AC Choksi Share Brokers Private Limited - Myiris.com

A C Choksi
Share Brokers Private Limited
INITIATION REPORT | BAJAJ CORP LTD. Sept 09, 2011
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)
Source: Company
300
200
100
75
50
20
Sachet
Strong Growth in Low priced SKUs
0% 10% 20% 30% 40% 50% 60% 70%
A C Choksi Institutional Research 12