Bajaj Corp - Regaining Lost Ground; Result Update Q3FY15 :: Edelweiss

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Bajaj Corp`s Q3FY15 revenue and PAT came slightly above our estimates due to beat on volume growth and better gross margin. Key positives were: (i) 19% YoY volume growth in Bajaj Almond Drop Hair Oil (ADHO) albeit on a low base (1.5% YoY decline); (ii) 198bps YoY expansion in gross margin, led by lower light liquid paraffin (LLP) prices (down 11% QoQ, 1% YoY); (iii) 176bps YoY rise in EBITDA margin to 28.7% (8 quarter high); and (iv) increase in market share in light hair oil (LHO) category to 60.3% (8MFY15 value market share). In Q4FY15, we expect higher gross margin benefits (only partial benefits were seen in Q3FY15 due to old inventory) to show. However, EBITDA margin expansion will be limited by higher A&P investment (to boost volume growth).

Light hair oil volumes picking up

ADHO volume growth of 19% YoY (compared to 3.9% YoY in Q2FY15, 1% YoY decline in Q1FY15, 8.9% YoY dip in Q4FY14) indicates signs of recovery in the LHO market - we had indicated recovery in hair oil space in Q2FY15. Rural contributed 40% to overall ADHO sales. Nomarks clocked sales of INR1,356mn (INR139mn in Q2FY15 and INR141mn in Q1FY15). LLP is witnessing correction in its prices (down 11% QoQ, 1% YoY, in Q3FY15 exit rate at INR66), aiding gross margin expansion (up 198bps YoY). Thus, despite the 104% YoY spurt in ad spends, EBITDA margin increased by 176bps YoY.

Q3FY15 conference call: Key highlights

Secondary volume clocked 14% YoY growth signifying recovery in LHO segment; some re-stocking has started in the trade as demand is beginning to gain momentum. Rural continues to outperform urban growth. Facewash contributes ~31% of Nomarks sales. Nomarks reported 66% gross margin (highest; 64% in Q2FY15 and 62% in Q1FY15). 35% of Nomarks` sales was spent towards A&P. During the quarter, Nomarks was sold through distribution network of 0.42mn outlets (0.3mn in Q3FY14).

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https://www.edelweiss.in/research/Bajaj-Corp--Regaining-Lost-Ground;-Result-Update-Q3FY15/27997.html