AC Choksi Share Brokers Private Limited - Myiris.com

A C Choksi
Share Brokers Private Limited
INITIATION REPORT | BAJAJ CORP LTD. Sept 09, 2011
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.
A C Choksi Institutional Research 19