Bajaj Corp - Market-share gains continue; we raise estimates, retain Buy - Anand Rathi

In FY12, Bajaj Corp gained market share in Bajaj Almond Drops and Kailash Parbat hair oil. Management is confident of maintaining margins as it has hiked prices 8.5% to pass on raw material costs. We raise FY14 estimates 3% and retain our Buy rating, with a price target of Rs.189 (earlier Rs.155).

- Market-share gains in Almond Drops. Bajaj Corp's Almond Drops has continued to gain market share. For the seventh year running, it increased its market share, gaining 100bps in FY12 (over FY11), taking its market share to 54%. It aims to hit 65% market share by end-FY16.

- Kailash Parbat also doing well. The Kailash Parbat brand also continued to gain market share, and now commands 2.1% since its Mar '11 launch. The company plans to focus on its sandalwood USP and to rope in celebrities to fortify the brand equity.

- Price hikes to pass on higher raw material prices. Though crude oil prices have fallen recently, the steep rupee depreciation has held prices of liquid paraffin (a crude-oil derivative) high. To pass on rising raw-material prices to end-consumers, the company has hiked prices 8.5%. With this, management is confident of maintaining its margins.

- Change in estimates. We increase FY13 and FY14 earnings estimates 1% and 3%, respectively, to factor in price hikes and lower investment yields. We introduce FY15 estimates and expect revenue and net profit growth at 19% and 18%, respectively.

- Valuation. We value the stock at Rs.189 (earlier Rs.155) at a target PE of 16x FY14e earnings. Our target PE is at the mean PE of 13x since listing +1 standard deviation. Risks: Weaker response to launches and increase in competitive pressures.

Source : Equity Bulls

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