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.