This report suggest so based on unknown sources.
But how much more overhang remains from other businesses? What kind of distress they have in other busineses?
What are the other businesses, how is it related to Bajaj consumer. Can you explain more
You can find all the businesses of Bajaj Group (Shishir Bajaj, Kushagra Bajaj) by going to the āBusinessā tab of the following website.
Most of these businesses are resource intensive and highly leveraged.
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Management commentary on 17 Oct 2019
As expected, promoter holding is now 38%
No pledge
Will look to increase the stake to 51% in the coming years
Will double the market share in the hair oil segment( Can compromise margins as well)
will look for energy company IPO(Received SEBI approval)
Consumer business to grow significantly post 2023
Saw positive impact of tax cut in last quarter
- Increase promoterās share to 51% in the coming years is positive as it will support share price.
- No pledge of promoterās holding is also positive.
All in all a positive development. Though initial response by market on 15th was terrible, the share price on 16th and 17th has recovered more than what it lost on 15th.
Sometime back, the management had indicated a plan to raise Rs. 1000 cr in equity via QIPā¦ Whatās the update on that??
Can smbdy who is invested in the co. clarify on that?
These are all āgood motherlyā statements designed to quell investor panic. For a group that did not have money to repay its debt, how is it going to raise the funds for hiking the stake to 51%?
Also given the current market scenario and going by the depressed valuations for power cos, it is unlikely that the Bajaj Energy IPO will go through. In fact if the IPO does not go through they may need to raise more funds by fresh pledge. This is a real risk.
Growth in consumer business 4 years out is a wishful thinking. So far their attempts to reduce the dependence on ADHO have not borne any fruit.
5 Likes
If promoter sells the pledge shares instead of lenders how it is different for a investor? Effectively in both scenarios promoter stake goes down. This also means initial loan raised against the pledging was not effectively utilized to even repay it. This is not even indicating pledging story is over and it may come back in future.
Did not bulk deal happened on pre-negotiated 15% discount price?
Except the price point and institutional investor outcome is the same. If you canāt service the loan sell the collateral
If they do not intend to pledge or are in strong position after liquidation, they would not have sold 22% (36% of their holding) at discount.
I am unable to understand.
- Why did the promoters sell such huge stake at such a steep discount?
- At 195, it was at a dividend yield of 7.2% and PE of 12. (Unlike most of the other optically high yield companies, this one is a real thing. Because the business is still doing good and visibility also decent. Of course this is assuming the past div payout policy). As they say, cheap is always cheap for a reason. ( Especially when you consider most of the fmcgs are > 50 PE). So many fund reputed found houses bought it last week. Do they not know cheap is cheap for a reason or they are smart?
The main reason it was cheap was because of Promoter pledge - PE of 12. Otherwise it could have been at a PE of 25 or 30 (as it was before), certainly not 50 PE or more because of lower growth compared to other FMCG and current dependency on single product. So the hammering from 25-30 PE to 12 PE happened because of Promoter pledge issue. Now, market doesnt seem to mind much on how much promoter sell or how much they hold or at any later stage they are forced to sell even moreā¦as long as the company itself performs fine, there are no corporate governance issue and if growth comes even better.
Main point to be seen is how much dividend will be declared in Dec/Jan now considering promoter share is reduced significantly. Also, from management commentry it is clear that for next 4-5 years they dont want to invest much in any acquisition, new brands, new areas in FMCG/Consumerā¦they will just concentrate on its current strength and single category, which is fair enough considering other businesses issues going on and FMCG growth tapered a bit. Considering this i think with no pledge and no corporate governance, a 20+ PE is fair enough and with good growth in the single category it should come back to its previous 25-30 PE.
Disclosure: Pls note these are my personal view only and no recommendation to any one and my views maybe biased. It used to be my core holding till 2015 when I luckily sold most of it when the Promoter pledged share for first time. Still hold small part, bought more in small quantities in recent downfall
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In addition to the points you have raised, my concern is mainly on promoters willingness to let go margins in search of market share as mentioned by Kushagra Bajaj in the interview. This could also means to more A&P expenses. This would have short term hangover as margins would come under pressure.
Also I am in agreement with @iamket that energy business IPO is bit far fetched dream at this point in time. So group would be hard pressed on cash for some timeā¦(pledging possibility)
Disclosure : Not invested but interested
1127661634PC_-Bajaj_Corp_Q2FY20_Update-_Oct_2019_20191022084237.pdf|attachment (1.0 MB)
Quarterly update from Phillip Capital
*Promoter debt was 643 crores as on Sept end. Now stands at NIL.
*No more promoter pledge in consumer stock and promoter level group.
*No intention of selling the company
*Will increase the shareholding to 51% through the creeping acquisition route.
*Energy company is profitable and well equipped to finance the debt. IPO or no IPO will have no impact on Bajaj Consumer.
Strategy going forward:
To double the market share from 10% to 20% in 13500 cr hair oil category.
Tied up with Bain for strategy and growth. Implemented the project in West Bengal
Data for WB.
Bajaj Sales VS Industry sales growth:
July: 19% vs 2%
August : 15% vs -3%
Sept: 10% vs -6%
ADHO volume growth was 1.3%, overall volume growth was zero.
Will implement in one big state in November also. If similar results are seen, it will roll out on the PAN India basis in Q1FY21. Strategy going forward is growth and market share improvement. Will take a margin hit of 2% over the next 18 months.
Thus, sales will grow by 12/13% going forward, margins will be down for the next 18/24 months
*AnP as % of sales will go up from 16% to 23/24%
*Rural degrew for the first time. degrowth of 2%.
*Urban is growing more than Rural. Will see zero growth in the industry for the coming months.
*Have never seen such a slowdown in the entire career.
*Cost-cutting plans are being implemented. 5 crores cost saving achieved so far, will achieve the target of 16 crores by June of next year(Personnel cost reduction). Employee as % of the total cost is down by 200 bps
*Doing AI automation, SAP implementation will be done by March
*Will appoint a new CEO in Jan 2020. Formal joining April 2020.
*Wholesale points were 55% 3 years back are now 33%. focusing more on growing retail touchpoints.
*Won`t be investing much in Nomarks. Focus only to grow hair oil. The strategy shifted from being just a light hair oil to full hair oil category company,
*The dividend payout will be lower going forward as the company will invest a lot in brand building, advertising, (maybe small regional hair oil brand acquisition)
Or is it because the promoters will hold less stake and will get a smaller share of distributed dividend. Bajaj Corp has been saying for last many years on brand building and acquisitions but never declared that dividend payout will be less untill promoter share got reduced.
Bajaj Consumer Care Q2 Result Update!
https://drive.google.com/open?id=15ehlQm53TWoe28i6tfZEJ385-PuMnIME
Prepared by E-Global Group of Companies!
https://e-global.in
(Disclaimer: Not an Investing/Trading Recommendation)
My notes from Q2 earnings:
- Interesting earnings call with lots of insights.
Promoter:
- Promoter sold 22% at Rs 628 C, reducing his stake from 60% to 38%.
- Sold his 22% stake of the company valued at ~ Rs. 2850 C (22% = Rs. 628C)
- No more personal debt for promoter. Rs. 643 C of debt was repaid.
- All pledged shares have been recovered.
- Committed not to take further debt at promoter group level. No more pledges on Bajaj Consumer.
- Not interested in selling the company. Will increase the share holding to 51% slowly.
- Other Bajaj group companies - Energy and Sugar.
- Bajaj Energy is planning to go public. It is profitable. Debt is self sustainable via cash flow. Should not be affected whether IPO happens or not.
Bainās consultation (Project Vistaar):
Recommendations:
- Launch of new ad copying with local celebrity in local language
- Focus on high share of voice
- Focus on digital media
- Rural focused on-ground activation
- Go more direct. Increase direct coverage with van operations.
- Introduced new price point (Rs. 35) which is fast moving.
- No credit. Only cash and carry basis.
Results in West Bengal:
- West Bengal was chosen as the first state to execute the recommendations.
- WB was chosen because - it is an isolated market from advertisement perspective. Third largest market for HO. Fairly a large market to execute the strategy.
- Results have been promising though Hair oil industry has de-grown in Bengal.
- Industry - volume growth in July, Aug, Sep: -6%, -9%, -11%.
- Industry - value growth in July, Aug, Sep: 2%, -3%, -6%.
- Bajaj - Primary value growth in July, Aug, Sep: 19%, 15%, 10%
- Bajaj - Secondary sales growth in July, Aug, Sep: 20%, 22%, 17%
- Compounded Primary sales growth: 14% vs Industries -2%.
- Compounded Secondary sales growth: 19%
- A new large state will be chosen from Nov 1st. If that is proven to be successful as well, same strategy will be executed pan India from mid of Q1 2020.
- Strategy is to identify gaps and execute plans for each state or region.
Business:
- Company is looking for a new CEO who will share the same vision. Sumit will be present till the new CEO settles.
- Emphasis is to increase market share from 10% to 20% in 5-6Y by significantly increasing sales and promotions expenses. Company expects the industry to not grow for 2-3 quarters.
- If market share is high and the economy starts to grow, increase in earnings will be disproportionately higher.
- CapEx - Construction of office building to be started. This is for Bajaj group - Consumer, Energy and Sugar. Over 18 months - Rs. 25 to 30 C for basic civil work. Interiors after that will cost significantly more.
- Outlets: Direct distribution has grown to 5.13 L outlets . Wholesale dependence has come down from 55% to 34%. Each person adds 400 new outlets. Cost 10k to 12k a month per person. In WB, 10k outlets added. From 38k to 48k. One third of growth came from new outlets. Remaining from existing outlets. Target in WB is to cover 20% of retail outlets in next 2 quarters. Same will be imitated in 2nd state. Will take 2-3Y to cover 20% of direct outlets throughout India. Required as wholesale is de-growing.
- CSD - Name change has been sorted out. Sales has started. Channel itself has issues and not expecting further growth.
Cost savings:
- Focus on cost savings and AI. Handheld device for sales people to give instructions.
- In the process of implementing SAP throughout the organization.
- Target is to reduce 500 people. 89 already reduced.
- Improving efficiency in delivery via clear and crisp target to sales people.
Change in company strategy:
- Company doesnāt want to be light hair oil company anymore. Wants to be hair oil company.
- Products were launched nationally. Does not want to do so anymore. Eg. cooling oil did well in some places and not so in other places. Resources were not efficiently allocated. Though some parts were not buying, money was spent all over the country.
- Company does not want to execute the same strategy throughout India. Wants to micro manage and execute different strategies per state or even within state. To focus and push brands where it has a better chance of gaining market share.
- Company wants to aggressively increase market share. Ready to incur high expenses on sales and promotions.
- Ready to take a margin hit for the sake of growth.
- Nomarks was part of diversification strategy. Under new strategy the focus is only on hair oil. Nomarks sales will be as usual, no extra investments on the brand. Not taking profits from HO to Nomarks.
- Not focussing on international growth for now. Once market share is gained in domestic, International will be looked upon.
- No new acquisitions for at least the next 2 years. Focus on ADHO and new products in HO that will be released.
- Dividends - Will be reduced going forward. Reinvestments will be higher on brand building and organic growth. Capex in office building. Cash will also be accumulated in case there is a need to acquire a hair oil product. (Contradicting with the previous point)
Links:
- Investor presentation: https://www.bseindia.com/xml-data/corpfiling/AttachHis/b59977e2-66dd-48fa-af0b-838e77e059c6.pdf
- Earnings call transcript: https://www.bseindia.com/xml-data/corpfiling/AttachHis/138fde00-0649-4311-9c3f-5e9dc0ab2d03.pdf
Interviews:
7 Likes
Bajaj Energy draft offer document on SEBI website:
https://www.sebi.gov.in/filings/public-issues/apr-2019/bajaj-energy-limited_42638.html
Posting Bajaj Energy related document under Bajaj Consumer thread since we dont have dedicated thread for Bajaj Energy as of now.
Is this another grand case of throwing good money after bad money. May be, time will tell.
Disc: No Investment
Tarun