Bajaj Consumer Care (Formerly Bajaj corp limited)

Conf Call Key highlights by Capital Mkt
Overall hair oil volume grew by 0.5% during April to August period. Light hair oil (LHO) grew by 6.6% during same period. Coconut oil, cooling oil and ayurvedic oil volume declined during same period.
The net sales for September 2015 quarter have increased by 11% to Rs 208.19 crore. Volume grew by 8%. Almond Drop (ADHO) sales grew by 11% to Rs 187.46 crore with volume growth of 6%. OPM increased by 337 bps to 31.1% due to fall in raw material cost and advertisement cost. As a result, the operating profit increased by 24% to Rs 64.72 crore. The profit before tax and EO has increased by 20% to Rs 71.21 crore due to rise in OPM. The net profit has inclined by 25% to Rs 46.78 crore due to rise in OPM. During the quarter, average price of LLP decreased to Rs 58.82/kg from Rs 84.27/kg in corresponding quarter of previous year. Average price of Refined Oil increased to Rs 82.02/kg from Rs 69.99/kg in corresponding quarter of previous year.LLP for Q3 is fully covered.Current LLP buying is at Rs 52-53/kg.The mgmt said that the full drop of LLP prices is not yet captured in P&L due to stock buildup.
ADHO primary offtake grew by 7.8%. Secondary volume offtake grew by 9%.ADHO value market share is 61%.ADHO is now present in 2.91 retail outlets.The price gap between LHO and coconut oil has decreased.ASP was 17% of sales in Q2. Ad spend on Nomarks brands double in last 2 quarters.
Nomarks turnover in Q2 was Rs 10.3 crore, drop by 26%. As per the management, it is in 2nd phase of integration of brands of Nomark into Bajaj Corp, as such there was reduction in SKU and stocks at retails, which impacted the sales.Anti-blemish cream category has grown by 23% during April – August period. Facewash category has grown by 34%.60% of cream sales come from chemist shops and for facewash it is 10-12%. The company is now shifting distribution from chemist to general trade.
The company has added 6 new countries in its international business. It is doing registration of Nomarks brands across various countries. It will enter into Africa and CIS countries.For Q2, growth came from Urban region. Rural growth was disappointing. The gap between rural and urban growth has reduced to 4%.The mgmt said that it don’t see any scope of good volume growth in near future.Tax rate would be around 20% plus.

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CONFERENCE CALL - from Capital Markets

Bajaj Corp

Concern over falling rural growth

The company held its conference call for discussing result performance for the quarter ended December 2015. Top management of the company addressed the meet.
Key highlights

Overall hair oil volume grew by 0.7% during April to November period. Light hair oil (LHO) volume grew by 6.3% during same period. Value wise, overall hair oil volume grew by 9.1% during April to November period while Light hair oil (LHO) volume grew by 9.4% during same period.

Amla hair oil market has grown by 1.8% in volume for April - November 2015 period.

The net sales for December 2015 quarter have increased by 4% to Rs 213.16 crore. Volume grew by 3%. Almond Drop sales grew by 4% to Rs 194.18 crore with volume growth of 1%. OPM increased by 307 bps to 31.8% due to fall in raw material cost and advertisement cost. As a result, the operating profit increased by 15% to Rs 67.80 crore. The net profit has inclined by 19% to Rs 49.59 crore due to rise in OPM.

Secondary sales growth for Q3 is 6.5%.

The sale for the quarter was impacted due to higher base, slow down in rural demand, Nepal impact and major destocking in CSD in October and November.

The mgmt said that its primary concern is fall in rural region vs urban. 3.6% was rural volume growth vs 6% in urban in last 12 months.

Punjab, Haryana and UP market has seen slowdown for the company.

Realization fallen in ADHO, as some of the lower price SKU did well compared to high price SKU, and lower price SKU didn’t saw price hike.

Nomarks turnover in Q3 was Rs 10.22 crore. The2nd phase of integration of brands of Nomark into Bajaj Corp. is continuing. As per Nielsen, offtake of Normark brands growing. Anti-blemish cream category has grown by 28% during April – November period while Normark product has grown by 46%.

Gross margin for Q3 of Nomark was 66.7%.

In Nomark – the mgmt said that it don’t see any increase in SKUs for next 2 yrs.

Nepal business is down by 22% in 9M while Bangladesh has grown by 84%.

The mgmt said in domestic market, it do expects future slowdown in rural growth which may impact the company’s performance in coming quarters.

The mgmt said that it don’t see any threat by Patanjali Oil in LHO as it is mostly in ayurvedic side. However, Patanjali may have its impact on overall hair oil category. In LHO space, a brand from HUL which is giving free shampoo with it is creating lot of noise.

In Q3, ASP is lower around 2% because of promo done last year which shifted to Q4 this year. Don’t see major increase in ad spend.

Employee cost growing due to new recruitments at senior level.

The mgmt said that it is now stocking LLP as prices are very close to bottom.

Refine mustard oil the company uses. This year sowing is less. So prices have started rising. It is expected to be around Rs 90 – 100/kg post March also. The vegetable oil cant be stock.

There was no change in glass bottle price

There will be 2 capex in next year. First is factory in Guwahati and second one is also a factory if GST is implemented

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CONFERENCE CALL - from Capital Markets

Environment in FMCG industry continues to remain subdued

The company held its conference call for discussing result performance for the quarter and year ended March 2016 Top management of the company addressed the meet.

Key highlights

  • Overall hair oil volume grew by 0.7% during April 2015 to February 2016 period. Light hair oil (LHO) volume grew by 4.8% during same period. Value wise, overall hair oil volume grew by 7.2% during April 2015 to February 2016 period while Light hair oil (LHO) volume grew by 7.2% during same period.

  • The mgmt said that environment in FMCG industry continues to remain subdued and same is for hair oil industry. LHO is fastest growing segment in hair oil.

  • The net sales for March 2015 quarter have decreased by 3% to Rs 228.32 crore which was impacted by high base growth of March 2015 quarter. Total volume de-grew by 5%. Almond Drop sales was flat at Rs 210.46 crore with volume de-growth of 4%. OPM increased by 170 bps to 33.1%. The profit before tax and EO flat at Rs 80.42 crore. The net profit has declined by 1% to Rs 54.02 crore due to poor performance by Almond Drop Hair Oil

  • Secondary sales growth for ADHO was 5.5% in Q4.

  • Sachet contribution has grown from 16-17% to 19%.

  • Tough the company’s offtake started improving in last 1 - 2 months; same is not seen in primary sales. Rural sector sales drop drastically.

  • Rural growth is 1 to 2% for January and February month. The company is focusing on pushing sales in rural as growth will come from rural demand.

  • The company’s 42% sales come from rural in Q4.

  • Urban trend - For last 3 - 4 quarters urban is growing but at lower rate. Tier 1 towns seen faster growth vs metro.

  • Modern trade growth is 4% volume wise.

  • ADHO has seen increase in distribution to 3.7 mn retail outlet at present.

  • Fall in LLP in Q4 which was good news. Now price is stagnated and started growing, The company has stock till September.

  • Nomark had sales of Rs 8.18 crore in Q4, significant drop in sales, but secondary sales has seen offtake. Anti blemish segment has grown by 22% durring April 2015 to February 2016 period while face wash grown at 23.9% . Margin remain healthy for Momark also. Nomark is Profitable at EBIDTA level.

  • Nomark – more steady sales coming back in segment. Q4 has seen Rs 8 crore primary sales while secondary sales was at Rs 12 crore. Gng fwd will see primary and secondary sales same. No price hike done.

  • Gross margin is 66% for Nomark

  • International business grew by 59% in Q4 despite Nepal not doing well. International business contributed 4% of turnover,

  • For last 2 yrs glass price not went up. The company is in middle of negotiating price.

  • Other income fall due to fall in interest rate and gave dividend which resulted in fall in cash balance.

  • The mgmt said that it won’t see any much happening in Q1 FY17 despite good monsoon forecast and expects anything improvement seeing if monsoon is good only at end of Q2 FY17.

  • Indian accounting standard – Hardly any effect will be seen.

  • The mgmt aim for a market share of 65% by the year 2016-17

  • The mgmt said that it has not seeing any treat yet from ayurvedic and herbal hair oil.

  • Taxation rate same 21-22% for atleast next 2 yrs.

  • The mgmt said that amla hair oil will grow but it will not become as big as ADHO as market itself is not much big.

  • Don’t see any threat from Patanjali. The mgmt said that in FMCG, competition is good for industry.

  • The mgmt said that Nomark will become larger than hair oil in next 3 to 4 yrs.

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Thanks for your summary of the concall.
This is specific to only international markets (4% of overall revenues) where NoMark could be bigger than ADHO.

What is primary and secondary sales? Can anyone please explain?

When company sells the products to its channel partners (Wholesalers / Dealers / Distributors etc), it is called primary sale.
When those channel partners sell the product to retailers (for onward sale to end users),that is called secondary sales.
You may pls Google out for in depth info…

from both the quarters update, the mgmt has conveyed that Patanjali is not a competitor/threat. In other areas, Patanjali is shaking up all the big established player. Can anyone on this forum shed some light on what might be the impact here… ?

Dabur has also launched Almond hair oil some time back which is used at my home and the pricing is cheaper than ADHO…I can confirm that it is of good quality and has nice fragrance…also not available in glass bottles…so they save money there…

I have also seen on Amazon that Dabur products are being sold from time to time with normal to heavy discounting which includes Dabur Almond oil. Maybe this is more of a threat than Patanjali itself.

Anybody Tracking Bajaj Corp Closely off late?

Was just going through the latest Annual Report for FY 15-16.
Noticed that Pledged Shares have Increased from 25.85% at the beginning of the Year to 45.15% at the End of Year.
No Clarity on this in AR? It seems to me a concern. Views invited from Fellow members.

is the pledging to plough capital into Bajaj Hind? The company remains a one-trick pony and most vulnerable to Patanjali competition.

Pledging maybe to secure loans for group companies mainly bajaj hindusthan since both companies have same promoters.

If you look at the Investor presentation for April 2016,
http://www.bajajcorp.com/images/april_2016.pdf

One of the slides has this point

The Bajaj Group is well aware of issues regarding Corporate Governance and
would like to state that there will be no financial interaction between any of the
listed entities within the group.

That does not give clarity or exact reason behind the increase in percentage of Pledged Shares.

I tried to drop a mail as mentioned in Investor Relations Section of website to Compliance Officer as well, but mail is too bouncing.

Anybody has any awareness on this, please do share here on the forum.

I recently noticed the increased pledging in the shares by the promoters. Looks extremely fishy that promoters of a company with negligible debt, strong cash flow and low capex needs need to pledge their shares.

On further digging I saw these two links - http://www.brickworkratings.com/Admin/PressRelease/Bajaj-Capital-Ventures-NCD_75Cr-Rationale-25Feb2016.pdf and
http://www.brickworkratings.com/Admin/PressRelease/Ma-Multi-Trade-NCD_200Cr-Rationale-25Feb2016.pdf

Basically Bajaj Corp shares have been pledged for NCDs worth Rs 550 Cr of sister companies. On further looking at the pdfs, they mention that both Bajaj Capital Ventures and Ma Multi Trade are borrowing / investing companies for the Group. Further the funds from the NCDs will be used for “General Corporate Purposes”. Which basically means that while there is no direct financial interaction, Bajaj Corp shares are used as pledge to raise funds for the Group.

As mentioned the pledge amount is towards NCDs of Rs 550 Cr and there is a security cover of the pledge of 1.75 times. So about 962 Cr worth of shares have been pledged. This matches perfectly with the increase in pledge amount in the annual report. The increase in pledge is 25% of 66% promoter holding that is 16.25% of company market cap. At the time of the pledge on Feb 5, 2016 the Market cap of Bajaj Corp was 5900 Cr. So 16.25% of 5,900 is about 960 Cr.

So there you have it. In my opinion this shows a big CG issue and a shareholder unfriendly promoter. @Seniors please correct me if I am wrong. @hitesh2710, @Donald, @ayushmit.

Varun

Disc. Worryingly I am investing in Bajaj Corp. But really revisiting my position now.

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Hi,

Promoters have a power generation business (bajaj energy) as well in their private capacity.

To pump in equity capital, they borrow funds against their ownership in bajaj Corp.

This shouldn’t be viewed as Corp governance issue.

Lots of promoters do this (Zee, Asian paints, DB Corp and many more)

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Varun thanks for the reply. You do raise a valid point but had a couple of reservations.

Fundamentally I do not have an issue with a clean and transparent promoter pledge. And Sure other business groups may be doing a pledge to fund the power plant, but then Shirish Bajaj Group os not as strong as them. This group has Bajaj Hindustan with 100% pledge (and other ordinary businesses). Also the pledge is not clearly towards Energy (they might be wanting to avoid spooking Bajaj Corp shareholders) but towards General Corporal Expenses… Plus they have not declared any of this in the Annual Report. All this put together is what is making me suspicious.

Maybe it’s not that big a deal but fundamentally what I see is the promoter is using the one decent business to fund the bad businesses in the group and the shareholders get nothing in return.

Comments please on whether my line of thinking is incorrect.

Just wondering why are you expecting return on pledge by promoter? These are their shares and risk and rewards belong to them. Isn’t it?

The way I look at pledge issue is Back door exit by promoters. So if your whole/ majority of investment rationale is based on Promoter Holding, then yes you should be worried. Otherwise not.

I was also worried about pledge thing. Did some research and concluded the following:

For minority shareholders pledge can cause damage when there is a margin call in case of falling share price leading to vicious loop. And share price may fall on account of poor fundamentals / poor business/ poor growth etc. Or when there is concerted attempt by operators. Which should not be possible without cooperation of Promoter/ DII/ FII. Interesting in case of Bajaj Copr 94.1% shareholding is with Promoter+DII+FII. So per my understanding any selling by retail investor should not cause any selling pressure on stock and hence no margin call and no pledge related perils.

Yes if promoter decides to play ugly, then no one can save you and me. But in that case PLEDGE will be last issue to look into.

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Hi Atul,

Thanks for the revert. I am not expecting any return from the pledge, guess I typed that wrong. What I meant was the Bajaj Corp shareholders face only a risk due to a pledge towards hungry Group cos (either Bajaj Energy or Hindustan) with no upside. If those cos fail to honor their loan commitments, then the lender has rights on the Bajaj Corp shares. Which will then typically be sold, plummeting down the price. Is this correct? Or overly worried?

V

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This is very valid point. However, as far as I am able to recall there is no clarity regarding end use of money borrowed money.
The only solace could be Sugar sector is doing well so that may alleviate risk for the time being.

Q3 result out.
Sales down 4.68%
EPS up 17.37%
I think this is a very good result considering the demonetization and the nature of the product. They declared 11.50 rs int dividend and the 9 month EPS is 11.41.

Disc: No holdings. I always track it since this is one of the first consumer companies to report numbers

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Pledge of the shareholders have increased to 50% as per the latest reported data.
Also, interestingly on 3Q17 results, there is a sharp increase in the staff cost (up 257bp yoy/~100bp qoq). This has never happened in any of the four quarters for the past 5 years. Usually 3Q’ staff cost in absolute terms is similar to 2Q. Nonetheless, to be fair to the company, they were hiring new staff for the past 2 quarters, and the staff cost for elevated for past 2 quarters as well. Despite this 3Q is a sharper increase.