Bajaj Corp - Q2 FY14 Result Update - CMP Rs.235 - Rating revised to BUY with Target Price of Rs.285 - Sushil Finance

During Q2 FY14, Bajaj Corp. Ltd. (BCL) registered a top-line growth of 16.5% YoY to Rs.1,584.0 mn and reported a bottom-line of Rs.360.2 mn. Following are the further updates:-

Q2 FY14 Result Highlights

- During Q2 FY14, BCL's net sales grew 16.5% YoY to Rs.1,584.0 mn; the EBITDA grew 9.7% YoY to Rs.428.7 mn. The EBITDA margin registered a decline as a result of increase in staff costs, advertising and other expenditure, as a percentage of revenue. The net profit during Q2 FY14 stood at Rs.360.2 mn as against Rs.384.2 mn and Rs.470.2 mn achieved during Q2 FY13 and Q1 FY14 respectively. In addition, the net profit margin stood at 26.0% as against 28.2% in Q2 FY13 and 27.6% in Q1 FY14.

Product-wise Volume

- The volume growth in the Almond Drops Hair Oil (ADHO), the flagship product of the company was relatively lower during Q2 FY14; the volume growth during this quarter was lowest in last 12 quarters. During the period, the company sold 1.09 mn case units as compared to 1.16 mn case units in Q2 FY14 thereby registering a growth of 15.9% on sequential basis. In addition, the growth in the seasonal product, Bajaj Kailash Parbat Cooling Oil was continued to witness consequences of stretched monsoons. Brahmi Amla, Amla Shikakai and others registered a decline on an annual basis.

- Till September 2013, BCL managed a market share of 56.8% in terms of volumes and 58.3% in terms of value in the Light Hair Oil (LHO) category up from earlier 54.5% and 56.9% in FY13, respectively.

- During the quarter, the price of key raw materials light liquid paraffin & refined oil declined on YoY basis. However, on sequential basis, the price increased substantially but the company did not face any challenges on account of advance contracts; the impact of the increase in raw material prices may be seen in upcoming quarters.

- During the quarter, an amount of Rs.51 mn was written off towards the acquisition of No Marks. In order to fund the acquisition, the company has taken a loan of Rs.1,000 mn of which Rs.400 mn is Short-Term and Rs.600 mn is a Long Term Loan payable over the next two and half years; with a provision to pre-pay without any prepayment charges. The remaining Rs.400 mn was paid out of cash generated during first two quarters.

OUTLOOK & VALUATIONS

BCL released its Q2 FY14 results on October 15, 2013. The performance for the quarter ended September 30, 2013 was relatively subdued as compared to previous quarters. The volume-growth of the flagship brand Bajaj Almond Drops Hair Oil declined to lowest in previous twelve quarters. This was largely due to the general slowdown in the consumer spending; as the Management indicated the total hair oil industry registered a mere growth of 0.8% while the Light Hair Oil industry witnessed a growth of 7.8%. The Management expects the growth to be subdued for the next two quarters. Accordingly, we have lowered our top-line estimates for FY14 and FY15 alongwith operating margins in light of anticipated increase in sales and promotions on account of volume slowdown. We now estimate company to register an EPS of Rs.13.1 in FY14 and Rs.15.0 in FY15. On the other hand, we have increased our P/E target multiple from 18.0x to 19.0x in light of enhanced product portfolio and diversified product-line with the acquisition of No Marks that embarks the company's foray into skin-care segment. We revise our rating for the stock from HOLD to BUY for the target of Rs.285.

Source : Equity Bulls

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