AC Choksi Share Brokers Private Limited - Myiris.com

A C Choksi
Share Brokers Private Limited
INITIATION REPORT | BAJAJ CORP LTD. Sept 09, 2011
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.
A C Choksi Institutional Research 16