Kg in corresponding quarter of previous year. EBITDA margin declined by 402 bps YoY to 30.7% led by 40 bps,179 bps, 184 bps increase in COGS, employee expenses and other expenses respectively. PAT margin improved by 230 bps YoY to 27.8% from 25.. PAT margin improved in this quarter due to Rs 12 cr amortization charges which was present in Q1FY17, was not there in this quarter. PAT grew by YoY to Rs 55 cr from Rs 52 cr. Net Sales(in cr) Net Sales gr%yoy PAT(in cr) PAT gr%yoy 3 2 1 - - -1 250 200 150 100 50-70 60 50 40 30 20 10 - -16% 43% 43% 5 4 24% 24% 19% 17% 17% -2% -3% - -

Margin % 1QFY17 2QFY17 3QFY17 4QFY17 1QFY18 YoY(+/-) QoQ(+/-) FY16 FY17 YoY(+/-) Gross Margin 65. 66.4% 65.6% 67.3% 65.1% -0.4% -2.1% 66. 66.2% 0.2% EBITDA Margin 34.7% 34.2% 32.8% 32.4% 30.7% -4. -1.7% 31.2% 33.1% 1.8% PAT Margin 25. 29.6% 30.9% 25.7% 27.8% 2.3% 2.1% 22.4% 27.4% 5. Gross Margin declined by 40 bps YoY to 65.1% due to 33% increase in the price of Light Liquid Paraffin (LLP), one of the key input. EBITDA margin declined by 402 bps YoY to 30.7% led by 40 bps,179 bps, 184 bps increase in COGS, employee expenses and other expenses respectively. PAT margin improved by 230 bps YoY to 27.8% from 25.. PAT margin improved in this quarter due to Rs 12 cr amortization charges which was present in Q1FY17, was not there in this quarter. Raw Material Break Up in Q1FY18 33% YoY Increase in the price of LLP LLP price Gr(%)YOY Raw Material Break Up(1QFY18) 4 33% Caps, 5.78% Corrugated Boxes, 5.09% Perfumes & other additives, 10.2 Refined Veg. Oil, 12.81% Others, 12.27% LLP, 27.64% Glass Bottles, 26.16 % - - - -4 17% 12% -1% -21% -27% -26% -26% -24% -31% - -1-1% Market share of ADHO (Vaue wise) improved by 30 bps to 61%. Concall Highlights(Q1FY18): Volume growth will come back in Q3 and Q4 of FY18. International business grew by 26.3% in this quarter led by better performance from Bangladesh. The company is witnessing stress in MENA region. 31-31. EBITDA margin is sustainable. BAJAJCORP s 50-5 volume comes from wholesale. The company is planning to expand its direct reach so that in future, company will have a stable distribution channel. ADHO has gained market share in value term by 30 bps YoY. ADHO market share remained 61%( YTD Jun17). From Q3FY18, advertisement and promotion expenses will go up as company expects till that time distribution channel will stabilize and need of brand building arise. Company s overall distribution reach went up to 3.8 mn outlets and direct distribution to 575000 outlets. Due to volatility in crude oil prices, company has not entered into long term contract on LLP yet. The company is ready to launch 3 new products. It will be launched when distribution channel will stabilize. Tax rate: more or less same to Mat rate.

Investment Arguments: Strong Brand Presence and Market Share: BAJAJCORP has strong presence in light hair oil market with the brand name of Bajaj Almond Drop Hair Oil. It is the market leader in light hair oil with a healthy market share(value wise) of 61%. Last year company s market share had declined by 30 bps but now company has regained it. In a tough environment regaining as well as retaining its market share shows strong brand loyalty. Revival in Hair Oil demand: Hair oil market was reeling with demand pressure for last two years. But after many quarters, management tone has turn bullish. Management has indicated that volume of ADHO grew by above 6% in April and May but destocking in the month June considering confusion related GST dent the overall volume this quarter. We expect demand to come back sharply from September as cannel refilling will start. Last year normal monsoon and so far better monsoon this year gives us confidence of revival in demand from rural market going forward. Major presence of BAJAJCORP in rural market may augur well for BAJAJCORP in times to come. Strong Balance sheet with reasonable dividend yield: BAJAJCORP has strong balance sheet with no long term borrowing and negligible short term borrowings of Rs 15 cr. The company maintained dividend payout above 7 for last 3 years and at present price its dividend yield is approx. 2.8%. Above 2% dividend yield is a handsome cash flow for investors and will give comfort to hold investment for long term. ADHO Volume and Volume growth ADHO market share improved by 30 bps YoY ADHO Volume(in Lakh cases) ADHO Volume Gr(%)YOY ADHO(Value Market Share) 16 14 12 10 8 6 4 2 0 2 1 - - 75. 65. 55. 45. 35. 25. 15. 5. -5. 50.7% 53. 55. 56.9% 58.4% 60.3% 61. 60.7% 61. 46. 40.3% View & Valuation BAJAJCORP has reported mixed set of numbers for 1QFY18. The company has reported sales Rs 197 cr (Vs our expectation of Rs 207 cr) whereas PAT remained in line to our estimates. Key positive remained, regaining of market share in ADHO by 30 bps (YTD Jun17) which was lost in FY17. Going forward we expect sharp drop in volume in Q2FY18 due to destocking led by GST however expect volume to come back because of refilling of the retail channel in September onwards but how long this phase will take we are not clear about. Presently company is trading at 30 times of FY19E EPS of Rs13.44. In our opinion it is fairly valued at this price. Considering GST related uncertainties and volatilities related to crude oil price we have downgraded this stock from HOLD to Neutral and changed our target from Rs 455 to Rs 410.

Financials Snap Shot Income Statement Rs in Crores Key Ratios Y/E March FY16 FY17 FY18E FY19E Y/E March FY16 FY17 FY18E FY19E Revenue from Operation 876 797 691 804 ROE 41% 44% 3 38% Change (%) 6% -9% -13% 16% ROCE 5 51% 38% 42% Other Operating Income 29 39 31 32 Asset Turnover 1.5 1.4 1.2 1.3 EBITDA 274 264 205 231 Debtor Days 11 13 11 11 Change (%) 14% -4% -22% 12% Inventory Days 21 19 21 21 Margin (%) 31% 33% 29% Payable Days 18 18 18 18 Dep & Amortization 5 5 8 8 Interest Coverage 1,169 251 189 213 EBIT 269 258 197 223 P/E 29 27 34 30 Interest & other finance cost 0 1 1 1 Price / Book Value 11.8 12.1 11.8 11.5 Other Income EV/EBITDA 20 21 27 24 EBT 297 297 228 254 FCF per Share 12 12 13 13 Exceptional Item (47) (18) - - Dividend Yield 3. 2.8% 2.3% 2.6% Tax 54 60 50 56 Minority Int & P/L share of Ass. - - - - Assumptions Reported PAT 196 218 178 198 Y/E March FY16 FY17 FY18E FY19E Adjusted PAT 235 233 178 198 ADHO Volume growth 3% -2% - 19% Change (%) 11% -1% -24% 12% ADHO Pricing growth 2% -3% -3% 3% Margin(%) 27% 29% 26% 2 Balance Sheet Rs in Crores Cash Flow Statement Rs in Crores Y/E March FY16 FY17 FY18E FY19E Y/E March FY16 FY17 FY18E FY19E Share Capital 15 15 15 15 PBT 297 297 228 254 Reserves 466 479 491 504 (inc)/dec in Working Capital (28) 7 12 (2) Networth 481 494 506 519 Non Cash Op Exp 5 5 8 8 Debt 10 15 15 15 Interest Paid (+) 0 1 1 1 Other Non Current Liab 1 1 1 1 Tax Paid (53) (58) (50) (56) Total Capital Employed 491 509 521 534 others (25) (28) - - Net Fixed Assets (incl CWIP) 97 119 117 116 CF from Op. Activities 193 212 199 206 Non Current Investments - - - - (inc)/dec in FA & CWIP (17) (36) (7) (7) Other Non Current Assets - 1 - - Free Cashflow 176 176 192 199 Non Current Assets 151 164 161 160 (Pur)/Sale of Investment (86) (53) 19 (30) Inventory 50 42 40 46 others 83 44 0 (0) Debtors 25 27 20 23 CF from Inv. Activities 6 (15) 12 (37) Cash & Bank 58 12 31 13 inc/(dec) in NW - - - - Other Current Assets 282 344 329 360 inc/(dec) in Debt 10 5 - - Current Assets 415 426 419 442 Interest Paid - - (1) (1) Creditors 44 40 34 40 Dividend Paid (inc tax) (204) (204) (166) (185) Provisions - 0 - - others - - - - Other Current Liabilities 31 13 24 28 CF from Fin. Activities (194) (200) (167) (186) Curr Liabilities 74 80 59 68 Inc(Dec) in Cash 5 (3) 44 (18) Net Current Assets 340 346 361 374 Add: Opening Balance - - 12 31 Total Assets 566 590 580 603 Closing Balance 5 (3) 56 13

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