Bajaj Corp - In-line Q2; downgrade to HOLD on limited upsides - Religare

For Q2FY13, BJCOR posted a growth of 27.2%/43.6% /33.6% YoY in its topline/EBITDA/PAT. Results were in line with topline growth largely volume-led and lower RM costs translating into an EBITDA margin expansion of 325bps YoY. We roll over from Mar'14 to Sep'14 earnings, leading to a Sep'13 TP of Rs 190. Given the strong outperformance, the stock holds limited upside from current levels. We thus downgrade BJCOR from BUY to HOLD and recommend buying the stock at Rs 160?165 levels.

- Net sales growth of 27.2% YoY: BJCOR's net sales grew 27.2% YoY to Rs 1.4bn, led by an 18.7% YoY growth in volumes as the company took a YoY price hike of 8.7%. BJCOR's flagship brand Bajaj Almond Drops saw a 90bps improvement in market share to 51.8% (over FY12 levels). The cooling oil brand Kailash Parbat recorded a 2.9% market share in Jul-Aug'12 (up 180 bps YoY). Bajaj Almond Drops/ Kailash Parbat have a distribution reach of 24,25,000/4,00,000 retail outlets.

- EBITDA margins improve 325bps YoY: BJCOR's EBITDA margins expanded 325bps YoY to 28.6%, with EBITDA reporting a 43.6% YoY growth to Rs 389mn. Gross margins increased 400bps YoY as the company benefitted from lower LLP prices (down 5% YoY). Other expenses increased by 80bps YoY to 17.9% of sales while A&P expenses were up 40bps YoY to 6.3% largely on account of higher sales promotion activities undertaken during the quarter. Adj. PAT grew 33.6% YoY to Rs 384mn. Other income declined by ~2% YoY to Rs 100mn with cash balance at the end of the quarter at Rs 4.45bn.

- Downgrade to HOLD with a revised TP of Rs 190: We roll over from Mar'14 to Sep'14 earnings, resulting in a Sep'13 TP of Rs 190. Downgrade to HOLD. Key risks to our call: (a) strong, continued growth in volumes, (b) higher-than-estimated margins due to soft RM costs and (c) value-accretive acquisitions.

Source : Equity Bulls

Keywords