Bajaj Consumer Care Ltd (Formerly Bajaj corp limited)

Stock Opportunities Not-so-Hidden Gems
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Bajaj Consumer -

Q3 FY 24 and concall and results summary -

Sales - 239 vs 230 cr
Gross margins @ 53 pc ( flat YoY )
EBITDA - 36 vs 32 cr ( margins @ 15 vs 14 pc )
Other income - 11 vs 10 cr
PAT - 36 vs 33 cr

Segment wise sales break up -

Almond Drops Hair oil @ 81 pc of company sales
Grew volumes in mid-single digits, flat value growth

Other Products @ 19 pc of company sales
Reported a value growth of 35 pc in Q3 and 25 pc in 9M FY 24

Urban demand continues to be better than rural demand

International business grew by 30 pc in 9M FY 24. Africa grew by 22 pc, Nepal grew by 27 pc, RoW ( US, Canada, Malaysia ) grew by 61 pc in Q3 FY 24

Have launched brand extensions of Almond Drops in other categories like - Soap, Shampoo, Conditioner, Body lotion - on E-comm and modern trade. Seeing promising response

Continue with the distribution expansion of Bajaj Coconut oil - driving volume growth

Launched Bajaj Gulab Jal in Q3

Expecting that the International business should sustain high growth rates in near future. International business now contributes to > 5 pc of sales vs 2 pc of sales 18 - 24 months back

Aim to keep EBITDA margins in the range of 16-18 pc range for near future

Have been very selective wrt selecting distributors in the GCC and North African countries

The new products that company launches have GMs in the range of 45-50 pc ( barring a few exceptions )

A new product is considered successful, if it is able to reach 50 cr/yr kind of sales after 3 yrs of launch. Company invests aggressively behind brands that are likely to achieve these numbers. If a product is not tracking well enough to reach this scale, the company drops that product. Coconut Oil is one of the product that’s likely to reach 50 cr / yr kind of run-rate. Some of the new serums / lotions are also doing well

Company did an additional 8 cr secondary sales over their primary sales ( as a part of inventory correction ). Otherwise, topline would have grown by an additional 3 pc or so

Disc: not holding, not SEBI registered, only for educational purposes

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Analysis of stock post Banjara’s acquisition

Pros:
Promoter holding up from 38.04% to 40.95% (Dec '22–Dec '24) due to buyback twice

Debt-free with strong free cash flow

Acquired Banjara’s for ₹120 Cr to expand in South, using cash on Balance sheet well

Consistent dividend payer

Trading at low PE vs FMCG Industry

Cons:

Heavy reliance on Bajaj Almond Drops

Sluggish revenue growth

Faces stiff competition from larger FMCG players

Execution risk in integrating Banjara’s

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The biggest issue is they cannot think beyond bajaj almond drops. Either promoters are siphoning money earned from almond drops or plain incompetent. 15 years in this stock. Its a dud. Management have not done a single thing to lift the business. Worthless people.

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can’t say that easily. They have launched new products. They are also looking for acquisition. Did one recently. Promoters are showing confidence in company by not participating in buyback and increasing their shareholding

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Surprised to see the limited attention toward the upcoming 2025 buyback of ₹186 Cr. The promoters have already clarified that they will not participate, which should improve the acceptance ratio for retail investors.

In the 2024 buyback worth ₹166.5 Cr, the acceptance ratio was 54%. Given the larger size this year and promoter non-participation, the acceptance ratio should be around 60% this time.

With the ex-date on 4th September, this looks like a good opportunity to create wealth.

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Hey, I am new to this buyback thing.

You are saying if I bid for 1000 shares ideally my ~55% will be bought back by company?

Also did the promotors took part in buyback last time?

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Given the non-promotor participation, is it better to apply as a retail investor (below 2L), or in the general category?

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Yes if all goes well.

The promoters did not participate in 2024 buyback and they are not participating this time either. They want to increase their shareholding in the company it seems.

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There are no such categories in a buyback as far as I know.

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That is just not correct. Every buyback (at least used to have)/has a retail quota, which is 15%, or actual retail (sub Rs 200,000) holding, whichever is higher. And I am reasonably sure that the rules haven’t been changed, though I welcome to be corrected.

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The retail acceptance is higher primarily because of the 15% or higher, and not tendering cuts both ways - some shareholders use a “one share strategy” also. But on (rare) occassion, when the promoter does not take part, somethimes the dynamics reverse and the non-retail AR could be higher. In order to analyse that, one needs to understand/know exactly who is not tendering - just the promoter, or some others who’re acting in concert with the promoter, an addition to analysing the promotor’s holding - higher holding & non participation implies higher acceptance for non-retail.

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Why do most companies seem to go for tender route rather than open market buybacks? If they pay a premium of Rs 50 (approx) per share, wouldn’t they be able to buy more shares via open market route rather than tender route. The difference between the tender route at a premium price vs open market route is who benefits. By paying a premium, the exiting shareholder benefits and by going the open market route, the existing shareholders benefit. Also, tender routes seem to benefit the exiting shareholders at the cost of the existing shareholders. In tender route, the existing shareholder or non participating shareholder has no option but to pay a premium which is value lost. Their hand is forced or they must choose to participate resulting in transactional costs.

Also, if I am not mistaken, the buyback tax is on the difference between the issue price and the buyback price. By paying the lower market rate, we would be paying a lower buyback tax. The company could have saved approximately Rs 10 per share on just the buyback tax. Also, the company could have end edup acquring shares at a lower than the current market rate making the buyback fund go farther.

We need incentives in terms of favourable taxation of open market buybacks in relation to tender route buybacks to nudge company managements to make sensible capital allocation on behalf of all shareholders.

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Hasn’t the SEBI put severe restrictions on open market offerings?

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You’re right. Are they phased out since April 2025?

Refering to the article from ICICI Securities, I think the regulator is concerned about the inability of the retail investor to proportionately participate in the buyback when it’s open market purchase. Maybe open market purchase is not ideal in the Indian context? Not sure why. I hope this stance is reversed in the future as open market purchases can be value accretive when the shares are selling at a discount like during corrections or general market downtrends.

It might be better for the companies to not make (even open market) buybacks when the share prices are at all time highs or paying 20-25% premium. Why not invest on behalf of the shareholders in other stocks like many Indian holding companies do. It would be great for shareholders if they can deploy capital in a manner that adds value to its existing shareholder’s while being fair to the exiting shareholders.

Also, an effect of buybacks at open market prices during a correction in the stock price is that the share price is provided a floor by the company’s buyback and thus the shareholder has the option of exiting the company or staying put if he/she thinks that there is no reason for them to sell. However, tender route almost forces the shareholder to participate because the shareholder becomes poorer as more value is given to those who participate than those who don’t .

Buffet on buybacks.

Refer pg 7 in his 2018 letter.

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If I read it right there is a significant change now in tax to the individual shareholder compared to the period in which the last buyback was done by the company.

  1. The entire Rs 290 per share is treated as dividend income, taxable at the applicable slab rate.

  2. Separately the purchase cost becomes a capital loss

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You’re right. Here is the link to an article describing the new regime unless there are newer changes since the article was published.

For those with income from dividends, reconciliation at the time of filing IT returns seems to have become more complicated. Hopefully, in the future there will be some changes to make sure that a passive income stream like dividends don’t require a lot of effort in terms of compliance. In light of the tax inefficiency of dividends and buybacks (because they are just dividends now), companies should avoid giving out dividends or buybacks. Instead, the shareholder can create a dividend equivalent by sale of shares as per their needs and pay the cheaper CGT? Dividends are value taken out of the share price so it’s no different than sale of shares equal to the amount of dividends paid out. Am I mistaken here?

Refer dividend irrelevance theory and manufacturing of dividends in the book by Stephen Penman.

Furthermore, a company that wants to reward its shareholders in the current tax regime will strive to add value to the sharesholders by one of the following 1) Reinvesting in the business at incremental rate of return 2) investing in instruments, preferrably mutual funds or other equities, that give decent returns. It would benefit shareholders if company managements invest in good capial allocators and capital allocation on behalf of their shareholders.

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Buyback update -
Opening date - 11 September
Closing date- 17 September.

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Seems acceptance ratio in buyback is comparatively lower this time as compared to last buyback in 2024. In non-retail category the ratio is approximately 15.6% and in retail category it is approximately 32.5%.

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PPT APRIL 26.pdf (1.9 MB)

CO SEEMS TO BE DELIVERING WELL. 3RD QTR OF GOOD PERF UNDER NEW MD NAVIN PANDEY WHO HAS COME FROM MARICO