Bajaj Corp - Buoyant volumes/margins, we raise est., maintain BUY - Religare

BJCOR reported in-line Q4FY13 net sales/EBITDA/adj. PAT growth of 25.3%/ 53.4%/44.4% YoY led by strong 19% volume growth and robust margins (from lower LLP and glass prices). We raise FY14/FY15 earnings by 2%/3% on higher margins and revise our Mar'14 TP to Rs 285 (from Rs 275). Maintain BUY on (a) continued double-digit volume growth, (b) stable, industry-leading margins backed by pricing power and premium positioning, (c) cash-rich balance sheet, and (d) attractive valuations at 19.2x/16.1x FY14/FY15E earnings.

- Net sales growth of 25.3% YoY led by 19% volume uptick: BJCOR's net sales grew 25.3% YoY to Rs 1.8bn as increased promotional activity fuelled a strong 19.1% YoY growth in volumes. The company has taken a 6% WTD average price hike on its flagship brand Bajaj Almonds Drops in April'13, which should drive revenue growth in FY14.

- Margins improve 510bps YoY: BJCOR's EBITDA margin expanded 510bps YoY to 28%, with EBITDA up 53.4% YoY to Rs 514mn. Gross margins improved 530bps YoY on the back of a 6% YoY price reduction in LLP as well as a 6.5% reduction in glass prices. A&P spends for the quarter increased by 23% YoY (down 30bps YoY at 16.5% of sales) - advertising spends were flat YoY and most of the increase in A&P expenses was promotion led. Adj. PAT was up 44.4% YoY to Rs 492mn. Other income increased 6.5% YoY to Rs 112mn, while the tax rate was down 90bps YoY at 20.3%.

- Maintain BUY with Mar'14 TP of Rs 285: We increase our FY14/FY15 earnings estimates by 2%/3% on the back of higher margin estimates led by soft LLP and glass prices. Maintain BUY with a revised March'14 TP of Rs 285 (previously Rs 275). Key risks to our call are a slowdown in volume growth, inflation in the input commodity basket and risks related to acquisitions.

Source : Equity Bulls

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