BAJAJ CORP LIMITED

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 its market  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 – 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.

TECHNICALS:

Post its listing, the stock has posted a high of around 816 and then has been in a sustained downtrend and posted a low of 367 in feb 2011 after which it posted a sharp rise to levels of around 547 within just 3 days giving faster retracement of the last segment of its fall. Since then it has been consolidating between 430 to 480 levels. 

JENBURKT PHARMA

JENBURKT PHARMA

 cmp around 70 market cap 33 crores

Jenburkt Pharma is a small pharma company promoted by Bhuta family which has a manufacturing plant at Sihor near Bhavnagar in Gujarat.  It makes branded formulations which it promotes through its own sales force.   The company has shown sustained though not spectacular growth in its revenues and profits since past few years and seems to be on the cusp of explosive growth.

It has around 81 products and it exports 25 out of these 81 products to around 13 countries.

FINANCIALS:

As on Sep 2010, the company had a debt of around 4-5 crores . Equity is small at 4.65 crores with 46.5 lac shares of Rs 10 outstanding. 

Company has got good net profit margins which seem to be on an upswing since past few quarters.

FINANCIALS FOR LAST FEW YEARS

Year	05	06	07	08	09	10	9M fy 11
Sales	23.5	29	35.4	38.4	42.5	51.4	43
EBIDTA	2.23	2.89	3.55	3.77	4.4	7.07	8.4
Np	0.74	1.04	1.2	1.3	1.63	3.77	5.08
DEBT	8.4	8.4	9	9.53	7	4.87	4.68
EPS	1.6	2.24	2.58	2.8	3.5	8.1	10.93
DIVIDEND	1	1.25	1.25	1.25	1.8	3

As can be seen from above, the company has improved its margins significantly from fy 10 onwards and it seems that this is due to the company having completed its investment phase and now likely to achieve good growth with better margins.

Promoter holding has over the years increased from 39.84% to around 44% as at Sep 2010 through creeping acquisition.

ROE has been reasonably high over the years and likely to be above 45-50 in FY 11 based on expected EPS of around 14-15 per share.

Dividend payout ratio has been reasonably high over the years and if for current year, company declares around Rs 5 per share as dividend, the dividend yield based on cmp works out to around 7% which could offer good downside protection in market declines.

INVESTMENT THEME:

Investment in jenburkt is a low risk moderate reward kind of strategy.  Increasing dividend payout could reduce the downside risk.   And if strong growth comes about there could be significant chances of rerating of the stock. 

NEGATIVE:

With sales of only around 50-60 crores the company seems to have a long way to go in terms of reaching even the mid tier pharma companies. 

All risks associated with small cap companies apply to this company

Acknowledgement:  I would like to thank Mahesh Shah for bringing this scrip to my notice.

ASTRAL POLYTECHNIK LTD

ASTRAL POLYTECHNIK

One of the famous quotes of Buffet is “Leaving the question of price aside, the best business to own is one that over an extended period can employ large amounts of incremental capital at very high rates of return”

As can be seen from the capex done over the years by Astral along with the high rates of return, Astral Poly looks like a company worth looking into.

Cmp 125 -- FV Rs 5 , market cap 274  crores.

Astral Polytechnik is a focussed player in the space of PVC and CPVC pipes and fittings among other plumbing products with excellent pan India reach and strong management. The company has a wide range of brands like CORZAN (industrial pipe fittings) , FLOWGUARD (pipes and fittings),  BLAZEMASTER (fire sprinkler systems), FOAMCORE (underground systems) , ULTRADRAIN (conventional system) , AQUARIUS (outer loop lines),  AQUATEK(high impact ABS plumbing system) , ASTRAL UNDERGROUND, DWV (drain,waste and vent), BENDABLE (composite pipe),  AQUASAFE etc and has over 60% market share in India.

Over the years the company has kept expanding the capacities in line with increased demand from 4000 MT in 2004 to 30867 MT in FY 10 and currently in Jan 2011 the capacity stands increased to 35000 MT. All this has been done without any stretching of the balance sheet or dilution of equity.  The capacity is expected to reach around 60000 MT by FY 12.

CAPACITY AND UTILISATION

YEAR	06	07	08	09	10	9m FY 11
CAPACITY	4000	9074	11800	25968	30867
UTILISATION	2417	5090	6895	11164	19411	18328
Cash used in investing	7	11.52	26	40	18

FINANCIAL RESULTS FOR LAST FIVE YEARS

YEAR	06	07	08	09	10	9MFY11	9MFY10
SALES	56	101	144	205	304	269	187
PBIDT	7.9	14	24	35	44	26.7	22.15
NP	4	9	17	14.6	28	20.6	16.3
LOAN	17.8	24	32	39	40
ROACE*	24.51	18.6	22.44	26.09	25.5

*DENOTES PBIT/AVG CAPITAL EMPLOYED

9M SALES AT 269 CRORES AND NET PROFITS AT 20.6 CRORES.  EPS FOR 9M FY 11 IS 9.15.

OUTSTANDING SHARES 2.24 CRORES.

HIGHLIGHTS AT END OF Q3 FY 11

Astral Poly Technik Ltd., leaders in manufacturing of CPVC pipes & fittings announced the financial results for the Quarter ended on 31st December , 2010. 

Overview of Q3 FY 2010 v/s Q3 FY 2009 

• Company’s sales from operations has increased by 45%, to Rs.98.49 Crore for the FY 2010 (Q-3) as against Rs. 67.81 Crore in FY 2009 (Q-3). 
• PBT has increased by 32% to Rs. 9.94 Crore for FY 2010 (Q-3) as against Rs. 7.55 Crore in FY 2009 (Q-3). 
• Cash Profit has increased by 32% to Rs. 11.14 Crore for FY 2010 (Q-3) as against Rs. 8.47 Crore in FY 2009 (Q-3). 
• Profit After Tax (PAT) has increased by 34% to Rs. 8.38 Crore for FY 2010 (Q-3) as against Rs. 6.27 Crore in FY 2009 (Q-3). 
• The Company has delivered an Earning Per Share (EPS) of Rs. 3.73 for the current quarter (On Rs.5 Paid up Shares). 

As usual, the company has been able to maintain its growth momentum and delivered a topline growth of 45% during the quarter. However, the EBITA margin has dropped compared to Q-2 quarter which was mainly because of reduction of PVC-Resin price during the last quarter. The drop in PVC price during the last quarter was appx. 7% to 8%. During the quarter other income has increased substantially mainly because of writing back of provision of earlier year and income on investments. However, on a consolidated basis the overall profitability has increased by 34% from Rs. 6.27 Crores to 8.38 Crores. Since long, the company has been able to maintain its 40% + CAGR growth and during the current quarter also company has been able to maintain 45% topline growth. The last Quarter is always bullish in our industry and the company is  quite confident that company will do better (Q-4). 

The new products launched by company such as SWR/ FOAMCORE/ MANHOLE etc are getting very good response in the market besides the existing products. 

During the quarter, the company has utilized its capacity to the tune of 6,856 MT, Further the capacity utilization during the first nine months of the last year was 13,160 MT against that current year first nine months is 18,328 MT which shows a growth of 39%. During the last quarter company has utilized its capacity to the tune of 89% (Total Capacity as on closing of Q-3 was 30,867 MT). However, the company has already increased its capacity to the tune of 4,500 MT in the month of January and few machines are in pipeline which will be installed in the month of February to make the total capacity Appx. 45,000 MT. 

During the quarter rupee was comparatively stable and moving on an average between Rs. 44.40 to Rs. 45.40 hence the company was able to gain Rs. 0.36 Crores in foreign exchange. However on Liabilities paid during the quarter company has incurred a loss of Rs. 0.90 Crores and on unpaid liabilities company has gained Rs. 1.26 Crores. Hence the net effect is Rs. 0.36 Crores during the quarter. 

 Kenya joint venture company will start production from January. 

POSITIVES:

THE COMPANY HAS EXCLUSIVE ARRANGEMENT TO SOURCE ITS RAW MATERIALS FROM LUBRIZOL US.  LUBRIZOL IS UNLIKELY TO PROVIDE SUCH ARRANGEMENT TO OTHER PLAYERS IN INDIA.  THIS PROVIDES A SORT OF ENTRY BARRIER FOR THE COMPANY.

THE COMPANY KEEPS ON LAUNCHING NEW PRODUCTS E.G IN Q1 FY 11 IT LAUNCHED MANHOLES/INSPECTION CHAMBERS AND IS LIKELY TO LAUNCH CPVC BASED FIRE SPRINKLER SYSTEMS—FIRST OF ITS KIND IN INDIA.

CONSISTENT GROWTH OVER THE YEARS SHOWN BY THE COMPANY AIDED BY REGULAR  AND TIMELY CAPACITY EXPANSIONS

EXCELLENT BALANCE SHEET INSPITE OF REGULAR CAPACITY EXPANSIONS.

EXPORTS TO NEIGHBOURING COUNTRIES LIKE SRILANKA, BANGLADESH, AND NEPAL COULD BE GROWTH DRIVERS. KENYA PLANT EXPECTED TO BE OPERATIONAL SHORTLY WILL ALSO AID GROWTH.

VERY GOOD RETURN RATIOS WITH ROE IN EXCESS OF 20 OVER THE YEARS

NEGATIVES:

RAW MATERIAL PRICE LINKED TO CRUDE DERIVATIVES AND HENCE  PROFITABILITY MIGHT BE AFFECTED DUE TO SHARP SPIKE IN CRUDE PRICES.

SINCE IT SOURCES A MAJOR PART OF ITS RAW MATERIALS FROM OVERSEAS, IT IS EXPOSED TO CURRENCY FLUCTUATIONS.

THE TIE UP THE COMPANY HAS GOT FOR RAW MATERIAL SOURCING AND FOR  AVAILING  MANUFACTURING TECHNOLOGY  WITH ITS FOREIGN PARTNERS COULD GO SOUR LEADING TO PROBLEMS GOING FORWARD.