AC Choksi Share Brokers Private Limited - Myiris.com

A C Choksi 

Share Brokers Private Limited 

INITIATION REPORT | BAJAJ CORP LTD. Sept 09, 2011 

BAJAJ CORP LTD. 

Conversion and increasing penetration will drive growth… 

Sector: FMCG 

Recommendation: BUY 

Target Price: Rs. 148.13 

Recommendation Price: Rs. 123.65 

Swati Gupta 

Senior Analyst 

Tel: 91-22-6159 5146 

Email: swati@acchoksi.com 

A C Choksi Institutional Research 1




Recommendation: BUY 

Target Price (Rs.) 148.1 

Recommendation Price (Rs.) 123.7 

Potential Return (%) 19.8% 

BSE Sensex 16866.97 

Key Financials 

Shares Outstanding (mn) 147.5 

Face Value (Rs.) 1 

Market Capital (Rs. bn) 18.57 

Free Float (Rs. bn) 3.68 

Dividend Yield (%) 1.5% 

Stock Data 

BSE Code 533299 

NSE Code BAJAJCORP 

Bloomberg BJCOR IN 

Reuters Code BACO.BO 

52-Week Range (Rs.) 151.50/73.30 

Share Holding Pattern 30 th June 2011 

FII, 5% 

DII, 4% 

Others, 6 

% 

Promoter, 

85% 

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. 





Company Background: 

Bajaj Corp Ltd. (BCL), a leading producer of hair oils in India is a part of Shishir Bajaj 

Group of Companies. It was incorporated as ‘Bhaumik Agro Products Private Limited’ 

on April 25, 2006. The name of the company was changed to Bajaj Corp Pvt. Ltd. 

Thereafter, the company was converted into public limited company in 2007 and the 

name changed to Bajaj Corp Ltd. The company commenced its business in April 2008. 

However, the products have been in existence since 1953 and were sold by different 

Bajaj group companies. 

Bajaj Corp Ltd is one of the leading FMCG Company in India with brands in Hair care 

category. The brands have a track record of eight decades and the company is a part of 

one of the oldest business houses of the country. Bajaj Corp is promoted by Shishir 

Bajaj Group of companies. Mr. Kushagra Nayan Bajaj is the chairman of the company. 

The company has a strong brand loyalty across the spectrum of Hair Oil category. 

Business Overview: 

The legacy of BCL’s products extends back to 1953 when Mr. Kamal Nayan Bajaj 

established Bajaj Sevahram (BSL) to market and sell hair oils and other beauty 

products. In 2001, in view of the impending Bajaj family settlement, the business was 

demerged to to form Bajaj Consumer Care Ltd (BCCL) in 2001 when BSL transferred 

its operating business and assigned all trademarks to BCCL. Subsequently, BCCL 

licensed these brands to BCL, pursuant to the Trademark License Agreement for a 

period of 99 years in 2008. As per the agreement, BCL will pay Royalty @ 1% of 

annual net sales turnover to BCCL. 

The company began operating as Bajaj Corp Ltd in April 2008. The company has since 

become India's third largest producer of hair oils and the largest producer of light hair 

oils, capturing an estimated 54.2% of the light hair oil market (based on value) in 

Q1FY12, according to Nielsen Retail Audit Report. 

The company’s key product is Bajaj Almond Drops Hair Oil (ADHO), a premium 

brand that is currently the market leader in the light hair oil segment. In addition, the 

company also markets other hair oil brands viz., Brahmi Amla Hair Oil (BAHO), Amla 

Shikakai (ASHO) and Jasmine Hair Oil (JHO). The company also produces oral care 

products under the brand name Bajaj Black Tooth Powder (BTP). During Q1FY12, 

Bajaj Corp forayed into cooling oil category with Kailash Parbat Cooling Oil (KPCO). 





Sales Break-up in Q1FY12 by Brand 

ADHO 91.56% 

Source: Company 

Other 8.53% 

KPCO 5.08% 

ASHO 0.44% 

BAHO 2.29% 

JHO 0.36% 

A C Choksi Institutional Research 4 

BTP 

0.36% 

Manufacturing Facilities Owned/Leased Products Excise Duty Exemption Income Tax Exemption 

Company Operated 

Parwanoo, Himachal Pradesh Leased ADHO, ASHO 

Dehradun, Uttar Pradeh Owned ADHO 

Paonta Sahib, Himachal Pradesh Owned ADHO 

Installed Capacity 77.00 mn Ltrs 

Total Production in FY11 11.02 mn Ltrs 

Capacity Utilization 14.3% 

Starting from FY10, for 10 

years 


years 


years 

100% for 5 years, 30% for 

following 5 years 





Third Party 

Parwanoo, Himachal Pradesh 

ADHO, BAHO & 

JHO 


years 

NA 

Udaipur, Rajasthan BTP NA NA 

Source: Company




Key Management Details: 

Mr Kushagra Bajaj: Non Executive Chairman and one of the promoters of the 

company. He has 10 years of experience in the consumer & sugar industry and holds 

directorship other Bajaj group companies including Bajaj Hindusthan Ltd. 

Equity Research Team 

022 6159 5146 

Mr. Roshan F. Hinger: Vice Chairman and Whole time director of the company with 

research@acchoksi.com 

over 45 years of experience in FMCG business. 

Mr Sumit Malhotra: Whole time director of the company. He is Director of Sales and 

Marketing department of the company. He has 23 years of experience in FMCG 

sector. 

Mr Apoorv Bajaj: Executive President and also a promoter of the company. 

Mr. V.C. Nagori: Vice President – Finance. He has 25 years of experience in finance, 

taxation, audit and legal compliance. 

Mr. D. K. Maloo: General Manager - Finance and company secretary. He has 22 years 

of experience in finance, taxation, audit and legal compliance. 





Investment Rationale: 

Hair Oil Industry; growing at par with FMCG Industry Average: 

Hair care products contribute approximately 8% of the total FMCG market (Rs 

1338.76 bn) in India (Source: A C Nielsen). Hair care industry is growing at par with 

overall industry average of approximately 13-14%. Shampoo and hair oils, including 

coconut oils, continue to be the key components of this segment. Hair oils category 

constitute more than 55% of the overall hair care industry in India. Hair oil category 

witnessed a volume growth of 16.7% CAGR from FY 2007 to FY 2011whereas it 

witnessed value growth of 20% CAGR over the same period. This growth is primarily 

attributed to the improvement in distribution network and supply chain efficiency. 

Source: A C Nielsen 

Hair Care Industry Size (Value) and Structure 

Coconut Oil 

(Rs.2,151 cr) 

Hair Oils( Rs. 

5,326 cr) 

Hair Care (Rs. 

10,243 cr) 

Perfumed Oil 

(Rs. 3,175 cr) 

Other Hair care 

products( Rs. 

4,917 cr) 





mn Ltr. 

300 

250 

200 

150 

100 

50 

0 

Overall Hair Oil Market by Volume Overall Hair Oil Market by Value 


mn Ltr. 

25 

20 

15 

10 

5 

0 

FY07 FY08 FY09 FY10 FY11 Q1FY12 


Rs. bn 

70 

60 

50 

40 

30 

20 

10 

0 


Light Hair Oil Segment is growing faster than overall hair oil market: 

Light Hair Oil (LHO) category is growing faster than overall Hair oil market in India. 

LHO category grew at 17.6% CAGR from FY07 to FY11 in volume terms while it 

grew at 25.5% CAGR from FY07 to FY11 in value terms. 

Light Hair Oil Market by Volume Light Hair Oil Market by Value 



Rs. bn 

10 

8 

6 

4 

2 

0 


Thus, share of LHO category increased consistently in overall hair oil category during 

past few years. This steady increase in LHO share was primarily driven by an increase 

in realizations which signifies a structural shift in consumer preference for non-sticky 

hair oils for which consumers are willing to pay premium price. This shift in consumer 

preference is attributable to rapid urbanization, favorable demographics, increase in 

disposable income, better distribution network and increasing penetration of branded 

oils in low SKUs.





LHO share as a % of Overall Hair oil Market (by volume and value) 

From the following tables we can depict that penetration of branded hair oils is 

increasing steadily in India owing to conversion from unbranded hair oil to branded 

oils. The penetration of Hair oils grew 4% during 2010 and is currently at a penetration 

of 88.3%. On the other hand the unbranded Hair Oils which form 41% of the Hair Oil 

usage has seen a decline of 3% in the year 2010. 

100% 

90% 

80% 

70% 

60% 

50% 

40% 

30% 

20% 

10% 

0% 

58% 57% 

29% 


87% 

Penetration Level 


35% 

92% 

51% 

37% 

88% 

44% 

40% 

84% 

47% 

41% 

2000 2003 2005 2006 2010 

Unbranded Oil Branded Oil Total Hair Oil 

88%




mn Ltrs 

Usage ratio of Branded Oil in Urban and Rural Market 

80% 

70% 

60% 

50% 

40% 

30% 

20% 

10% 

0% 


52% 

26% 


59% 

30% 

61% 

35% 

68% 

46% 

2000 2003 2005 2006 

Urban (%) Rural (%) 

Almond Drops- Market leader in fast growing LHO Category: 

Bajaj Corp is the market leader in the LHO category in India through its flagship brand 

“Bajaj Almond Drops Hair Oil (ADHO)”. As per Nielsen data, 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. 

Almond Hair Oil (AHO) Market-Volume Almond Hair Oil (AHO) Market-Value 

12 

10 

8 

6 

4 

2 

0 



Rs. bn 

5 

4 

3 

2 

1 

0 

FY07 FY08 FY09 FY10 FY11 Q1FY12




mn Ltr 

25 

20 

15 

10 

5 

0 

AHO share as a % of LHO - Volume AHO share as a % of LHO - Value 

FY07 FY08 FY09 FY10 FY11 

AHO LHO AHO volume as a % of LHO volume 


60% 

50% 

40% 

30% 

20% 

10% 

0% 


Rs. bn 

Strong volume growth of Almond hair oil: 

9 

8 

7 

6 

5 

4 

3 

2 

1 

0 

FY07 FY08 FY09 FY10 FY11 

AHO LHO AHO value as a % of LHO value 

During Q1FY12, ADHO had achieved a dominant market share (volume) of 50.4% in 

LHO category as compared to 38.4% in FY08. During the period, Almond hair oil 

category registered ~29% CAGR by volume far higher than LHO category’s ~18% 

CAGR and overall Hair oil’s ~17% CAGR. Heavy hair oils like coconut oil and Amla 

oils are growing in high single digits while LHO are growing in high teens. It is visible 

that ADHO gained market share at the expense of its competitors. With rising 

disposable income, consumers tend to up-trade and ADHO emerged as a key 

beneficiary of changing consumer preferences. ADHO is gaining market share from 

coconut hair oil, amla oils, other LHO and unbranded hair oil. Major conversion came 

from Marico’s Parachute Coconut Oil (CNO) and Dey’s Keo Karpin. While Marico 

maintained its dominant market share in CNO category due to continuous conversion 

from unbranded hair oil users to branded CNO users, Dey’s Medical’s Keo Karpin lost 

its dominant position in LHO segment. Keo Karpin had market share of 42% in LHO 

category during FY04 which declined to 19% in FY11. 

60% 

50% 

40% 

30% 

20% 

10% 

0%




Premium positioning; High Realizations: 

ADHO is positioned as premium value-added hair oil due to its differentiation 

properties in terms of product (almond based) and packaging (glass bottle). The 

product is made from almond extracts with added Vitamin E and it is packaged in a 

glass-bottle instead of a PET-bottle, which helps to preserves the product properties 

for a longer period of time. Thus, Bajaj Corp has created a niche category of Almond 

Oil in LHO category which enables it to command premium prices as compared to its 

peers. The company has successfully increased its prices from Rs 28 for 100ml in 

Mar’03 to Rs 46 in Apr’11 (CAGR of 6.4%), without hampering volume growth. The 

brand’s strong pricing power is evident from improvement in market share (by value) 

from 31.4% in FY06 to 54.2% in Q1FY12. In LHO category, ADHO’s closest 

competitors are Dey’s Medical’s Keo Karpin with ~19% market share and Marico’s 

Hair & Care with ~16% market share. While 100 ml SKU of Keo Karpin and Hair & 

Care are available at Rs. 37 and Rs. 42 respectively, ADHO’s 100 ml SKU is available 

at Rs. 46. We believe that ADHO will continue to maintain premium pricing going 

forward due to strong brand equity and niche category positioning. 

100 ml 

ADHO 

Hair & 

Care 

Keo 

Karpin 


Premium Pricing as compared to competitors 

0 10 20 

Prices( Rs.) 

30 40 50 


37 

42 

46




Increasing focus on rural market without diluting margins: 

Light hair oils are primarily considered as an urban-centric product due to its premium 

pricing. However, it is unlikely to ignore 70% of total population living in rural India 

which is willing to up-trade with the rise in disposable income. In rural India 

disposable incomes are rising as farmers are shifting towards cash-crops and rural 

employment generation schemes are already in place. With growing exposure to 

information and media, rural consumers are well aware of branded products and are 

willing to up-trade. However, there is a significant difference between consumption 

pattern of rural and urban consumers. While consumption in urban India can be 

defined as “Small population-consuming a lot”, rural consumption can be defined as 

“Large population-consuming little”. Thus, it is important for a company looking 

forward to improve its traction in rural India to launch low-priced SKUs. Bajaj Corp is 

increasing its penetration in rural market with ADHO’s LPUs of 3 ml sachet and 20 ml 

which are priced at Rs. 1 and Rs. 10 respectively. Proportion of rural sales in overall 

revenues is increasing consistently. During FY05, 3 ml sachet contributed 0.8% of 

overall sales while during FY11 contribution of sachets increased to 10.4%. However, 

it is important to note that sachets are considered a low margin SKU due to high price 

sensitivity. However, Bajaj Corp happened to maintain its margins even in sachets due 

to cost rationalization in packaging material as sachet packaging is cheaper than glass 

bottle packaging. Thus, it gives Bajaj Corp an edge over its competitors who would 

have to dilute their margins to increase traction in rural India. As a result, Bajaj Corp 

has a dominant market share of ~ 57.5% in LHO category in rural market. During 

FY11, sachet and 20 ml SKUs registered strong growth of 63% and 49.8% respectively 

which reinforces the fact of fast growing presence of Bajaj Corp in rural market. 

ADHO SKUs (ml) 


300 

200 

100 

75 

50 

20 

Sachet 

Strong Growth in Low priced SKUs 

0% 10% 20% 30% 40% 50% 60% 70% 





100.0% 

90.0% 

80.0% 

70.0% 

60.0% 

50.0% 

40.0% 

30.0% 

20.0% 

10.0% 

0.0% 


Sachets contribution increased consistently in overall sales 

0.8% 1.9% 2.9% 3.5% 5.8% 7.4% 10.4% 

FY05 FY06 FY07 FY08 FY09 FY10 FY11 

Sachet 20 50 75 100 200 300 500 

Strong Presence in North India: 

LHO sales are geographically concentrated specifically in the northern regions of the 

country due to willingness of consumers to try new products. Whereas, south India is 

still a major consumer of coconut oil due to its deep rooted traditional values. This 

can be depicted from the following chart as southern region contributes only 4% of 

total LHO sales while northern region contributes whopping 51%. On the other hand, 

contributions of eastern and western regions are almost similar at 22-23% level. 

Eastern region primarily uses mustard oil, amla oil, cooling oils and LHOs, while 

western region primarily uses coconut oil, mustard oil, groundnut oil and LHOs. Bajaj 

Corp has a strong presence in North, East and Western regions with its well 

entrenched distribution network. 






80 

70 

60 

50 

40 

30 

20 

10 

0 

South, 4% 

Region wise break up of LHO Market 

North, 51% 

East , 22% 

West, 23% 

ADHO’s strong position in most of the states (except southern states) 

All India 

Punjab 


Haryana 

Delhi 

Rajasthan 

U. P. 

ADHO Market Share % (Vol) 


Uttaranchal 

Assam 

Bihar 

Jharkhand 

Orissa 

W.Bengal 

Gujarat 

Total Urban Rural 

M.P. 

Chattisgarh 

Maharashtra 

Karnataka 

A.P. 

Tamil Nadu 

Kerala




Strong Distribution network: 

Bajaj Corp has established strong distribution network in past few years. It reaches 

urban and rural consumers through 2.02 mn retail outlets serviced by 5690 direct 

distributors and 10,085 wholesalers. Northern Region is the major market for LHO 

category. Thus, approximately 49% of Bajaj corp’s stockists are based in North India, 

which ensures high penetration of ADHO in rural and urban area in the region. Bajaj 

Corp is rapidly expanding its distribution reach as its stockists strength has grown from 

less than 1500 in FY05 to 5690 in Q1FY12. Going forward, the company is likely to 

continue its thrust to strengthen its distribution reach to expand its market share in 

LHO category. Bajaj Corp has 32 regional distribution centers which further distributes 

to rural and urban stockists. 

Approximately 80% sales are derived through dominant distribution channels: 

Local Grocery stores and general stores are dominant distribution channels for LHO 

category as approximately 79% sales occur through these channels. Approximately 

80% of ADHO’s sales are derived through these channels. From distribution 

perspective, retailers play an important role to push a brand or influence purchase of 

consumers. Thus, ADHO which has already become a generic name for Almond oils 

provides the company an edge over its competitors. 

Moderate Competitive intensity: 

Marico, Dabur, Bajaj Corp and Emami are the leading players in branded hair oil in 

India. Hair oil category is unlikely to face fierce competition from MNCs as hair oils 

are not widely used in different geographies across the globe. Although hair oil 

category is highly penetrated, approximately 40% of total market is with unorganized 

players. Hence, with rising income levels and changing consumer preference there is a 

huge scope for all leading players to register healthy growth going forward. All four 

domestic players are market leader in their own niche. While Marico is a leading player 

with approximately 46% market share in branded CNO category, Dabur is leading in 

Amla oil category with ~70% market share. On the other hand, Emami is a dominant 

player in cooling oils with a market share of approximately 54.4% whereas Bajaj Corp 

is market leader in LHO category. Thus, all the players have stable growth coming 

from their flagship product whereas they are trying to gain market share in other hair 

oil categories. 





ADHO’S Outlook: 

• Volume Outlook: 

We believe ADHO will register 15% volume growth during FY12 driven by 

conversion from peers, increasing penetration in rural market and expanding 

distribution reach. ADHO’s volume growth is primarily driven by conversion 

from coconut oil users, amla oil users, unbranded oil users and other LHO 

users. Amongst these, conversion from coconut oil users is approximately 40% 

whereas conversion from amla oil users is approximately 18%. During FY10, 

ADHO registered volume growth of 14.8% whereas during FY11 it registered 

a volume growth of 18.3%. It is important to note that, during FY10, ADHO’s 

100 ml SKU was available at 100% premium over Parachute’s 100 ml SKU. 

Whereas during FY11 copra prices increased significantly and Marico took a 

price increase of ~ 35%. On the other hand, ADHO took a price increase of 

~5% during the year. This resulted into a decline in premium (from 100% to 

56%) charged by ADHO over Parachute CNO. This reflected in more-thanaverage 

increase in ADHO’s volumes during FY11. However, increasing LLP 

(light Liquid Paraffin) prices necessitated Bajaj Corp to take further price 

increase and during Apr’11 Bajaj Corp had taken a weighted average price 

increase of 8.5%. On the other hand, copra prices started stabilizing due to 

flush season. Thus, during current year premium of ADHO over Parachute 

widened to ~70%. As per our estimates, during FY12 Marico is unlikely to take 

any steep price increase. Bajaj Corp is also not expected to take further price 

increase as LLP prices are expected to correct from H2FY12. Thus, this 

premium of 70% is expected to remain stable during the year. Local Grocery 

stores and general stores are dominant distribution channels for LHO category 

as approximately 79% sales occur through these channels. 

Dabur Amla’s 100 ml SKU is available at Rs. 36. During FY10 and FY11, 

ADHO’s 100 ml SKU commanded a premium of 18% and 17% respectively 

over Dabur Amla’s 100 ml SKU. However, during Q1FY12 this premium 

increased to 28% as ADHO had taken price increase of ~8.5% during Apr’11. 

During Q1FY12, Army which is one of the largest customers of Amla oil had 

downscaled business due to overall tightening up mandate by the government. 

Thus, volumes of Dabur Amla oil are likely to get hampered during FY12 

which will deter Dabur to take further price increase during the year. 

Thus, premium of ADHO over CNO and Amla oil widened during Q1FY12 

as compared to FY11. Hence, we can conclude that ADHO’s volume growth 

will remain at normalized level of 15% during FY12. 





• Realizations Outlook: 

We have factored in 10% and 6% increase in realizations during FY12 and 

FY13 respectively. Bajaj Corp had already taken a weighted average price 

increase of 8.5% during Apr’11. As LLP prices are likely to correct from 

Q3FY12, we don’t anticipate any significant price increase during FY12. 

• Raw Materials Outlook: 

LLP, glass bottles and refined oil are major raw material for Bajaj Corp. 

LLP: LLP constitutes approximately 40-42% of total raw material cost of 

ADHO. During FY11, LLP cost registered a sharp increase of 49.5% due to 

high crude prices. We have factored in an increase of 28.2% in LLP prices 

during FY12. Further, as per our estimates LLP prices are expected to correct 

by 5.2 % during FY13. 

90 

80 

70 

60 

50 

40 

30 

LLP (Rs./Kg) 

Source: Company, A C Choksi Institutional Research 





Glass: Glass bottles constitute approximately 25-26% of total raw material cost 

of ADHO. We have factored in an increase of 17% during FY12 driven by an 

increase in soda ash prices. Major supplier for Bajaj Corp’s glass bottles, has 

already taken price increases during Q1FY12 and it is unlikely to take further 

price increase during the year unless there is an abnormal increase in soda ash 

prices. 

145 

140 

135 

130 

125 

120 

115 

110 

105 

100 

Glass Index 

Apr‐05 Apr‐06 Apr‐07 Apr‐08 Apr‐09 Apr‐10 Apr‐11 

Glass Index 


32 

30 

28 

26 

24 

22 

20 

18 

16 

14 

12 

10 

Soda Ash (Rs./Kg) 

Soda Ash (Rs./Kg) 






Refined oil: It constitutes approximately 8% of total raw material cost of 

ADHO. Production of groundnut and mustard are expected to increase by 

21% and 18% respectively, during the current crop season. However, due to 

high food inflation we have factored in an increase of 10% during FY12. 

Foray in emerging categories like cooling oils: 

Cooling oil is a fast growing category with a 5 year CAGR of ~20%. Bajaj Corp 

entered into this category with its Kailash Parbat Cooling oil (KPCO) brand during 

May’11 at pan-India level. During Q1FY12, KPCO registered sales of Rs. 54.2 mn. 

Emami is the market leader with approximately 54.4% market share in this category 

with its Navratna brand. Bajaj Corp is vying to create its niche in this category by 

positioning its product with differentiation factor. KPCO has extract of sandal which is 

known for its cooling properties and the product has different colour and fragrance as 

compared to other products available in this category. Bajaj Corp has a strong 

distribution network to achieve pan-India scale for a new product at a faster pace. The 

product is gaining rapid traction in states like Punjab, Madhya Pradesh, Rajasthan and 

Gujarat where Bajaj Corp has a very strong distribution network. In cooling oil 

category, it primarily competes with Emami which has a smaller distribution network 

as compared to Bajaj Corp. There is a regional brand Himgange which has the second 

highest market share of ~25%. This brand is focused in U.P., Bihar, Chhattisgarh and 

Jharkhand. Marico is also prototyping its cooling oil “Parachute Advansed Coconut 

Cooling Oil” in Andhra Pradesh and is likely to expand its reach in near term in 

southern region where it has a strong foothold. Thus, we believe that strong 

distribution network and product differentiation will aid Bajaj Corp to gain traction 

and create its niche in this fast growing category. 

Shrinking investment behind under-performing categories: 

Bajaj Corp has presence in Amla oil category with its Bajaj Brahmi Amla Hair Oil 

(BAHO) and Bajaj Amla Shikakai Hair Oil (ASHO). Dabur is the market leader in 

Amla oil category with approximately 70% market share. However, despite of 

substantial advertisement and promotional spend these products were unable to get 

significant market share due to the lack of product differentiation. Thus, the company 

is unlikely to invest behind these products unless it finds a differentiation factor. Their 

contribution in sales and sales in absolute terms is declining consistently. Thus, we 

have factored in a decline of 16.0% in BAHO sales and 20.8% decline in ASHO sales 

during FY12. 





5.00% 

4.50% 

4.00% 

3.50% 

3.00% 

2.50% 

2.00% 

BAHO's Contribution to sales (%) BAHO Sales Value 

FY10 H1FY11 FY11 Q1FY12 

BAHO's Contribution to sales (%) 


2.00% 

1.50% 

1.00% 

0.50% 

0.00% 


Rs. mn. 

500 

400 

300 

200 

100 

0 

Q1 Q2 Q3 Q4 

FY11 FY10 

ASHO's Contribution to sales (%) ASHO Sales Value 

FY10 H1FY11 FY11 Q1FY12 

ASHO's Contribution to sales (%) 


Rs. mn 

200 

150 

100 

50 

0 

Q1 Q2 Q3 Q4 

FY11 FY10




Financial Projections: 

Revenue to grow at 2-year CAGR of 21.3% by FY13: 

We expect market share of ADHO to increase going forward driven by its strong 

brand positioning, conversion from loose oils/coconut oil/amla oil users to ADHO 

and wider and deeper distribution network. Further, KPCO is expected to garner 

healthy traction in cooling oil category due to its product differentiation properties. In 

addition, Bajaj Corp is exploring options to extend its brand into high growth and high 

margin hair care and/or personal care categories to capitalize upon its brand equity and 

for optimum utilization of its wide spread distribution network. The company has 

sufficient cash, raised through IPO, to fund any inorganic or organic growth plans. 

Foray into cooling oil category and expansion in other categories will reduce its 

dependence on its core product ADHO. Hence, we believe Bajaj Corp is well on track 

for a steady revenue growth momentum. Going forward, overall revenues of the 

company are expected to grow at 2-year CAGR of 21.3% by FY13. 

6000 

5000 

4000 

3000 

2000 

1000 

0 

Revenue & Revenue Growth 

FY10 FY11 FY12E FY13E 

Total Sales Sales Growth 



40.0% 

35.0% 

30.0% 

25.0% 

20.0% 

15.0% 

10.0% 

5.0% 

0.0%




Operating profit to witness healthy growth: 

Bajaj Corp’s operating margin is expected to grow at 2-year CAGR of 16.8% till FY13. 

However, during Q1FY12, raw material inflation remained intact. Further, during the 

quarter Bajaj Corp had launched KPCO which increased its A&P expenditure during 

the quarter. These factors will have dilutive impact on operating margin of the 

company during the year. Thus, we expect operating margins to contract by 351 bps yo-y 

during FY12. However, Management expects KPCO to achieve break even during 

second year of the launch with approximately 6% market share. Further, we expect a 

decline in LLP cost during FY13. This will result into margin expansion by 129 bps 

during FY13 as compared to FY12. 

1600.0 

1400.0 

1200.0 

1000.0 

800.0 

600.0 

400.0 

200.0 

0.0 

EBITDA (Rs. Mn) & EBITDA Margin 


EBITDA EBITDA Margin 


Strong growth in net profit: 


35.0% 

30.0% 

25.0% 

20.0% 

15.0% 

10.0% 

We expect net profit to grow at 20.7% 2-year CAGR by FY13. We have factored in tax 

rate of 20% during FY12 and FY13. Despite of high tax rate as compared to FY11 and 

margin contraction at operating level, net margin is expected to contract by just 117 

bps during FY12, primarily due to an increase in other income. During FY13, PAT 

margin is expected to expand by 86 bps. 

5.0% 

0.0%




1600 

1400 

1200 

1000 

800 

600 

400 

200 

0 

PAT (Rs. Mn) & PAT Margin 


Adjusted PAT Net Margin 


Negative Working Capital Cycle: 


29.0% 

28.8% 

28.6% 

28.4% 

28.2% 

28.0% 

27.8% 

27.6% 

27.4% 

27.2% 

27.0% 

26.8% 

Bajaj Corp has a policy to sell in cash. Thus, its trade account receivable days were as 

low as 6.14 during FY11. This resulted into negative working capital cycle during the 

year. Going forward, we believe that the company will maintain its strong receivable 

policy. Further, inventory days are expected to decline from FY13, as exceptionally 

high raw material cost scenario seems to be over which will lead to a decline in raw 

material position building. Thus, we expect that the company will continue to maintain 

negative working capital cycle going forward. 

Cash rich business model; capable to fund capex through internal accruals: 

During FY10, Bajaj Corp had raised Rs. 2,970 mn through IPO. Out of this, the 

company had allocated Rs. 2200 mn for promotion of new products and Rs. 500 mn 

for acquisitions and strategic activities. In the recent past, acquisitions deals 

commanded high valuations in FMCG space. Thus, we believe that Bajaj Corp is 

scouting for a regional brand which it will scale up at pan-India level leveraging on its 

wide-spread distribution network. The company generates healthy cash flow at 

operational level; it generated Rs 1,014.6 mn for FY11 and will continue to generate 

healthy cash flows in future on account of negative working capital cycle. We have 

factored in a maintenance capex of Rs. 150 mn and Rs. 180 mn during FY12 and FY13 

in our estimates.




DCF-Valuation 

Valuation: 

In our DCF model we have derived explicit free cash flow projections till FY 2020 

after which we have assumed a terminal value. Based on a WACC of 10.90% and a 

perpetual growth rate of 5% we arrive at a DCF fair value of Rs. 148.13 for Bajaj Corp. 

We initiate the coverage on the stock with “BUY” recommendation with potential 

upside of 19.8%. 

Particulars (Rs. Mn) FY 2011A FY 2012E FY 2013E FY 2014E FY 2015E FY 2016E FY 2017E FY 2018E FY 2019E FY 2020E 

Net revenues 3,587 4,475 5,282 6,074 6,985 7,963 8,998 10,078 11,186 12,305 

EBIT 1,063 1,164 1,435 1,680 1,929 2,117 2,388 2,570 2,848 3,066 

EBIT margin 29.6% 26.0% 27.2% 27.7% 27.6% 26.6% 26.5% 25.5% 25.5% 24.9% 

Net income (Adjusted) 1,031 1,234 1,502 1,719 1,844 1,982 2,210 2,371 2,606 2,500 

Free Cash Flow (FCF) analysis 

NOPLAT 853 855 1,059 1,250 1,347 1,456 1,652 1,779 1,979 1,835 

Depreciation 18 28 39 51 61 73 86 101 116 133 

Change in working capital (455) (212) (149) (156) (170) (184) (196) (207) (214) (218) 

Capex (62) (150) (180) (207) (237) (271) (306) (343) (380) (409) 

Free cash flow 1,264 945 1,067 1,250 1,341 1,442 1,628 1,744 1,929 1,777 

Discounted Free Cash Flow 8,001 

Perpetual growth rate 5.00% 

WACC 10.90% 

Terminal Value 31,622 

Discounted Terminal Value 13,035 

Net Debt 

(813) 

Outstanding shares (mn) 

147.5 

Fair Value per share (Rs.) 148.13 


DCF sensitivity analysis 

Terminal growth rate 

148.13 3.00% 4.00% 5.00% 6.00% 7.00% 

9.90% 142.1 156.6 177.0 207.9 260.0 

10.40% 132.7 144.7 161.2 185.2 223.3 

WACC 10.90% 124.5 134.6 148.1 167.2 196.0 

11.40% 117.3 125.8 137.1 152.5 174.9 

11.90% 110.9 118.2 127.6 140.3 158.1 

Source: A C Choksi Institutional Research 





Investment Concerns: 

• Single Product Concentration: ADHO contributes approximately 92% of overall 

sales. Although, ADHO enjoys pricing power due to its dominant market share in 

LHO category any unhealthy competitive activity can hamper its market share 

and/or premium margins. However, the company is in the process of reducing this 

risk by diversifying its product portfolio through new product launches. 

• Volatility in raw material prices: LLP, glass bottles and vegetable oils are major 

raw material for Bajaj Corp. For LLP requirement, the company enters into future 

contracts while glass bottles and vegetable oils are purchased at spot prices. During 

FY11, raw material prices increased significantly and continue to move up till 

Q1FY12. The company had already taken price increase to mitigate the impact of 

input cost inflation. However, if raw material prices increases more than our 

estimates, it may adversely affect Bajaj Corp by either affecting margins or volumes. 

This will lead to deviation from our estimates. 

• Unsuccessful new product launches: The company is in the process of launching 

new products. However, any unsuccessful launch will impact profitability of the 

company and will burn its cash reserves. Along with that, it can also hamper brand 

equity of the company. 

• Risk related to acquisitions: The company is on a look out for acquisition. 

However, Bajaj Corp is keeping a conservative stance to fund these acquisitions 

(largely through internal accruals). Recent acquisition deals in FMCG space 

happened at exorbitant valuations. Thus, it will be tough to identify a strong regional 

player at reasonable valuations. Further, after a successful acquisition, the company 

runs a risk of being unable to create market for a regional brand at national level. 

• Slowdown in consumer spending: During macro-economic slowdown and rising 

inflation consumers tend to reduce spending by down trading. Considering Bajaj 

Corp’s premium priced flagship product, a slowdown in consumer spending would 

be a risk to our earnings estimates and target price as consumers tend to down-trade 

in such a scenario. 

• Low Float: Bajaj Consumer Care Ltd. Holds 84.75% stake in Bajaj Corp. Thus, 

Bajaj Corp has low liquidity which makes stock vulnerable to steep downward 

movement in case of unfavorable news. However, as per new SEBI guidelines, 

promoters need to gradually reduce their holding to 75% or below, over a period of 

time. This mandate will address the low liquidity concern in the stock. 





FINANCIALS: 

INCOME STATEMENT 

Particulars (Rs. Mn) FY10A FY11A FY12E FY13E 

Total Revenues (Net of Excise) 2,946 3,587 4,475 5,282 

Cost of goods sold 1,177 1,585 2,121 2,407 

Gross profit 1,769 2,002 2,354 2,874 

Gross profit Margin 60.0% 55.8% 52.6% 54.4% 

Selling, Gen & Adm Expenses 284 354 446 527 

Ad. & Sales Promotion 373 405 512 629 

Staff Cost 138 163 205 245 

EBITDA 973 1,081 1,191 1,474 

EBITDA Margin 33.0% 30.1% 26.6% 27.9% 

Depreciation & Amortization 8 18 28 39 

EBIT 964 1,063 1,164 1,435 

EBIT Margin 32.7% 29.6% 26.0% 27.2% 

Other Income 51 178 379 442 

Exceptional Items 0 190 0 0 

Adjusted PBT 1,016 1,240 1,542 1,877 

Provision for Income Taxes 176 210 308 375 

Reported PAT 839 841 1,234 1,502 

Adjusted PAT 839 1,031 1,234 1,502 

PAT Margin 28.5% 28.7% 27.6% 28.4% 

Diluted Weighted Average shares (mn) 125 148 148 148 

Diluted EPS (Rs.) 6.71 6.99 8.36 10.18 

Dividends 920 280 411 500 

Dividend Tax 156 47 68 83 






BALANCE SHEET 


Current Assets 

Cash and cash equivalents 168 813 1,660 2,586 

Trade accounts receivable 29 60 76 91 

Inventories 99 144 198 216 

Loans and Advances 25 43 54 69 

Total current assets 320 1,061 1,988 2,963 

Fixed Assets 

Gross Block 196 247 397 577 

Less: Accumulated Depreciation 13 30 58 97 

Net Block 184 217 339 480 

Capital WIP 0 3 0 0 

Intangible Assets 0 0 0 0 

Investments 21 3,301 3,301 3,301 

Deffered Tax assets -1 0 0 0 

Misc. Expenses 23 1 0 0 

Total non-current assets 227 3521 3640 3781 

Total assets 547 4,581 5,628 6,744 

Current liabilities 

Sundry Creditors 145 356 479 554 

Advance from Customers 19 21 23 25 

Deposits from C&Fs and others 4 4 4 4 

Statutory Liabilities 43 53 64 76 

Other Liabilities 7 9 10 11 

Provisions 49 375 530 637 

Total current liabilities 268 818 1,110 1,308 

Long term debt 0 0 0 0 

Other long term liabilities 0 0 0 0 

Total long term liabilities 0 0 0 0 

Minority Interest 0 0 0 0 

Share Capital 125 148 148 148 

Share Premium 0 2,948 2,948 2,948 

Reserves & Surplus 154 668 1,423 2,341 

Total liabilities and equity 547 4,581 5,628 6,744 






CASH FLOW STATEMENT 


Net income (loss) before taxes 1,016 1,240 1,542 1,877 

Operating profit before working capital changes 976 1,089 1,199 1,481 

(Increase)/decrease in Debtors (26) (29) (16) (15) 

(Increase)/decrease in Inventories (22) (45) (53) (19) 

(Increase)/decrease in Other Loans & Advances 64 (14) (11) (15) 

Increase/(decrease) in Creditors 8 219 125 77 

Increase/(decrease) in Other liabilities 6 11 12 14 

Increase/(decrease) in Provisions 24 (1) 2 3 

Cash generated from operations 1031 1228 1258 1526 

Tax Paid (170) (214) (308) (375) 

Net cash from operating activities 861 1015 950 1151 

Cash flow from investing activities 

Capital Expenditures (128) (62) (150) (180) 

Capital WIP 0 0 3 0 

Interest Received 46 113 324 396 

Dividend Received 0 5 5 5 

(Purchase)/Sale of Investment (Net) (19) (3227) 42 34 

Defferred tax liability 0 0 (0) 0 

Misc. expenses 0 0 1 0 

Net cash used in investing activities (102) (3171) 224 254 

Cash flows from financing activities 

Proceeds from the issue of share capital 0 2970 0 0 

Payment of Dividend (923) 0 (280) (411) 

Payment of Dividend Tax (157) 0 (47) (68) 

Share Issue Expenses (23) (168) 0 0 

Net Cash from financing activities (1102) 2802 (327) (479) 

Increase/Decrease in cash and cash equivalents (343) 646 847 926 

Cash and cash equivalents at the beginning 510 168 813 1,660 

Cash and cash equivalents at the end 168 813 1,660 2,586 






RATIOS 

Particulars (Rs. Mn) FY11A FY12E FY13E 

Growth (%) 

Total sales 21.8% 24.8% 18.0% 

EBITDA 11.1% 10.2% 23.7% 

Net profit 22.8% 19.7% 21.7% 

EPS 4.1% 19.7% 21.7% 

Per Share 

Earnings 6.99 8.36 10.18 

Dividends 1.90 2.79 3.39 

Book value 25.51 30.63 36.85 

Cash 5.58 8.18 9.92 

Div Yield 1.5% 2.3% 2.8% 

Margins (%) 

Gross Margin 44.2% 47.4% 45.6% 

EBITDA 30.1% 26.6% 27.9% 

PAT 28.7% 27.6% 28.4% 

Financial 

Creditor Days 82 83 84 

Debtor Days 6.1 6.2 6.3 

Inventory Days 33.2 34.0 32.8 

Dividend Payout Ratio 27.2% 33.3% 33.3% 

Valuations 

PE (x) 17.6 14.7 12.1 

P/BV (x) 4.8 4.0 3.3 

EV/EBITDA (x) 16.0 13.8 10.6 

EV/Sales (x) 4.8 3.7 2.9 

ROE 51% 30% 30% 

ROCE 51% 30% 30% 






Disclaimer 

The information and views presented in this report are prepared by A C Choksi Share Brokers Private Limited. The information contained herein is based on 

our analysis and up on sources that we consider reliable. We, however, do not vouch for the accuracy or the completeness thereof. This material is for 

personal information and we are not responsible for any loss incurred based upon it. The investments discussed or recommended in this report may not be 

suitable for all investors. Investors must make their own investment decisions based on their specific investment objectives and financial position and using 

such independent advice, as they believe necessary. While acting upon any information or analysis mentioned in this report, investors may please note that 

neither A C Choksi Share Brokers Private Limited nor any person connected with any associated companies of A C Choksi Share Brokers Private Limited 

accepts any liability arising from the use of this information and views mentioned in this document. The analysts for this report certifies that all of the views 

expressed in this report accurately reflect his or her personal views about the subject company or companies and its or their securities, and no part of his or 

her compensation was, is or will be, directly or indirectly related to specific recommendations or views expressed in this report. 

Disclosure of Interest 

Analyst ownership of the stock NO 

Broking Relationship with the company covered NO 

Investment Banking relationship with the company covered NO 

Discretionary Portfolio Management Services NO 

Swati Gupta- 022 6159 5146 

swati@acchoksi.com

AC Choksi Share Brokers Private Limited - Myiris.com

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