The story so far ………..
Bajaj Corp - BCL came out with its Rs3bn IPO in August 2010 and is a key player in the LHO – Light Hair Oil category with its flagship brand – ADHO – Almond Drop Hair Oil accounting for more than 92% of its revenues and the rest coming from other oils like Brahmi Amla, Amla Shikakai & Kailash Parbat. ADHO commands over 50% market share both in volume and value terms as its strong brand equity with pricing power backed by small SKU sales leverages the distribution strength.
ADHO being the only hair oil available in 3ml sachets and 50ml bottles is growing market share year after year and we believe this platform can be extended to other personal care products going forward to leverage the connotation of Almonds with nutrition.
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What went wrong in FY’12?....... BCL during September 2011 invested Rs750mn in group company – Uptown Properties which owns land at Worli in Mumbai and also issued a corporate bank guarantee for a bridge loan of Rs2.5bn availed by group company – Lalitpur Power Generation
The result: Markets were not happy and the stock hit a low of Rs95
The story ahead ………..
BCL released the bank guarantee at the end of March 2012 and with the value of the Worli property having appreciated the BCL stock is on the radar of investors as it is attractively valued at 11x one year estimated forward earnings with an ROE of over 30%
ADHO is the second highest advertised brand in the hair oil market and with a growing distribution reach of more than 6000 distributors covering over 2 million retail outlets we believe that there exists enough room to grow market share as BCL derives more than 35% of its revenues from the rural segment now. BCL has taken a price increase of 8.5% in ADHO at the beginning of the quarter this fiscal to compensate for the 25% price increase in key raw materials last fiscal like light liquid paraffin, vegetable oil and glass bottles.
ADHO with its unique positioning is driving growth in the LHO market and BCL armed with a cash per share of Rs32 is contemplating opportunities through the inorganic route to utilize the cash pile. We are positive on the stock at Rs130 as it trades at compelling valuations (11x FY13-14E earnings and at 4x price to book) as compared to its peers in the FMCG space. Buy with a one year price target of Rs200
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