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Investment Summary:
• Almond Drops- Market leader in LHO Category:
Bajaj Corp is the market leader in the LHO category in India through its
flagship brand “Bajaj Almond Drops Hair Oil (ADHO)”. Almond hair
oil category witnessed 29% CAGR by volume and 37.5% CAGR by
value over FY07-FY11. ADHO commands dominant market share in
LHO category. Its market share by value improved from 40.3% during
FY08 to 54.2% during Q1FY12. The company is targeting 60-65%
market share over the next 3-4 years.
• Strong volume growth of Almond hair oil:
During Q1FY12, ADHO had achieved a dominant market share
(volume) of 50.4% in LHO category as compared to 38.4% in FY08.
With rising disposable income, consumers tend to up-trade and ADHO
emerged as a key beneficiary of changing consumer preferences.
• Pricing Power and Premium Margins:
Bajaj Corp has created a niche for itself which enables it to command
premium prices as compared to its peers. The company has successfully
increased its prices at 7 year CAGR of 6.4%, without hampering volume
growth. The company commands one of the highest EBITDA margins
in the industry. We believe that ADHO will continue to maintain
premium pricing going forward due to strong brand equity and niche
category positioning.
• Conversion and strong distribution network to drive growth:
ADHO is gaining market share at the expense of its peers. Going
forward, it is expected to derive conversion from unbranded oils,
coconut oil and amla oil. Further, Bajaj Corp is rapidly expanding its
distribution reach as reaches urban and rural consumers through 2.02
mn retail outlets serviced by 5690 direct distributors and 10,085
wholesalers. Going forward, the company is likely to continue its thrust
to strengthen its distribution reach to expand its market share in LHO
category.
• Valuation:
We Initiate coverage on Bajaj Corp for 12-18 month horizon, with a
target price of Rs. 148.13 per share based on DCF valuation method.
Our DCF-based target price implies an earnings multiple of 14.55x
FY13 earnings. This multiple is at significant discount as compared to
its peers, which factors in the risk of it being a single product company.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Investment Summary:
• Almond Drops- Market leader in LHO Category:
Bajaj Corp is the market leader in the LHO category in India through its
flagship brand “Bajaj Almond Drops Hair Oil (ADHO)”. Almond hair
oil category witnessed 29% CAGR by volume and 37.5% CAGR by
value over FY07-FY11. ADHO commands dominant market share in
LHO category. Its market share by value improved from 40.3% during
FY08 to 54.2% during Q1FY12. The company is targeting 60-65%
market share over the next 3-4 years.
• Strong volume growth of Almond hair oil:
During Q1FY12, ADHO had achieved a dominant market share
(volume) of 50.4% in LHO category as compared to 38.4% in FY08.
With rising disposable income, consumers tend to up-trade and ADHO
emerged as a key beneficiary of changing consumer preferences.
• Pricing Power and Premium Margins:
Bajaj Corp has created a niche for itself which enables it to command
premium prices as compared to its peers. The company has successfully
increased its prices at 7 year CAGR of 6.4%, without hampering volume
growth. The company commands one of the highest EBITDA margins
in the industry. We believe that ADHO will continue to maintain
premium pricing going forward due to strong brand equity and niche
category positioning.
• Conversion and strong distribution network to drive growth:
ADHO is gaining market share at the expense of its peers. Going
forward, it is expected to derive conversion from unbranded oils,
coconut oil and amla oil. Further, Bajaj Corp is rapidly expanding its
distribution reach as reaches urban and rural consumers through 2.02
mn retail outlets serviced by 5690 direct distributors and 10,085
wholesalers. Going forward, the company is likely to continue its thrust
to strengthen its distribution reach to expand its market share in LHO
category.
• Valuation:
We Initiate coverage on Bajaj Corp for 12-18 month horizon, with a
target price of Rs. 148.13 per share based on DCF valuation method.
Our DCF-based target price implies an earnings multiple of 14.55x
FY13 earnings. This multiple is at significant discount as compared to
its peers, which factors in the risk of it being a single product company.
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