BUY CMP (Rs) 243.00 Target Price (Rs) 268.00 BAJAJ CORP LIMITED Result Update: Q1 FY14 AUGUST 10 th, 2013 ISIN: INE933K01021 Stock Data Sector FMCG BSE Code 533229 Face Value 1.00 52wk. High / Low (Rs.) 284.00/154.20 Volume (2wk. Avg ) 20000 Market Cap ( Rs in mn ) 35842.50 Annual Estimated Results (A*: Actual / E*: Estimated) Years FY13A FY14E FY15E Net Sales 6067.19 7280.63 8256.23 EBITDA 2129.19 2515.54 2943.86 Net Profit 1673.82 1983.01 2321.84 EPS 11.35 13.44 15.74 P/E 21.41 18.07 15.44 Shareholding Pattern (%) HIGHLIGHTS Net Sales of Bajaj Corp increased by 23.18% in value and 20.16% in volumes in Q1 FY14 as compared to Rs. Q1 FY13. The sale of the company has increased from Rs. 1382.38 mn in Q1 FY13 to 1702.35 mn in Q1 FY14. Net Profit rose by 24.9% in the June quarter over the corresponding quarter in the previous year. EBDITA has increased by 25.81% from Rs. 479.28 mn to Rs. 602.99 mn in Q1 FY 14. EPS has increased from Rs. 2.55 to Rs. 3.19 in Q1 FY 14. 1 Year Comparative Graph In Q1 FY13 Almond Drops Hair Oil has contributed 95.68% to the total sales of the company. BAJAJ CORP LIMITED BSE SENSEX Almond Drops Hair Oil is the market leader with 56% in the light hair oil segment. As on 31 st March Bajaj Corp has two unlisted wholly owned subsidiaries, Bajaj Bangladesh Limited and Uptown Properties & Leasing Private Limited. Peer Groups CMP Market Cap EPS P/E (x) P/BV(x) Dividend Company Name (Rs.) Rs. in mn. (Rs.) Ratio Ratio (%) Bajaj Corp Limited 243.00 35842.50 11.35 21.41 7.41 650.00 Dabur India Ltd 158.35 276191.30 3.46 45.78 21.20 130.00 Hindustan Unilever Ltd 600.80 1297267.10 16.11 37.24 36.94 750.00 Godrej Consumer Products Ltd 855.00 289277.90 15.46 54.98 10.48 500.00
Analysis & Recommendation BUY Bajaj Corp is a leading player in the hair and care industry. Its premium brand Bajaj Almond Drop hair oil has been growing at a double digit rate over the last eight years and at present has a market share of 56%. The profitability of the company depends directly on the revenue generation of this premium brand. The net sales and net profit of the company has increased by profit 23.18% and 24.90% respectively in Q1 FY14 over the corresponding quarter in the previous year. Even the profit before tax increased by 26.27% in Q1FY14 over Q1 FY13. The company benefitted from the fall in the commodity prices during the year and the cost of materials as percentage of sales have reduced from 44.75% to 40.36% in Q1 FY14 over the corresponding quarter in the previous year. In addition to that Bajaj Corp, with its efficient management of supply chain, receivables and creditors, has continued to keep its net working capital excluding cash & bank balance at negative level. Thus the June quarter results show the resilience of the company with respect to slowing economy. The company is also completely debt free with high cash reserves of Rs. 1832.364 mn as on 31 st March 2013. Though the sales of the company have reduced by almost 7% in June quarter of 2013 as compared to the previous quarter, it can be attributed to the slow growth and high inflation in the economy. With the change in the macro economic factors and fall in inflation, Bajaj Corp will benefit as it has a huge distribution network and loyal customer following in the urban areas and is penetrating fast in the rural areas too. Bajaj Corp with its sound financials, strong brands and high cash reserves will outperform the market in the long run. The stock is a value pick in the present scenario and thus we recommend BUY. Profile Bajaj Corp is the third largest player in the overall hair oils segment. Bajaj Corp is a part of Bajaj Group which has business interests in varied industries including sugar, consumer goods, power generation & infrastructure development. It premium brand Bajaj Almond drops is the market leader in the Light hair oil segment. This premium product of the company commands one of the highest per unit prices in the industry. The company has a distribution network of 2.36 mn retail outlets serviced by 6721 direct distributors and 14,848 wholesalers. The company has five production units, of which three are located in Himachal Pradesh, one in Udaipur and the other in Dehradun. The company came up with its IPO in August 2010 and listed its securities on NSE and BSE. Bajaj Corp in its initial public offering issued 45 lakhs fully paid up shares and raised Rs. 2970 mn. The company has also reduced its promoter shareholding from 84% to 75% following the SEBI guidelines of public shareholding. At present Bajaj Corp is exporting all its major brands to UAE, Mauritius, Kuwait, Maldives, Australia, New Zealand, USA to name a few.
Products of the company Bajaj Almond Oil, premium brand of the company is a market leader with 56% market share in the Light hair oil segment. Due to its premium pricing it has a larger market share in the urban market. The urban population accounts for 61% of its sales and majority of its customers fall in the age group of 15-39 years. Bajaj Almond Drops Hair Oil is consumed by 2.5 Crore Households or approximately 12.5 crore individuals on a yearly basis. Other brands of the company are Brahmi Amla, Amla Shikakai and Jasmine (all hair oil brands) and Black tooth powder. Bajaj Corp has launched new product Bajaj Kailash Parbat Cooling Oil. Though the company has variety of products, Bajaj Almond Drop Oil is the major contributor to the revenues of the company. Other Important Updates Product Q1 FY14 % of Total Almond Drop 1627.10 95.68% Kailash Parbat Oil 43.30 2.55% Brahmi Amla 19.40 1.14% Amla Shikakai 1.80 0.11% Others 8.90 0.52% Total 1700.50 100% Quarterly update Bajaj Corp LTD is a leading player in the hair & care segment. The net sales of the company increased by 23.18% in Q1 FY14 compared to Q1 FY13. The net profit of Bajaj Corp is increased by 24.9% from Rs. 376.20 mn to RS. 470.10 mn in Q1 FY14. The net profit margin has improved slightly from 27.25% to 27.65%. The EBDITA in Q1 FY14 rose by 23.95% from Rs. 389.20 in Q1 FY13 to 482.40 in Q1 FY14. The EBDITA margin was almost flat and rose by a meager 18 basis points. Months JUNE-13 JUNE-12 Net Sales 1700.50 1380.50 Net Profit 470.10 376.20 Net Profit Margin 27.65% 27.25% EBDITA 482.40 389.20 EBITDA Margin 28.37% 28.19%
Break up of expenditure Performance 2012-2013 Sales excluding other operating income increased to Rs 6056.60 mn in FY13 from Rs. 4722.40 mn in FY12, registering a growth of 28.25% and also a double digit growth of 20.53% in volumes. Earnings before interest, depreciation and tax increased to Rs. 1728.70 mn in FY13 from Rs. 1166.40 mn in FY 12, registering a growth of 48.21% on account of increase in MRP. Profit after Tax (PAT) increased by 39.38% from Rs. 1200.90 mn in FY12 to Rs.1673.80 mn in FY13. RONW was 29.87 % in FY12 and increased to 36.72% in FY 13.
Future Plans and growth strategies of the Company The stock price of the company jumped by 3.27% with the announcement of the June quarter results. Though the sales fell by 7% over the previous quarter, the investors gave a thumps up to the management for steering the company through the difficult and tumulus last financial year. The company has no long term or short term debt and has high cash reserves. Bajaj Corp had its initial public offering in 2010 and raised Rs. 2970 mn which it has utilized for promotion and development of future products. One of the products, Kailash Parbat has already been launched in 2010-11. Three more products are in the pipeline and are expected to be launched in the 2013-14. Although the company is a market leader with Bajaj Almond Drops Oil, urban sales contribute around 61% of its sales. Thus the company plans to penetrate in the rural segment to increase its customer base. In the year 2013, Bajaj Corp with the objective of increasing rural sales has initiated operation of rural sales vans. There were 39 sales vans in Q4 FY13 which have increased in Q1FY14 to 120 sales vans and 26 video vans for promotion. Bajaj Corp plans to tap the increase in disposable income of rural India and convert rural consumers from unbranded to branded products as Bajaj Almond Drops is the only brand which is available in sachets. The promotional expenditure as a percentage of sales has increased from 12.58% in Q1 FY13 to 16.78% in Q1 FY14. The company had to increase its promotional expenditure to push sales in an economy characterized by stagflation. In this difficult and grim scenario also, Bajaj Corp plans to extend Almond Drops platform developed by its Almond Drops Hair Oil brand to introduce other personal care products to leverage on the strong connotation of Almonds with nutrition. Light hair oil segment has been increasing as people continue to upgrade themselves from basic hair oils like Coconut and Amla hair oils. In addition to that there has been growth from other unbranded hair oils which has also helped the growth of this segment and the consumers are also willing to pay a premium price for these premium products. The company thus plans and intends to target and convert coconut hair oil users to light hair oil users through sampling, targeted advertising campaigns and product innovation. Last but not the least, Bajaj Corp plans to go for inorganic growth and acquire products which complement its hair oil and personal care segment and builds a pan India presence.
Financial Highlights Balance sheet as at March31st, 2012 to 2015E BAJAJ CORP. LTD SOURCES OF FUNDS (A*- Actual, E* -Estimations & Rs. In Millions) FY-12A FY-13A FY-14E FY-15E Rs. In Millions Shareholder's Funds Share Capital 147.50 147.50 147.50 147.50 Reserves and Surplus 4131.02 4690.56 5253.43 5883.84 (a) Total Net worth 4278.52 4838.06 5400.93 6031.34 Non Current Liabilities long term borrowing 0.00 0.00 0.00 0.00 Deferred Tax Liability (Net) 9.61 12.56 15.45 18.23 Long term Provisions 0.00 0.00 0.00 0.00 (b) Total Non Current liabilities 9.61 12.56 15.45 18.23 Current Liabilities Short term borrowings 0.00 0.00 0.00 0.00 Trade payables 471.14 493.02 517.67 528.02 Other Current liabilities 181.34 216.62 233.95 243.31 Short term Provisions 0.00 0.00 0.00 0.00 (c) Total Current Liabilities 652.48 709.64 751.62 771.33 Total Liabilities (a + b + c) 4940.61 5560.26 6168.00 6820.90 APPLICATION OF FUNDS Non-Current Assets Fixed Assets Tangible assets 386.61 444.02 498.28 527.78 Intangible assets 2.43 1.45 1.52 1.58 Capital Work in Progress 0.00 12.98 13.76 14.31 Non Current Investments 272.48 522.52 653.15 757.65 Long Term loans and advances 504.99 265.43 204.38 214.60 (d) Total Fixed Assets 1166.51 1246.4 1371.09 1515.92 Current Assets Current Investment 3126.07 1832.36 1584.10 1517.90 Inventories 284.10 358.51 423.04 469.58 Trade receivables 51.41 99.71 141.59 175.57 Cash and Bank Balances 273.27 1889.85 2456.81 2899.03 Short-terms loans & advances 10.56 19.14 25.65 30.78 Other current assets 28.69 114.29 165.72 212.12 (e) Total Current Assets 3774.10 4313.86 4796.91 5304.97 Total Assets (d+e) 4940.61 5560.26 6168.00 6820.90 Annual Profit & Loss Statement for the period of 2012 to 2015E
Value(Rs.in.mn) FY12A FY13A FY14E FY15E Description 12m 12m 12m 12m Net Sales 4733.15 6067.19 7280.63 8256.23 Other Income 373.77 400.51 440.56 466.99 Total Income 5106.92 6467.70 7721.19 8723.23 Expenditure -3566.77-4338.51-5205.65-5779.36 Operating Profit 1540.15 2129.19 2515.54 2943.86 Interest -0.79-0.82 0.00 0.00 Gross profit 1539.36 2128.37 2515.54 2943.86 Depreciation -25.99-32.84-36.78-41.56 Profit Before Tax 1513.37 2095.53 2478.76 2902.30 Tax -312.49-421.71-495.75-580.46 Net Profit 1200.88 1673.82 1983.01 2321.84 Equity capital 147.50 147.50 147.50 147.50 Reserves 4131.02 4690.56 5253.43 5883.84 Face value 1.00 1.00 1.00 1.00 EPS 8.14 11.35 13.44 15.74 Quarterly Profit & Loss Statement for the period of 31 st Dec, 2012 to 30 th Sep, 2013E Value(Rs.in.mn) 31-Dec-12 31-Mar-13 30-Jun-13 30-Sep-13E Description 3m 3m 3m 3m Net sales 1482.85 1841.82 1702.35 1787.47 Other income 105.14 106.87 120.57 126.60 Total Income 1587.99 1948.69 1822.92 1914.07 Expenditure -1052.99-1322.84-1219.93-1278.04 Operating profit 535.00 625.85 602.99 636.03 Interest -0.15-0.35 0.00 0.00 Gross profit 534.85 625.50 602.99 636.03 Depreciation -8.40-8.49-7.78-7.94 Profit Before Tax 526.45 617.01 595.21 628.09 Tax -104.40-125.47-124.97-127.82 Net Profit 422.05 491.54 470.24 500.27 Equity capital 147.50 147.50 147.50 147.50 Face value 1.00 1.00 1.00 1.00 EPS 2.86 3.33 3.19 3.39 Ratio Analysis
Particulars FY12A FY13A FY14E FY15E EPS (Rs.) 8.14 11.35 13.44 15.74 EBITDA Margin (%) 32.54% 35.09% 34.55% 35.66% PBT Margin (%) 31.97% 34.54% 34.05% 35.15% PAT Margin (%) 25.37% 27.59% 27.24% 28.12% P/E Ratio (x) 29.85 21.41 18.07 15.44 ROE (%) 28.07% 34.60% 36.72% 38.50% ROCE (%) 36.60% 44.69% 47.26% 49.50% EV/EBITDA (x) 23.09 15.95 13.27 11.19 Book Value (Rs.) 29.01 32.80 36.62 40.89 P/BV 8.38 7.41 6.64 5.94 Charts
Outlook and Conclusion At the current market price of Rs.243.00, the stock P/E ratio is at 18.07 x FY14E and 15.44 x FY15E respectively. Earnings per share (EPS) of the company for the earnings for FY14E and FY15E are seen at Rs.13.44 and Rs.15.74 respectively. Net Sales and PAT of the company are expected to grow at a CAGR of 20% and 25% over 2012 to 2015E respectively. On the basis of EV/EBITDA, the stock trades at 13.27 x for FY14E and 11.19 x for FY15E. Price to Book Value of the stock is expected to be at 6.64 x and 5.94 x respectively for FY14E and FY15E. We expect the company to perform well in the coming quarters and consolidate its position in the hair oil industry. Thus we recommend BUY with a target price of Rs.268.00 for Medium to Long term investment. Disclaimer: This document prepared by our research analysts does not constitute an offer or solicitation for the purchase or sale of any financial instrument or as an official confirmation of any transaction. The information contained herein is from publicly available data or other sources believed to be reliable but do not represent that it is accurate or complete and it should not be relied on as such. Firstcall India Equity Advisors Pvt. Ltd. or any of it s affiliates shall not be in any way responsible for any loss or damage that may arise to any person from any inadvertent error in the information contained in this report. This document is provide for assistance only and is not intended to be and must not alone be taken as the basis for an investment decision.
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