Bajaj Consumer Care (Formerly Bajaj corp limited)

Stock Opportunities Not-so-Hidden Gems
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BAJAJ CORP

Bajaj Corp is a company belonging to the Shishir Bajaj group. It had come out with IPO at a price of 660 per share with face value of share at Rs 5. Bajaj Corp is subsidiary of Bajaj Consumer Care and is the exclusive licensee of the brands owned by Bajaj Consumer Care for 99 years beginning 2008.

The company is a market leader in the light hair oil category with its Bajaj Almond Drops Hair Oil brand. The brand has close to 50% market share in the category. The company has grown itsmarket share from 31.4% in fy 05 to 52.5% in Dec 2010 and has been able to increase the cost of a 100 ml bottle from Rs 28 to Rs 42 during that period. So effectively the company does have some pricing power. Bajaj Almond drops hair oil contributes to around 90% of total turnover for Bajaj Corp.

HAIR CARE market is of around 9000 crore and accounts for around 8% of the overall FMCG market.

And hair oils constitutes around 55% of total hair care market, rest of the market taken by shampoos, hair dyes, hair conditioners etc.

Among the hair oil category, coconut based hair oils have around 51% share whereas other categories like cooling hair oil has 12% share, heavy amla based hair oils has 15% share whereas the light hair oil has around 14% share of total hair oil market.

Light Hair oil category is among the fastest growing category in the hair oil segment. It has been growing close to 27% CAGR since past 4-5 years compared to the overall 21% growth in hair oil market.

Almond hair oils is growing at 32.7% CAGR by volume and 41% by value in the last 5 years. This category has been the main driver in the light hair oil category growth.

As on Dec 10, Bajaj Corp had 52% market share by value and 48.7% market share by volume.

Besides Bajaj Almond Drops hair oil, the company has other brands like Brahmi Amla, Amla Shikakai, and Jasmine oils and also has Red/Black tooth powder.


FINANCIALS


Current market cap at price of around 460 is 1375 crores. Book value is 110 per share. Company has 352 crores as investments which includes FDs, bank CDs, FMPs etc.

Last two years and 9month fy 11 results are as below


Year

09

10

9m fy 10

9m fy 11

Sales

244

330

208

248

Ebidta

51.62

97.4

64

77.4

Ebidta margin

21.12%

29.51%

30.72%

31.1%

Net profit

47

83.91

56.5

57.22

NPM

19.23%

25.43%

27.17%

23.21%

The company had incurred IPO expenses worth 18.95 crores and is charging these expenses to the profit and loss accounts during the last three quarters of fy 11 after which IPO expenses will not recur in the following quarters or year. This explains the reduced NPM of 23.21% as compared to 27.17% for 9M fy 10, inspite of higher EBIDTA margins during same periods.

RAW MATERIALS

Raw materials constitute around 42% of total expenses and is mainly consisting of LLP â light liquid paraffin (35%), glass bottles (26%), perfumes and other additives (8.9%), refined veg oils (8.25%), corrugated boxes (6.76%), caps (5.6%) and others amounting to 8.66%.

Out of these, the price of LLP has been increasing consistently over the years since it is a crude derivative.

GROWTH DRIVERS:

The company is looking to penetrate the rural markets where the penetration of light hair oils is low and chances of gaining higher market share are bright due to rural demand. Company has also launched smaller packs in satchet forms.

The company has ample cash and plans to make some suitable acquisition which complements its current business.

It also plans to launch brand extensions of Bajaj Almond drops and hence wishes to leverage the brand name further.

POSITIVES:

Company is market leader in its category of light hair oil with around 50% market share.

Company is debt free and has close to around 350 crores post its IPO to make some suitable acquisition.

The sharp correction in its share price (IPO was priced at 660 per share) from 800 levels post its listing to current price of around 450-460 offers a better entry price.

NEGATIVES:

Currently company has only a single product namely Bajaj Almond drops hair oil which contributes major part of its sales and profits.

Till date the management has not made any move in the direction of utilisation of funds for acquisition etc.

Management gave themselves dividend amounting to around 100 crores before bringing out the IPO.

Aggresive entry of other players like Marico and Hind lever in the same segment of light hair oils might impact the company adversely.

Raw material price volatility might affect profitability if crude prices continue to rise.

2 Likes
2

IPO expenses are over now. There can be a sharp increase in EPS & being debt-free working on negative working capital & loads of operating cash flows, It can be a reckoner for some sort of PE re-rating…

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This quarter might see royalty expenses being paid out to parent/brand owner bajaj consumer care.

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Royalty expense must already be getting added to the quarterly expenses…I suppose…Annually, I don’t think it should exceed 5% of the Net Sales…

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I remember reading in their DRHP where it was mentioned that royalty expenses would be paid out in June.

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Royalty Arrangement: Our Company will pay our promoter BCCL a royalty of 1 (one) % of our annual net sales turnover in respect of the Goods (as defined above), commencing on 1st day of every financial year. The payment shall be made by our Company in Indian rupees no later than 60 days from the end of finacial year.

So, this’ll be 3.78 crores for the past year.

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Anyone has revisited Bajaj Corp? It looks like a company has addedintrinsicvalue at a higher pace than the market cap increase.

The annual report is an interesting read. Anyone holding the stock or have made a recent thesis?

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Hi Guys,

Meeting with Bajaj Corp Senior Management coming up next week.

Please fire away your questions and help us collate a complete set of questions - and make the most of the opportunity.

Rgds

Donald

9

Guys,

Seems like a solid company. Had a nice short interaction with MD Sumit Malhotra courtesy and alongwith Nagabrahma.

Businesswise - it does seem the company will keep delivering in near future. Capital allocation wise - the CASH from the IPO - utilisation may be still some distance off - They had 4-5 acquisition contenders - that were close. One dropped off in February. And another this month -which they had hoped to announce by this AGM. No such luck.

I need to work in the Q&A, for things to sink in. Valuationwise - I have no view at the moment, due to unfamiliarity with the business. Had done just a quick brush-up before the Q&A.

Will request Nage to add his comments.

Rgds

Donald

10

Some queries:

there has been some effort at brand building in kailash parbat hair oil . How have the results been? How much contribution to the overall sales does the management see coming from this brand in next 2-3 yrs?

much has been known about bajaj almond drops hair oil and it seems to be continuing to increase market share. which are the closest competitors for this product?

Is the company looking at acquisition in hair care space or some other segment of personal grooming?

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Here are the answers:

a) Kailash Parbat Oil has done recently well in the one year since it is launched. It has acquired already 2.1% market share in the market. They are targeting 6% market share within next 2 years. It has contributed 13.33Cr during FY12 which is approx. 2.8% of the topline. It would breakeven after reaching 6% market share

b) As of now there is not much of competition in this segment as Keo Karpin is loosing its market share, Marico which had launched Nihar Almond with much fanfare is not doing much on this product. Dabur which had introduced its brand in this segment with much fanfare and lot of advertisement has become silent as it is facing much competition in its core product Dabur Brahmi Oil from Marico

c) Chances are that it is looking to acquire a company in the range of 600Cr in the personal care. Normally management does not reveal any further details in this regard

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Thye had come out with IPO to fund acquisitions.Whats the progress ?

Shishir Bajaj was recorded in Amar Singh Tapes conversing n dealing with Hime .due to sugar business.How strong is group ethically as doing sugar business in UP is very toughotherwise.There was some controversy on his property acuistion in Mumbai as well at high price

With tax benefits in uttarakahnd closing how will it impact co performance?

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hi hitesh,

any views of the latest quarterly results? seem good to me.valuation-wise it seems to be trading on the lower range of fmcg valuations.

14

results are good.

but it is practically a single product wonder and hence valuations will never reach those enjoyed by other bigger fmcg companies with a wider product basket.

1 Like
15

i have seen dabur also bringing out the almond drop oil and it seems to be occupying similar shelf space,it also seems to be packaged in the same style

16

bajaj corp seems to be chugging along quite nicely .

first half results for fy 13 seem to be quite good with company posting eps of 5.15 per share. I think full year eps should exceed 10 per share. At cmp of around 191 or so stock is available at a FY 13 based pe of 18-19 or so.

Most of the re rating for the stock since March 11 levels of 92 (adjusted for split) seems to be priced in bcos a company with a single product category like hair oil is unlikely to get rerated with the big boys like HUL, or Marico etc.

But growth momentum seems likely to continue going foward and if and when management deploys its cash pile to good use, things could get interesting.

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I only hope that revenues from new products like the cooling oil start kicking in a meaningful way before the revenues from almond oil start flattening(which is not likely soon).

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Q3/Fy-13 Results out…

Total Income up 31.8% to 148.29 Cr from 112.5 Cr.
EBIDTA up 50.1% to 42.98 Cr from 28.64 Cr.
Net Profit up 46.2% to 42.2 Cr from 28.88 Cr.

EBIDTA margin is 29% v/s 28.7% (SQ-12) and 25.5% (DQ-11)
NET Pr margin is 28.5% v/s 28.2% (SQ-12) and 25.7% (DQ-11)

Total Raw material costs as a %ge to Income is 42.1% v/s 42.2% (SQ-12) and 45.7% (DQ-11)
Employee costs to Income is 4.6% v/s 5% (SQ-12) and 5.3% (DQ-11)
Advertisement expenses to Income is 6.7% v/s 6.3% (SQ-12) and 8.3% (DQ-11)
Other expenses to Income is 17.6% v/s 17.8% (SQ-12) and 15.2% (DQ-11)

Tax Rate 19.8% v/s 20.1% (SQ-12) and 19.2% (DQ-11)

9M/Fy-13 v/s 9M/Fy-12:

Total Income up 29.5% to 422.54 Cr from 326.28 Cr (Fy/11-12: 473.32 Cr)
EBIDTA up 46.3% to 120.97 Cr from 82.67 Cr (Fy/11-12: 116.64 Cr)
Net Pr up 37.4% to 118.23 Cr from 86.04 Cr (Fy/11-12: 120.09 Cr)

Reported 9-month EPS 8.02 v/s 5.83 (Fy/11-12: 8.14)

Reported TTM diluted EPS: 10.32

Dividend of Rs. 6.50 per share (650%) Declared.

At 02:30 pm on 11/01/2013, the stock on BSE trading at Rs. 260/- UP 6.2%.

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I remember reading this thread in early 2012 and came to a different decision

a. The company is seen as a one brand horse — I thought differently that I could diversify using other brand stocks. So, I took a plunge with a small position at about INR 112. After a good Q1 2013 and the management explicitly stating that it would not consider loans to other subsidiaries and it was not in the real estate business, I made it about 5% of the portfolio at about INR 180 a share.

b… It looks like there is still some room left in the hair oil market in India. The company opened an office in Bangladesh and has the cooling oil product in the market.

With the recent pressure on the raw materials, the profitability seems to be on the higher side but looks like it has still has some steam left in it.

20

the owners are supposed to reduce their stake from 84% to 75 % as per SEBI norms.

can we expect the price to come down due to selling pressure.