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Bajaj Corp: Pick-up in growth momentum - Views on News from Equitymaster
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Bajaj Corp: Pick-up in growth momentum
Oct 17, 2014

Bajaj Corp Limited has announced its second quarter financial results of 2014-2015 (2QFY15). The company has reported 18.6% YoY increase in sales and 4% YoY fall in net profits. Here is our analysis of the results.

Performance summary
  • Bajaj Corp (BCL) clocked a revenue growth of 18.7% YoY led by 8.8% YoY growth in volumes. For 1HFY14, revenues grew by 15.4% YoY.
  • The company's operating margin expanded by 0.7% backed by lower ad-spends and controlled input costs and wages. During 1HFY14, operating margin improved by 0.2% YoY.
  • Excluding the impact of brand amortization, the net profits have grown by 19.6% YoY. However, net margin expanded slightly due to lower other income earned coupled with higher tax outgo. For 1HFY14, net profit grew by 14% excluding brand amortization.
  • The company has declared an interim dividend of Rs 11.50 on equity share of face value of Re 1 each for FY15. This translates into a dividend yield of 4%.

Financial performance snapshot
Rs(m) 2QFY14 2QFY15 Change 1HFY14 1HFY15 Change
Revenues 1,584 1,880 18.7% 3286 3793 15.4%
Expenditure 1,155 1,359 17.6% 2375 2735 15.2%
Operating profit (EBDITA) 429 521 21.6% 911 1,058 16.1%
EBDITA margin (%) 27.1% 27.7% 0.7% 27.7% 27.9% 0.2%
Other income 101 83 -18.2% 222 174 -21.8%
Interest 13 0   13 0 -97.7%
Depreciation 10 13 29.2% 17 21 20.5%
Profit before tax 507 591 16.6% 1,102 1,210 9.8%
Extraordinary inc/(exp) 51 117 -51.07 (235)  
Tax 96 100 3.7% 221 205 -7.3%
Profit after tax/(loss) 360 374 3.9% 830 770 -7.2%
Net profit margin (%) 22.7% 19.9% -2.8% 25.3% 20.3% -5.0%
No. of shares (m)         147.5  
Diluted earnings per share (Rs)*         10.3  
Price to earnings ratio (x)*         27.2  
*trailing twelve months

What has driven growth in 2QFY15?
  • Aided by robust volume growth of 8.8%, BCL's topline gained momentum in 2QFY15 and registered a rise of 18.7% YoY. The offtake of its flagship brand Almond Drops hair oil (ADHO) with a 90% sales share increased by 3.8%and in value terms the growth was 10%. The NOMARKS brand grew by 5% in volume terms and accounted for 7% of overall sales. However on account of huge slowdown in cooling hair oil segment, sales of Kailash Parbat hair oil continued to remain dismal registering a slump of 80% in its offtake.

    Cost break-up
      2QFY14 2QFY15 Change in basis points
    Raw material 39.5% 38.5% -99.38
    Employee 5.5% 5.0% -43.89
    Advertisement 8.0% 6.6% -136.74
    Other expenditure 20.0% 22.2% 214.60

  • The company has been able to reap the benefits of lower price of refined oil that fell by 1.2% to Rs 69.99 per kg in 2QFY15. However, the price of Liquid Light Paraffin (LLP) was up by 10.6% to Rs 84.27 per kg for the quarter. The overall cost of goods sold to sales ratio fell by 1% during the quarter. This coupled with lower ad-spends has been able to partially offset a 2% jump in other expense to sales ratio. Resultantly, the operating margin improved by 0.7% during the quarter.

  • The net profits grew by a subdued 4% on account of brand amortization of Rs 117.5 m charged to revenue account. Excluding the impact of this exceptional item, the net profits have grown by 19.6% YoY during the quarter. The other income earned has fallen by 18% YoY during the quarter. The tax incidence rose to 21% in 2QFY15 from 19% in 2QFY14.
What to expect?
Bajaj Corp is witnessing early signs of recovery in the mainstay brand ADHO. This is seen in the ADHO's secondary sales to the final consumer that are growing at a faster 7% as compared to 4% growth in primary sales to retailers and distributors. The company's rural sales growth continued to outpace urban growth by 8.5%. Going ahead, easing inflationary pressures are expected to spur conversions from the unbranded hair oil segment into value added hair oil segment and revive urban demand. Even softening crude price is expected to reduce the price of its main raw material Liquid light Paraffin and increase profitability. On the international front, its operations in Bangladesh have stabilized while its UAE operations have commenced in 2QFY15. International operations contribute more than 3% to overall sales which the company wants to increase to 5%.

At the current price of Rs 290, the stock is trading at a multiple of 17 times its FY17 earnings. WE have given a BUY recommendation on this stock on 16th October 2013. As valuations still continue to remain attractive along with good dividend yields of around 4%, we maintain a BUY view on the stock from a 2-3 years perspective.

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