Bajaj Corp - Strong on Both Volume and Margins; Result Update Q4FY15 ::Edelweiss

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Bajaj Corp’s Q4FY15 revenue came bang in line, while PAT slightly surpassed our estimate due to better gross margin. Key positives were: (i) 23.9% YoY volume growth in Bajaj Almond Drop Hair Oil (ADHO), albeit on a low base (8.9% YoY decline) versus ~19% volume growth in Q3FY15 on a base of 1.5% YoY decline; (ii) 378bps YoY expansion in gross margin led by lower light liquid paraffin (LLP) prices (down 17% QoQ, 21% YoY); (iii) 279bps YoY rise in EBITDA margin to 31.4% (16 quarter high); and (iv) increase in market share in light hair oil (LHO) category to 60.5% (11mFY15 value market share). Kailash Parbat Cooling Oil (KPCO) continued to disappoint with 73% YoY volume decline (18.5% growth in Q3FY15, down 80% YoY in Q2FY15, down 27% YoY in Q1FY15, down 8% YoY in Q4FY14). We expect gross margin benefits to reflect in FY16 as LLP prices have cooled off. 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 24% YoY indicates signs of recovery in the LHO market-we had predicted recovery in the hair oil space in Q2FY15. Nomarks clocked sales of INR166mn (INR136mn in Q3FY15, INR139mn in Q2FY15, INR141mn in Q1FY15 and INR105mn in Q4FY14). LLP is seeing correction in prices (exit rate at INR62.4/kg), aiding gross margin expansion. Thus, despite 48% YoY spurt in ad spends, EBITDA margin catapulted 279bps.

Broadbased growth except Kailash Parbat

Volume clocked 23% YoY growth signifying recovery in LHO segment; FY15 volume growth stood at 14% YoY. Rural contributed 40% to overall sales with 5.6% volume growth and 62.9% market share in FY15. Brahmi Amla Hair Oil (BAHO) clocked 76% volume growth and 85.6% YoY value growth. Price of LLP decreased to INR62.4/kg from INR78.8/kg YoY. Price of refined oil decreased to INR74/kg from INR75.6/kg YoY. Van operations include 101 vans and 6 video vans covering 7,705 towns and villages.

Financials

Year to March	Q4FY15	Q4FY14	% change	Q3FY15	% change	FY14	FY15E	FY16E
Net sales	2,362	1,845	28.0	2,058	14.8	6,717	8,256	9,253
EBITDA	741	528	40.5	591	25.3	1,860	2,392	2,727
PAT	544	383	42.0	418	30.1	1,489	1,727	2,111
Dil. EPS (INR)	3.7	2.6	42.0	2.8	30.1	10.1	11.7	14.3
Diluted P/E (x)						46.9	40.5	33.1
EV/EBITDA (x)						36.0	27.5	23.8
ROAE (%)						29.7	31.7	35.1

https://www.edelweiss.in/research/Bajaj-Corp--Strong-on-Both-Volume-and-Margins;-Result-Update-Q4FY15/28749.html