ValuePickr Forum

Bajaj Consumer Care (Formerly Bajaj corp limited)

i see that the sale will be thru “offer for sale” route. so i guess there will be some block deal so may not affect price much.

Have participated in Bajaj Corp OFS @230 against LTP of 244 using LAS ac of mine.

The co seems to hAve huge growth potential with ROCE of 125%, ROE 36%, 3% Div Yield, forward Eps of 15 n 18 .

The co has premium brand, robust pricing power, strong terms of trade , good distribution reach, very fast growing category of light hair oil, reach in tier 2& 3 cities n even Bangladesh now with huge no head count as target audience. Growth assured for long time with excellent ROCE the deadly combination for riding a quality compounding machine.

Tomorrow or next few days will be good opportunity to buy this quality co cheap as lot of flippers will come to book profit.

Views Invited.

Vivek Ji,

I put my order at 225.5/- & you know the result. :frowning:

I don’t think there is going to be a meaningful fall because of profit booking. I would love to have some fall in this though.

As of now, company is doing great but its a one product company & hence we need to closely monitor that product’s performance.

Jatin hard luck but in future in OFS try to bid higher then indicative price n more I portmanteau treat it as secondary market transaction bidding at the price u would have comfortably bought from secondary mkt.

Thought its a single product co rather single segment co as its recently launched Kailashparbat Parbat cooling hair oil iS getting traction n is now 6% of Bajaj corp turnover the numbers are fantastic.

It’s a zero debt co with GPM of 58.3% n more importantly leader in a growing segment. Last qtr was 9 th consecutive quarter of growth with even NPM increasing to 28%. India n neighbours comprising of population of 130-140 Crores n a strong tradition of usage of hair oil n maalish provides it with ready market for several more years . My barber says hair oil are like fertilisers for hairs n an absolute must.

It’s gaining market share from competitors strongly focused n with its innovative use of small packs n sachets vastly growing into rural areas.with v decent ROCe n big size of opportunity it’s a great compounding machine for several more years IMHO .

Recently MS highlighted the co where simplicity in terms of single product or India focused prevails have hugely outperformed their larger peer who ventured overseas for acquisition . They liked Bajaj Corp n cos like Hawkins n TTK. Sees candy was also a single product co .

One can keep a tab on the co n on Monday morning can give good price to pick due to several flippers who hv entered only for 1 day.

The stock can reach 300 to 350 in 1 year.

Q1/Fy 13-14 Results out…

Total Income up 23.1% to 170.24 Cr from 138.24 Cr.
EBIDTA up 24% to 48.24 Cr from 38.92 Cr.
Net Profit up 25% to 47.01 Cr from 37.62 Cr.

EBIDTA margin is 28.3% v/s 28.2% (MQ-13) and 28.2% (JQ-12)
NET Profit margin is 27.6% v/s 26.7% (MQ-13) and 27.2% (JQ-12)

Total Raw material costs as a %ge to Income is 39.9% v/s 41.6% (MQ-13) and 44.3% (JQ-12)
Employee costs to Income is 4.9% v/s 4.7% (MQ-13) and 5% (JQ-12)
Advertisement expenses to Income is 8.8% v/s 7.4% (MQ-13) and 7.1% (JQ-12)
Other expenses to Income is 18% v/s 18.2% (MQ-13) and 15.4% (JQ-12)

Tax Rate 21% v/s 20.3% (MQ-13) and 20.2% (JQ-12)

EPS 3.19 v/s 2.55
Recorded TTM (sum of 4 quartr) diluted EPS: Rs. 11.98

At 12:27 pm on 02/08/2013, stock on NSE trading at Rs. 247/- up 2.8%

Researchbytes is an excellent site a virtual boon for us investors.

Link to latest analyst presenation n other reports

http://www.researchbytes.com/Bajaj-Corp-Limited-B0742.htm

Conference Call key highlights by Capital Market.
The company has acquired NOMARKS from Ozone Ayurvedics for an undisclosed sum. NOMARKS is an anti-marks skin care brand.

The acquisition marks the entry of the company into the Rs 8500 crore worth Indian skin care market. NOMARKS is the second largest player holds ~12% share in the Rs 340 crore anti marks category, which in itself grows in excess of 25% per annum. NOMARKS has significant brand recall in a category dominated by MNC's as Unilever and L'Oreal.

The deal includes transfer of NOMARKS brand-related business inclusive of trademarks, patents, goodwill and existing contracts along with NOMARKS trade marks from Ozone UK which is registered in 90 countries under Madrid Protocol and another 8 countries in SAARC, ASEAN and Middle East/ West Asia.

Ozone Ayurvedics will continue to manufacture the brand for one year under a transition support agreement which can be extended by another six months and the deal includes a 3-year non-compete agreement with Ozone promoter.

NOMARKS product range includes Cream, Face Wash, Face Pack, Scrub Bleach and Soaps. It derives nearly 45% of its revenue from face creams, 25% from face wash and 20% from soaps.

The brand is available across 1.5 lakh outlets across India while Bajaj products are available in 6 lakh outlets. Around ~41% of NOMARKS revenue comes from chemist outlets. The brand derives 44% of its revenue from North, 26% from East, 18% from West and 12% from South.

The brand has 60 SKUs. The mgmt of Bajaj Corp said that it will initially focus on rationalizing SKUs/forms without tinkering too much on smaller SKUs.

The mgmt of Bajaj Corp said that the brand growth is stagnated over the past 3 years due to underinvestment and lack of focus of erstwhile promoters. However, the brand enjoys strong problem-solving positioning. Going forward, the mgmt of the company said that it will focus on 3 things: brand rationalization in terms of SKUs/forms; distribution ramp-up; and raising brand spends to increase awareness about the brand

The mgmt indicated it may look at raising debt as well, though it has Rs 370 crore surplus cash.

The negatives cited by Hitesh/Donald seem to be going away. Company has deployed cash and the OFS is also now underway.

Things should look interesting from hereon

This has been a steady compounder. We may not fully understand how the acquisition has gone in the next two to three quarters as the portion of NOMARKS sales will be small compared to Almond Drops. With Kailash Parbat they have lost 10 Crs in the last two years and the product is yet to break-even. NOMARKS being an acquisition will not take as much time as Kailash Parbat but one would still need to wait for a few quarters to see how they are going to grow. Overall the manager (Sumit Malhotra and Jimmy Rustom) has delivered time and again and the overhang of questionable promoters (Kushagra Bajaj) seems to be getting discounted.

@commonstocks — what is questionable about Kushagra Bajaj? Can you please be more specific so that other can learn?

Thanks

BAlaji

  1. He was on the Radia tapes.

  2. Shishir Bajaj Companies do not have the same record as Rahul Bajaj when it comes to corporate governance and stock market returns, but Bajaj Corp is an exception here.

  3. He seems to have a liking to power business and has pumped in a lot of money in it over the last few years. His vision is to replace Sugar with Power as the biggest revenue generator in his group.

interesting article

salient points:

1). high profitability enabling it to earn high returns on equity and capital employed

2). focus on the brand and the product enabling it to keep increasing its market share - big fish in a small pond. fish is getting bigger by eating other fish. pond is also growing. good combination for continued growth

3). management sounds on-the-ground, modest, conservative and realistic in their expectations

4). careful in brand extensions - notice the drop from 34 products earlier on. recent forays into kailash parbat and no-marks could be intersting. however currently too small (similar to speedo and page) to have meaningful impact. but potential is high.

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The co could be more like Sees candy which was a 1 product co n moreover major sales in Christmas only yet was Wb favourite co n created lot of wealth for him.

With superb ROCE , size of opportunity , great team of Mr sumit Malhotra n Mr Jimmy Rustam with superb planning n execution time will be a friend of this great company IMHO .

Hi Vivek,

Indeed, Bajaj Corp is a high quality business and has product offerings that are sticky with the customers. Though there is some pricing power as in most of the segments as there are only few powerful brands garnering substantial market share! Nonetheless, there is competition from formidable brands/products in each of its product segment be it almond oil or kailash parbat. So, in that sense, the pricing power is not exactly like See’s candy. I would think that may be Cadbury will be a better comparison for See’s candy.

Another thing that I would like to point out is the price that one has to pay for buying a part of this business. At current price, the business is trading at 27-28 times TTM earnings. While when buffet bought See’s candy he paid 12.5 times TTM earnings. To me, it leads to larger question. So, many a times I have seen people quoting Buffett that his investment philosophy has evolved and he is willing to pay fair price for high quality business instead of buying average quality business at very low price. However, the key question here is what is the “fair price”? Will Buffet ever consider paying 40-45 times earnings (like lot of valuepickr boarders are betting in case of Page) for high quality business? I need to dig deeper to find out how much Buffet paid for high quality business, but primafacie, looking at his purchase decision of See’s candy, Amex and Coca Cola, Buffet did not pay 30-40 times present earnings. He paid 15 times TTM earnings for coca cola which he considered as one of the world’s best businesses with three strong moats! So, aren’t we stretching the “paying fair price for high quality business” too much? Margin of safety is cornerstone of value investing, which I sometimes feel is getting overlooked while making investment decision.

Though, this may not be appropriate place to initiate such discussion, but I feel we as a group must dwell onto this subject and have healthy discussion on.

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Hi Dhawanil,

A person who bought Page Industries in 820-850 range in end 2009, is sitting on a 5+ bagger in 4 years. At that price, page was trading at 25+ pe. So many people believe that page at a pe of less than 30 can repeat the same performance in next 4-5 years and it is a steal at that PE. At a pe higher than 30, it may not be a 5 bagger in 4-5 years, but still provide decent enough returns.

Disc. No holding in Page.

On TTm basis the PE may be high but India having huge no of consumer base in urban n rural the forward PE on an EPS of 18 for FY 15 becomes very attractive.

Maximum wealth is created from 3 rd year of investment onwards provided promoters are ethical n hv great execution track record, ROCE is superb n size of opportunity is great. Bajaj Corp fulfil all these criteria . We need to treat the investment at CMP as 3 year FD n load more if results are not upto the expectation for a quarter or two. Amarraja gave this opportunity to load more around 240 n now it’s back to 315.

How much PE would one give to Bajaj Corp on an EPS of 18 for FY 15. Nomarks acquisition will become EPS accretive from Fy 15 n how big is that skin are opportunity for Bajaj Corp?

Views invited.

I was going through the May’13 conf call transcripts and thought of preparing a ‘small’ note. So, here you go.

1). How is hair oil Market organized :

)- 1/3rd of the market is unbranded hair oil.

)- 2/3rd is branded hair oil. From this 2/3rd, roughly 50% share is enjoyed by branded coconut oil (which is the commodity end of the business, well more or less), and16% by Light Hair Oil(LHO) - of this LHO segment, Bajaj has 57% market share. So overall from the branded non-coconut hair oil pie, Bajaj has roughly 20-21% market share. andfrom the overall branded hair oil pie, the market share is at 10-11% range.

Foraspirationalreasons (driven by advertising/branding), the volume growth in the LHO market is at 16.7% cagr compared to volume growth of 11.2% cagr in overall hairoil market over last 6 years. Which means the LHO segment is gaining market share from the other segments pretty consistently.

In value terms the overall hair oil market has grown by 18.6% cagr compared to 25.3% cagr of LHO segment over the same 6 year period.

3). Bajaj Almond Drops - the flagship product giving 90% of revenue for Bajaj Corp before NoMarks acquisition

)- over the last 6 years, BAD’s volume have grown at 26.3% cagr compared to 16.7% growin LHO segment.

)- over the last 6 years, BAD’s sale in value terms have grown at 34.8% compared to 25.3% growth of LHo segment.

2). Main raw materials

)- Light Liquid paraffin (74/kg) has seen a major reduction from 80.65/kg, and contract is secured for first 2 quarters.

)- Vegetable oil(at 80/kg is pretty stable)

)- Glass bottle (Company has been able to secure a 6.5% reduction in the prices in January 13.)

)- proprietary perfume (sourced from a international player - not to be sold to anyone else)

My guess, there is no almond involved :wink:

3). Pricing power -

Company has hiked prices by 8.6% in 2011, 8.5% in 2012, and by 6% in 2013 and won’t take a price cut even if the price of raw materials fall, as it’s a premium product.

If the margins expand due to falling raw material prices, they would spend that amount in advertising and grow the category itself. Company believes the onusof growing the category is blessed clearly with the leader.

4). Other strengths of the company

)- Company has grown to cover 2.6 million retail outlets from 1.9 million which was the number at the time of listing in 2010.

)- Oppurtunity for growth - Company beleives growth will be driven by growth in reach and India having 6.5 lac villages with 70% of the population they are no wherenear saturation. Company recognizes it’s distribution as astrengthand moving in the direction to leverage that. They want to take the NoMarks products to retail outlets from the current distribution reach ofmedicineoutlets.

5). Few other things that I liked to note:

)- Competition - Has launched, “almond hair oil” 1.5 years back and only been able to gain under 3% market share. For beating a market leader they have to prove why theiralmond is better than Bajaj’s ( My observation - when there is no almond involved in reality it’s a tough job :wink: )

)- Tax Rate - Will remain stable till 2017-18 at ~20% due to MAT credits

)- Effect of inflation - if you see the entire basket of consumption, hair oil will form a very small portion because almond drop hair oil 100 ml(priced at around 60) is lasting for 40 days, Rs.2 increase in almond drop for 100 ml is not going to pinch him that much. And thatâs the key

Negatives

)- 3 years ago amla had stagnated but thanks to the low cost amla that was launched, that category has also started growing again. This is part of value added perfumedhair oil category which will mostly eat into the market of other products in LHO. Company doesn’t want to focus much on this category although they have product because of thin margin.

)- if you expect a volume growth of 20% quarter by quarter for the next 2 â 3 years, I think that’s a very high expectation and I doubt whether that could bemaintained.

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Bajaj Corp made a profit of 167.38 crores in FY 13 which makes it PE 23.6 at 3950.79 Mcap

& 176.76 crores in trailing 12 months, which makes it PE 22.3

and since we are past 2 quarters, and if we consider a 20% increase in profit in this quarterly result, then we are at 21.8 PE.

Am i missing something ?

Now on NoMarks - it has 12% market share of a 342 cr. market which is growing at 27% and it has a margin profile similar to Bajaj Corp, in fact a little higher.

So, if we take a round figure of 5 cr. contribution to Bajaj Corp’s NP in the next 6 months and consider a conservative 20% growth in NP for Bajaj Corp (excluding NoMarks), for FY14 then NP comes to 206 cr. and PE FY14 would be 19 times. If the payout ratio remains at 55%, then we talking of close to 3% prospective yield. I feel the estimates are conservative.

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Dear Gyan,

I think we can move the discussion on the Page to appropriate thread, though I am not sure how to do it so posting my reply here. I agree with all here that Page is a great business and has given excellent returns in the past and has traded at P/E of 30 and above and may continue to trade going forward as well. The limited point I want to bring out is, that if all goes well, market will continue to assign similar valuation to Page. However, as fundamental principle of value investing is to ensure that we ensure there is no permanent loss of capital. Is there any likelihood of such permanent loss of capital at these valuations if an unforeseen negative event happen with Page? In nutshell, considering worst case scenario for Page, where growth falters, competition picks up, margins are under pressure , do we have reasonable confidence that we will at least generate 10% return on money invested at this price? Also, What is the intrinsic value considered for Page? What all assumptions that have gone into estimating IV? If we have some idea about IV for Page, what is the margin of safety at current price? In short, I do not want to get carried away from anchoring bias that high P/E stocks are not investment worthy but at the same time, want to have fair idea of what is the cushion one is getting if one pays this price.

Just to put things in perspective, P/E of 40. Essentially, it means that if returns expectation for investor is 15% over a long term and future earnings are discounted at expected return rates, earnings have to grow at CAGR 22% for 20 years. Now, this is definitely a call that an investor has to take as to likelihood of earnings growing at this rate for 20 years considering the strength of the business. However, assuming 20+% CAGR as “Given”, even for a great business, is a stretch in my opinion.

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