Bajaj Corp - Q2FY14 Result Highlights - Below-Consensus Performance... - IndiaNivesh

Bajaj Corp Ltd (BCL) performance in Q2FY14 quarter was below our estimates on all fronts. The key reason for underperformance was lower revenue growth. The revenue growth moderated to 16.5% YoY (v/s 27.1% YoY 4 Qtrs average) in Q2FY14. This illustrates that BCL's key brand 'Bajaj Almond Hair Oil' (Contr.95% of rev) has seen some moderation in volume growth. However, the key reason for this kind of slowdown in revenue growth momentum would be ascertained only after the conference call.

BCL's top line grew by 16.5% YoY to Rs.1,582 mn (INSPL est: Rs.1,679 mn). During the quarter, EBITDA margin contracted +169.2 bps YoY to 27.1% (v/s INSPL est: 28.4%) on-account of lower revenue growth and increase in employee & other expenditures. The slight increase in employee and other expenses was due to consolidation of NO MARKS.

Other income during the quarter stood at Rs.101 mn v/s Rs.98 mn in Q2FY13. Tax rate largely remains stable at 21% [v/s 20% in Q2FY13]. Net profit went down 6.3% YoY to Rs.360 mn led by lower EBITDA growth and exceptional item. During the quarter, the company reported exceptional item of Rs.51 mn (amortization cost related to NO MARKS acquisition). On the full year basis, management assigned Rs.286 mn as amortization cost related to NO MARKS brand. In next four years (FY14-17), total acquisition cost of Rs.1409 mn will be amortized. Adjusting other income and exceptional items, the net profit stood at Rs.310 mn (v/s Rs.286 mn in Q2FY13).

After assigning Rs.286.0 mn/Rs.469.8 mn in FY14E/FY15E as an amortization cost, we expect slight decline in the company's EPS estimates. However, the impact of this will be partially offset by NO MARKS revenue. We forecast Rs.200mn/Rs.400mn revenue from NO MARKS with 15%/16% EBITDA margin along with higher interest expenditure (on back of Rs.600 mn debt). As a result, our FY14E earnings estimates have been revised downward from Rs.12.8 to Rs.11.1. We believe re-launch of NO MARKS on the wide distribution network of BCL could lead to significant uptake in the revenue over medium-to-long-term.

At CMP or Rs.253, stock is trading at 22.8x FY14E and 19.3X FY15E revised earnings estimates. BCL's current quarter revenue growth performance was below our expectations. However, the key factor of such slowdown will be clarified only after the discussion with management during conference call. In our view, there are not many companies which are growing at double-digit growth in current scenario. We will revisit our target only after the conference call. As of now we have a BUY rating on the stock with the target price of Rs.272/share.

Source : Equity Bulls

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