Bajaj Consumer Care - Just one quarter. Many answers. - ICICI Securities

Q3 results was a beat on all counts. The improving fundamentals will likely drive stock re-rating, in our view. Interim dividend (announcement) of Rs6 (see Table 1 for dividend history) somewhat allays consensus concerns on cash utilisation. 3Q revenue grew 17%. We like the renewed thrust on - (1) product relaunch (upgraded formulation), (2) new SKUs (filling white spaces), (3) communication (integrated campaign, thrust on digital and improved brand visibility across retail outlets) and (4) focus on categories beyond ADHO (Amla (gooseberry) market share doubled through distribution expansion). We stay believers. Sustainability of volume growth and market share gains in Almond Oil and trajectory of diversification are essential ingredients of sustained stock rerating. Our stock rating moves up a notch to BUY (from ADD).

- Revenue growth driven by continued rural demand and recovery in urban: Revenue / EBITDA / PAT grew 17% / 16% / 16% respectively. Domestic volume growth (+18% - our estimate) was driven by 1) distribution drive, 2) continuous media presence and 3) launch of relevant SKUs. Hair oil category recovered materially in Q3 after a significant decline in Q1. General trade revenue grew 17% driven by rural growth of 37% and urban growth of 7%. Revenue from alternate channels (modern trade, e-commerce etc.) grew 25% YoY driven by e-commerce growing ~3x, Modern Trade recovering back to pre-covid levels and recovery in CSD business. International business revenue grew 18%.

- Margin decline due to higher input cost and inferior mix: Gross margin declined 360bps YoY to 64.1% due to input cost inflation (Refined Mustard Oil price increased 30%) and inferior mix. However, EBITDA margin declined just by 10bps YoY to 25.5% due to lower staff cost (-110bps YoY) and ad-spends (-290bps YoY).

- Other highlights: 1) Declared interim dividend of Rs6 (Rs2 in FY20), 2) ADHO grew by 14% in Q3; launched new SKUs for ADHO (Re1, Rs20 and Rs 350 (for modern trade), 3) e-commerce business grew ~3x on low base, 4) Focus on distribution and marketing of new SKUs of Amla Hair oil led to increase in availability from 121k outlets in Dec'19 to 236k outlets in Dec'20, and 5) CSD business saw recovery.

- Valuation and risks: We increase our earnings estimates by 8% for FY22; modelling revenue / EBITDA / PAT CAGR of 9% / 10% / 8% over FY2020-23E. Upgrade to BUY (from ADD) with DCF-based revised target price of Rs350 (was Rs250 earlier). At our target price, the stock will trade at 21x P/E Mar'23E. Key downside risk is over-reliance on a single brand - ADHO.

Shares of Bajaj Consumer Care Ltd was last trading in BSE at Rs.255.95 as compared to the previous close of Rs. 213.3. The total number of shares traded during the day was 755839 in over 14444 trades.

The stock hit an intraday high of Rs. 255.95 and intraday low of 213.6. The net turnover during the day was Rs. 182433910.

Source : Equity Bulls

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