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 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
A C Choksi Share Brokers Private Limited INITIATION REPORT | BAJAJ CORP LTD. Sept 09, 2011 • 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 A C Choksi Institutional Research 17
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