Bajaj Corp. 3QFY11 - Good results; reiterate Hold:: Anand Rathi

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Bajaj Corp.
3QFY11 - Good results; reiterate Hold
Bajaj Corp. had a healthy 3QFY11, with revenue and net profit
growing 24% and 26% respectively. However, with no progress
on new product launches after its IPO, we expect a subdued
stock price performance. We retain our Hold rating.

 Healthy revenue growth. The company reported 24% revenue
growth yoy, volumes contributing 17.4 percentage points, the rest
coming from price hikes. However, there was no hike in prices in
3QFY11. Launch of small SKUs and deeper penetration are
driving Bajaj Corp’s revenues.
 Lower ad spend helps maintain margins. The company has
maintained a 30% EBITDA margin. Costs of raw materials (liquid
paraffin, HDPE) were up 20% yoy, though the 400-bp lower adspend
(as percent of net sales) helped maintain the margin. Higher
other income (from unutilised IPO proceeds) helped the company
post 26% PAT growth despite higher income taxes.
 No progress on new product launches. The company has not
yet launched any product. With no product in the test marketing
stage in 3QFY11, we reckon it may not launch any for at least the
next two quarters. Product launches and their performances
would be crucial for a stock re-rating.
 Valuation and risks. We value Bajaj Corp. at a target price of
`672 according to a DCF valuation. At our target, the stock would
trade at a PE of 17x FY12e earnings. Upside/downside risks: early
/delayed launch of new products.