Bajaj Corp - Heavy Growth in Light Oil - Maintain Buy - Spark Capital

Bajaj Corp (BJCOR) maintained its stupendous growth momentum of last 8 quarters in 4QFY13 as well and reported its highest ever quarterly revenue of Rs. 1.8bn (+25% y-o-y, +24%q-o-q), highest ever quarterly operating profits of Rs. 519mn (53% y-o-y, +21% q-o-q) and accordingly highest ever quarterly PAT of Rs. 492mn (+44% y-o-y, +16% q-o-q) for 4QFY13. Overall volume grew by healthy ~19% yoy, while growth was aided by ~6% yoy inflation in average realisation.

Growth thesis remains intact - Led by its multiple growth driver - premium brand, lucrative category, and immutable leadership status - BJCOR's key brand Almond Drop Hair Oil (ADHO) continues to deliver strong growth. Considering the evident strengths - robust pricing power, enviable margins, strong terms of trade and huge growth potential in its existing business model, we believe, led by ADHO, BJCOR is well placed to deliver growth for the near to medium term from the current product portfolio and in the interim diversify its business model through organic and/or inorganic means before its key brand reaches the saturation level. Though it would be difficult to replicate success of ADHO in short-medium term, some contribution from other brands would mitigate the 'single brand- single product risk' of the current business model.

View remains bullish - We introduce our estimates for FY15 and roll forward our valuations based on FY15 earnings. We expect BJCOR to post topline CAGR of ~20% from FY13 to FY15E to Rs. 8.7bn (FY13-15E volume CAGR of ~13%) and PAT CAGR ~19% in the same period to Rs. 2.4bn in FY15E, leading to EPS of Rs. 16.2 in FY15E. We value BJCOR ~18x FY15E ( ~25% discount to peers) and arrive at a target price of Rs. 292. Maintain Buy.

Source : Equity Bulls

Keywords