Bajaj Corp Ltd. - GEPL Capital

Q3FY12 – Strong volume growth of 20%, Margin pressure continues with high RM cost and Ad spends..

- Bajaj Corp reported net sales at Rs.1.1 bn, up 30% Y-o-Y riding on high growth of light hair oils.
- Gross margin contracted by 210bps Y-o-Y to 54.3% due to Y-o-Y increase in raw material cost.
- EBIDTA stood at Rs.286 mn, 10% up Y-o-Y. EBITDA margins contracted 473bps Y-o-Y to 25.5%.
- Other expenditure and staff cost increased by 42 % Y-o-Y (up 197bps) and 49% Y-o-Y (up 66bps) in Q3FY12.
- PAT grew 48% Y-o-Y to Rs.289 mn. PAT margins expanded 314bps Y-o-Y to 25.7%.
- Higher other income, lower taxes and exceptional expenses in base Q3FY11 pushed up PAT growth in Q3FY12.

Result Highlights

Sales growth led by 20% volume growth

Net sales at Rs.1.1 bn, up 30% Y-o-Y, led by strong volume growth of 20% which was ahead of category volume growth of 13% Y-o-Y. The incremental growth came from shift in users of small brands and unbranded products to Bajaj Almond drop hair oil. The increased distribution (17% up Y-o-Y) to 2.2 mn retail outlets also helped to push up the growth in rural areas.

Margin pressure continues with high RM cost and ad spends

Gross margin contracted by 210bps Y-o-Y to 54.3% due to Y-o-Y increase in raw material cost. Price of key raw material, light liquid paraffin increases 25% Y-o-Y however on Q-o-Q basis there is some respite with marginal decline in prices. EBIDTA stood at Rs.286 mn, 10% up Y-o-Y. Ad spends increased by 167bps to ~12% and Staff cost increased by 49% Y-o-Y (up 66bps) respectively in Q3FY12. As a result EBITDA margins contracted 473bps Y-o-Y to 25.5%.

PAT growth pushed up by lower taxes and exceptional expense in base year

PAT grew 48% Y-o-Y to Rs.289 mn. PAT margins expanded 314bps Y-o-Y to 25.7%. Higher other income (up 60% Y-o-Y), lower taxes (tax rate 19.2% vs 19.6% in Q3FY11) and exceptional expenses in base Q3FY11 pushed up PAT growth in Q3FY12.

Valuation & Viewpoint

The company has maintained strong growth trajectory during the quarter riding on the strong growth in light hair oils category. However concerns remain on revenue mix as most of the revenues are contributed by single brand Bajaj Almond drops. Any acquisition could be trigger to stock re-rating. The stock is trading at 10.5x multiple of FY13 consensus EPS of Rs.10.4.

Source : Equity Bulls

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