AC Choksi Share Brokers Private Limited - Myiris.com

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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
A C Choksi Share Brokers Private Limited INITIATION REPORT | BAJAJ CORP LTD. Sept 09, 2011 100.0% 90.0% 80.0% 70.0% 60.0% 50.0% 40.0% 30.0% 20.0% 10.0% 0.0% Source: Company 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. A C Choksi Institutional Research 13
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