Maintain ‘hold’ on Bajaj Corp with a target price of R515 per share. We like Bajaj Corp’s dominance in the LHO category with sustained market share gains. We will closely monitor Nomarks’ & KPCO’s performance and rural growth. At CMP, the stock is trading at P/E of 32.0x and 23.9x FY16E and FY17E, respectively.
Bajaj Corp’s Q2FY16 revenue and PAT came in line with our estimates. Key positives are: i) multi-year high gross margin at 64.9% (up 344 bps y-o-y) led by softer commodity prices; ii) 337 bps y-o-y ebitda margin expansion to 31.1% (second highest in past 21 quarters); and iii) 64% y-o-y volume spurt in Brahmi Amla Hair Oil (BAHO).
Key negatives are i) Almond Drop Hair Oil (ADHO) volume growth slowing to 6.3% y-o-y (3.9% y-o-y in Q2FY15, 10.6% y-o-y in Q1FY16); ii) 25.9% and 24.9% y-o-y fall in Nomarks’ sales and volumes, respectively, due to SKU rationalisation and change in positioning; and iii) continued disappointment in Kailash Parbat Cooling Oil (KPCO)—volumes plummeted 22% y-o-y (53% YoY fall in Q1FY16). Success of new Nomarks strategy—from problem solving to personal care brand—remains key monitorable.
Overall volume grew 8.3% y-o-y aided by robust spurt in BAHO (on low base; has been clocking similar sales volume for four quarters; growth likely to normalise in Q3FY16 when base normalises) and Bajaj Amla Hair Oil. Ebitda margin catapulted led by gross margin expansion; ad spends dipped 135 bps y-o-y, though other expenses jumped 108 bps y-o-y.
