Thankyou Investor no 1 and srvn for pointing this out. I completely missed it. Reducing dividends to improve your office is a red flag. Valuation wise it’s still decent but given the data which I overlooked there are better options available.
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From Q3FY20 Concall
Q. Thanks for the opportunity. First question is on interim dividend. I think perhaps for the first time in our listed history and surely in last many years at least last four years to five years this is first time you have not declared interim dividend, any rethink on the dividend policy?
A. There is no rethink on the policy. The only thing is that there was no visibility on the kind of spends we would need to build the total hair oil portfolio which could entail more advertising, more spend on infrastructure and acquisition and therefore the board thought that it would be better to wait for a few months and then declare a final dividend.
Q. Earlier we used to say that at least 70% of the earnings, our dividend payout ratios will be maintained, so are we still sticking to that stance?
A. I cannot answer on behalf of the board because this is the policy that our stance the board will take in the next two months or three months but yes we are committed behind sharing the profits that we get during the year with our stakeholders.
Please share source
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whatever may the reason for skipping dividend, the company is unable to grow its topline and bottom line for the past 5 years (2% and 4% resp) and further now they stopped the high payout ratio which has become a valid reason for de-rating. Having said that, Once the next dividend payout of > 50% is announced, even if company fails to improve the revenue in the coming quarters, this stock should get re-rated from the current level of 6 X EV/EBITDA which is ridiculous for a company with earning visibility and longevity.
Oct 18 2019 conference call transcript available on company website…
Cleary states 25 to 30 crore outlay for company and group office building. Also is mentioned that the dividend in absolute and in percentage terms will fall.
Promoter had debt = company had highest dividend payout ratio.
Promoter sold shares and paid their debt,now they are focusing on business and brands and dividend is no longer a high priority.
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Just a minor addition, so far focus is now on new office. I am thinking, just for one major product, how many offices they need? Ohh, I forgot, they are acquiring some big brands ever since IPO days. Big brands, new offices, increasing dividend yields can come, only if two IPOs were allowed for one company 
thanks
Disc: Bajaj corp was my first major bet in equities. Gave me good cagr over 5 years and I was lucky to make decent sell call as soon as news of first promotor pledge came. Sold 85%, held on to 15% for “long term” only to sell that at significant loss after 5 more years. Learning - Need to excel in art of selling. Luckily in case of Bajaj corp, the decision was simpler because promoter group pledging was a deterioration in fundamentals easy to catch. In case of more macroeconomic issues affecting an otherwise good management, things can be tricky. I guess this is the beauty of investing in FMCG, where red flags are relatively simpler to catch. Thanks again.
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Sachin Shah: But will the dividends of profits may come down and that is why the dividend may come down
some bit, which is fine but will the dividend payout be as high as 70%, 80%?
Sumit Malhotra: May not be.
Kushagra Bajaj: May not be because we will keep cash one because we do not know how much more we are
going to be spending on organic growth and how aggressively we will need to be on that because
our whole strategy is to just gain market share and is the gap identified then we may need to
acquire something we would also like to keep cash for that and second obviously as I mentioned
earlier we are also going to be starting to spend on building our own office premises for which
we will require money although for the next 18 months the amount is much less, but eventually
be a much higher number over a four year period, so the dividend payout will be as a percentage
and then absolutely lower than what it was.
Spending across categories such as ice creams, cold drinks, juices continue to be lower. Hair oil and gels — used primarily for grooming rather than daily nourishment — are witnessing lesser off-take. Source:
No doubt current valuations are very attractive, but those investing looking at dividends, need to understand that future revenues of this segment could be lower and hence lower dividends. Looks like market is discounting lower revenues as not an essential item to human needs
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This was confirmed in October of 2019 and Mr.Nandi joined Bajaj Consumer in Jan 2020.
https://www.linkedin.com/in/jaideep-nandi-4411775/?originalSubdomain=in
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Q4 results
https://www.bseindia.com/xml-data/corpfiling/AttachLive/74bcde0b-47f9-4ff0-be68-8d195fe3ec74.pdf
Bad results…YoY Revenue drop of 25%, PAT drop of 61%… 
Rs 2/share dividend declaration (dropped from 14) adds fuel to the flame. With 440 Cr cash on book and 150 cr free cash flow, i find no reason why payout is 30 cr ? This stock is no more a dividend play and now what is management’s intent on cash.
Q4 FY2020 Con Call Summary
- Jaydeep Nandi would become MD from 1 July 2020. Sumit Malhotra would join in board.
- Keeping in mind, the uncertain economic scenario, and lack of visibility on hair oil demand going forward, the board has recommended lesser dividend. There is no change in dividend policy. This is an aberration. In Jan, we did not pay dividend due to uncertainty on expenditure on Micro Marketing strategy.
- EBITDA margin is severely down because of Advertisement and Sales promotion expense, which could not be rolled back quickly. AS&P, Goto market initiatives expenses went to 28.6% of sales from normal of 14% of sales.
- Hair oil was not part of essential items. All operation of company remained completely shut from 22nd March to Mid-April. To cater to demand of smaller retail outlets, some Depot was put into operation in later April. Employees tele-called such customers and collected orders to forward to depot for operation. 43K per day call to retail outlets. We got business back due to this and also remained in touch with channel partners. (People high on spirit. Don’t they have better mechanisms? Digital channel and all)
- Why such a large drop in revenue (25%) due to few weeks of lock down?
Ans - There is a drop in primary sales but not secondary. Secondary sale does not move that much. Sales are hugely skewed towards last month of March and specially to last week of March due to incentive, schemes and salesman incentive and all. Last week/10 days of march causes 60% of march sales, while March would be close to 45% of quarter. Leading to 45% * 60% = 27% type range. Except for last 10 days, primary sales was flat for the rest of the quarter. - Thought process on A&P percentage for year?
Ans - There is uncertainty on sales due to demand and corona situation. We did not advertise during April and May, In June we did advertise. In wait and watch mode. - Early trends on hair oil consumption after lock down opening?
a. Wholesale market has collapsed. All the wholesale markets (very big marketplace) (for example Khadi bawli – Delhi, Masjid bandar – Mumbai, Bada Bajaar - Kolkata Spencer – Chennai) are in large metros and in containment zone due to congested areas.
b. Wholesale exists because Small retailers come to wholesale to buy in smaller lot and large variety of products. But since transport was restricted, retailers were not coming.
c. Demand from Rural areas: Most of the rural outlets used to get from wholesale channel and as they were not present, we got direct demand from Rural area, but we did not have capacity to reach all the villages. We did attempt to push direct distribution.
d. Lowest unit pack (Lower MRP pack and Amla) suddenly started showing higher traction. Clear indication of down-trading. - No comments on strategy of diversification in category.
- Can there be change in behaviors due to extended lockdown, like people not using hair oil and so?
Ans - Normally these events are just a blip. But this situation was never experienced. No parallels. Never experienced anything like this. - Implementation and progress on Micro-segmenting strategy?
a. Experiment on strategy started In July 2019, after success we moved to UP in November 2019 and worked till Jan 2020. It works. We were seeing more demand from rural due to that. Strategy can be extended to whole Hindi speaking market (10 states)
b. At this point, not sure if this exact strategy would even work at current scene. Because situation is changing very rapidly. we would wait and watch and once situation normalize, we would then go ahead with strategy and strategy in entirety can not be same. - How come entire strategy of micro marketing change? Hair oil category would still be there. Consumption would still be there. There can be some downtrading and all. But why so low visibility in terms of strategy?
Ans - This strategy was a 360 degree kind of approach. It is about SKUs one would sell in that area, trade strategy, marketing strategy, channel strategy. Channels are changing. Marketing is changing. We don’t think everything would come back in 2 quarters as was earlier in terms of channels. As the costs are high in this strategy and we expect returns, we would wait for situation to normalize before we go ahead with strategy. - As per Sumit, Biggest strength of company is People and the thing he would like Jaydeep to work is on strengthening and establishing processes.
- No priority or strategical comment from Jaydeep except we would remain flexible and act as per situation.
- No new capex in this year. One factory converted to Hand sanitizer, but even then, we don’t need any new capacity.
- LLP price did not drop significantly. Even after oil crash. Gone down to Rs 48.
- Direct distribution reach at March 5.04 Lakh outlets. Most of the new distribution centres would be from rural area. Wholesale channel contribution is going down further. Company believes Modern trade and E-commerce would be big in future.
- Questions from several players related to Dividend, Buybacks and Corporate governance issue. Most of them were not answered satisfactorily as Kushagra Bajaj was not present. Tensed conversation between a participant and Sumit about not giving much details about current situation and company’s stand as he is leaving company.
In summary, there was good amount of disbelief between participants about management’s answers. Business outlook for light hair oil is not that rosy and management has not made up their mind, how they will handle this in future. I think there might be an added layer of confusion due to management change. Jaydeep tried to answer some of the questions throwing lot more details and in length, but Sumit answered most of the questions (which was swift, short and full of uncertainty).
As next quarter result would be available within a month (told in the call), Items to monitor would be what is the impact of direct reach? how did sanitizers do? If EBITDA margin comes back to normal and what they are going to do with cash?
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Digging further on some of con-call participants and major shareholders of Company:
- Ajay Sharma, fund manager from MayBank had arguments with Sumit Malhotra during concall. Could not find any substantial stake of MayBank in company.
- Harish Bihani from ICICI prudential AMC insisted on management that dividend policy to be decided, that to be followed, so that one can focus on other aspects. He is a Portfolio manager at ICICI.
- Mutual fund has approx 20% stack in this company.
ICICI - 8.6% (Sankaran Naren led many funds)
HDFC - 4.6% (Chirag Setalwad)
Nippon - 2.9%
Aditya Birla - 1.7%
UTI - 1.5%
Tata - 0.5% - Given high stack from ICICI, they would like to force management into their advantage. (i think in distributing dividends) Thinking like Sankaran, This looks like a value play, high dividend paying company available at bargain.
- None of the individual good sized funds (>200 Cr AUM) have high dependency on this stock. <2% max even. So, if this does not work (there is no change in the way of management), they can dump the stocks, without any significant effect on their funds. However, none of the major funds have sold any major stacks in recent times.
- 1.3% of Matthews India Fund (owns 3.37% of company) is in Bajaj Consumer.
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Bajaj Consumer declares Q1 FY2020 results. Key highlights:
- Revenue from operation: 196 Cr (18% down YoY) (12% up from last quarter)
- EBITDA margin: 30.42% (similar to last year). This is back to normal. Seems A&P expense has been curtailed, which could not be done for last quarter.
- PAT: 54 Cr (8% down YoY) (Last quarter it was 24 Cr, 2.25 times)
- LLP prices down by 6% from Rs 60.74 to 56.64 per Kg.
- All employees took part in the initiative and around 40,000 calls were made per day to reach out to Distributors, Sub stockists and Retailers. This strategy seems to have worked for the company. Checking sales drop to some extent.
- How operations proceeded during lock down?
| 1st Fortnight April 2020 | 2nd Fortnight April 2020 | May 2020 | June 2020 | |
|---|---|---|---|---|
| Depot | 0% Operational | 80% Operational | 95% Operational | 100% Operational |
| Plant | 0% Operational | 0% Operational | 75% Operational | 100% Operational |
| Area | All | Less effected Areas | Green & Amber Zones | All India |
| Challenges | Complete Lockdown | Labour & Transportation | Transportation in Red Zones | Transportation in Containment Zones |
- General trade: Physical selling standstill in April and May. Urban market, both retail and wholesale under distress. Rural growth better than urban market.
- Modern Trade: Impacted due to closure of malls and hyper markets.
- E commerce: Leveraged to drive sales.
- Hair oil category growth severely down (YoY). Volume by 32.7%, and value by 37.7%, showing that premium segment hair oil has higher slowdown.
- Company maintains its value market share at 10.2%.
- Reviewing on concerns from previous call. Impact of direct reach has been visible. Company could check sales drop. But one can not keep bucking the trend if hair oil market (specially premium one) declines at the same rate. There can be some effect of primary, secondary nature of business. During last fortnight of March, there was no primary sales, which might have led to higher primary sales in May (once lock down eased.)
- EBITDA margin came back to normal, giving some relief that there is no significant disruption in nature of business. Uncertainty related to use of cash still remains as there are no comments on the issue of dividends or buy backs.
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Q1 FY21 Earning Call ( 17th July 2020 ) :
Here are the notes which i was able to note down from a long call of 1 hr 50 Mins , it might be of help to people tracking this company but i may not have captured all the points , those interested can go to this link for the complete call :
https://youtu.be/JCuN2lPTqRM
The call was mostly handled by Mr. Jaideep Nandi ( CEO ) :
- Rural demand is less impacted than Urban, overall demand will come back to near normal , Apr&May were an exception.
- Pricing downward pressures --non-premium products are gaining traction
- Hand sanitizer launched which is in high single digit sales as a % of total sales.
- Not entering Coconut hair oil mkt as of now and in other categories of hairoil which is non-premium we have 2 products in Amla
- ADHO ( Almond drop hair oil ) --we will look at product sizes , we will look ADHO to remain robust
6)Ad spend -for 3 months from end march to June --we were off air --first time in history of the co. --now we are back on air. - Increase in mkt share ,cant pin point the reason for increase by few basis point , one could be a very focussed rural focus approach since it was less impacted by lockdown etc , we will have to wait for a Q or 2 to see the actual market share trajectory
- Edelweiss Q : Covid impacting the consumer behavior -the WFH is making urban male to cut down on hair oil and migrants going back is also resulting in loss of hairoil , cooling oil for which we had plans in this summer months we have shelved for now but we did not get impacted much as we never ventured into it and some of our competition with a large share of cooling oil got impacted
9)Consumer behavior has not changed due to him doing WFH but distribution constraints were there in urban centers - SAP HANA & Sales force automation implemented already , The CEO has joined 6 to 9 months back from Asian Paints which is a much larger and more efficent automation oriented co.
- future strategy for growth or entry into new sectors etc will be decided once things settle down as currently we are focussed on operational efficiencies and hence will need 2 or 3 Qs to get the strategy clear on future , not take too much on the plate but whatever we take we should be able to execute etc.
12)Higher purchase of bulk packs since customers are visiting lesser in the shop and urban center distributor inventories have gone down due to logistical challenges - hand sanitizer is a tactical opportunity ( Health & Hygeine opportunity ), we have converted one factory into producing it …this mkt is very cluttered but in long term it will get streamlined due to larger players not being able to scale and smaller players not being profitable due to availability of alcohol etc thats when we need to decide on what our long term strategy would be.
- overall strategy is how to drive top line and we will look at growth even if it means a lit bit reduction in EBITDA we will look at absolute EBITDA & EBITDA growth.
we will explore M&A opportunity at this time due to reduction in overall valuations. - Ad focus is more on nourishment & hair loss rather than styling benefit as thats where consumers are preceiving the benefits of ADHO.
16)Economy oil Vs premium oil --severe impact on premium oil over and above ADHO , ADHO will be a focus and economy oils are also will be looked at like amla etc. - Actively looking at M&A inside or outside the country
- Growth track record is flat historically, the future we have a ambition of doubling our market-share ( timelines might shift based on changing market scenario ), Direction : Top line growth & EBITDA growth , EBITDA margin might go a little lower.
19)Tax rate we are expecting around 17.5% - July sales will again be impacted negatively due to lockdown situation again in many cities.
- We will do double digit topline growth, our vision is to grow ADHO as the dominant play but it will depend on future strategy.
- Bain’s strategy work is complete ( we started with 2 mkts Bengal & UP for which Bain helped us strategise and implement. Now the strategy work is complete and our team has the data of all the learnings and we will be implementing the strategy ourself in other identified markets.
- CSD structure has changed , we will have to keep a track of credit requirement and we will avoid a long credit time period.
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Bajaj Consumer may be the dark horse of consumer care sector. Must read articles for Bajaj’s investor
This is in interesting piece of information, thanks for sharing.
The value lies in the business, given it has huge cash inflows model
The only problem is that its a one pony race …and thats a fragile scenario …so now i am hoping the new CEO can change some things and is able to execute the vision of promoters who are quite committed to the long term prospects of the co. ( read some interview some months back from Kushagra Bajaj in ET about his vision for Bajaj consumer etc etc ) !
Disc : Invested