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A C Choksi Share Brokers Private Limited INITIATION REPORT | BAJAJ CORP LTD. Sept 09, 2011 Recommendation: BUY Target Price (Rs.) 148.1 Recommendation Price (Rs.) 123.7 Potential Return (%) 19.8% BSE Sensex 16866.97 Key Financials Shares Outstanding (mn) 147.5 Face Value (Rs.) 1 Market Capital (Rs. bn) 18.57 Free Float (Rs. bn) 3.68 Dividend Yield (%) 1.5% Stock Data BSE Code 533299 NSE Code BAJAJCORP Bloomberg BJCOR IN Reuters Code BACO.BO 52-Week Range (Rs.) 151.50/73.30 Share Holding Pattern 30 th June 2011 FII, 5% DII, 4% Others, 6 % Promoter, 85% Investment Summary: • Almond Drops- Market leader in LHO Category: Bajaj Corp is the market leader in the LHO category in India through its flagship brand “Bajaj Almond Drops Hair Oil (ADHO)”. Almond hair oil category witnessed 29% CAGR by volume and 37.5% CAGR by value over FY07-FY11. ADHO commands dominant market share in LHO category. Its market share by value improved from 40.3% during FY08 to 54.2% during Q1FY12. The company is targeting 60-65% market share over the next 3-4 years. • Strong volume growth of Almond hair oil: During Q1FY12, ADHO had achieved a dominant market share (volume) of 50.4% in LHO category as compared to 38.4% in FY08. With rising disposable income, consumers tend to up-trade and ADHO emerged as a key beneficiary of changing consumer preferences. • Pricing Power and Premium Margins: Bajaj Corp has created a niche for itself which enables it to command premium prices as compared to its peers. The company has successfully increased its prices at 7 year CAGR of 6.4%, without hampering volume growth. The company commands one of the highest EBITDA margins in the industry. We believe that ADHO will continue to maintain premium pricing going forward due to strong brand equity and niche category positioning. • Conversion and strong distribution network to drive growth: ADHO is gaining market share at the expense of its peers. Going forward, it is expected to derive conversion from unbranded oils, coconut oil and amla oil. Further, Bajaj Corp is rapidly expanding its distribution reach as reaches urban and rural consumers through 2.02 mn retail outlets serviced by 5690 direct distributors and 10,085 wholesalers. Going forward, the company is likely to continue its thrust to strengthen its distribution reach to expand its market share in LHO category. • Valuation: We Initiate coverage on Bajaj Corp for 12-18 month horizon, with a target price of Rs. 148.13 per share based on DCF valuation method. Our DCF-based target price implies an earnings multiple of 14.55x FY13 earnings. This multiple is at significant discount as compared to its peers, which factors in the risk of it being a single product company. A C Choksi Institutional Research 2
A C Choksi Share Brokers Private Limited INITIATION REPORT | BAJAJ CORP LTD. Sept 09, 2011 Company Background: Bajaj Corp Ltd. (BCL), a leading producer of hair oils in India is a part of Shishir Bajaj Group of Companies. It was incorporated as ‘Bhaumik Agro Products Private Limited’ on April 25, 2006. The name of the company was changed to Bajaj Corp Pvt. Ltd. Thereafter, the company was converted into public limited company in 2007 and the name changed to Bajaj Corp Ltd. The company commenced its business in April 2008. However, the products have been in existence since 1953 and were sold by different Bajaj group companies. Bajaj Corp Ltd is one of the leading FMCG Company in India with brands in Hair care category. The brands have a track record of eight decades and the company is a part of one of the oldest business houses of the country. Bajaj Corp is promoted by Shishir Bajaj Group of companies. Mr. Kushagra Nayan Bajaj is the chairman of the company. The company has a strong brand loyalty across the spectrum of Hair Oil category. Business Overview: The legacy of BCL’s products extends back to 1953 when Mr. Kamal Nayan Bajaj established Bajaj Sevahram (BSL) to market and sell hair oils and other beauty products. In 2001, in view of the impending Bajaj family settlement, the business was demerged to to form Bajaj Consumer Care Ltd (BCCL) in 2001 when BSL transferred its operating business and assigned all trademarks to BCCL. Subsequently, BCCL licensed these brands to BCL, pursuant to the Trademark License Agreement for a period of 99 years in 2008. As per the agreement, BCL will pay Royalty @ 1% of annual net sales turnover to BCCL. The company began operating as Bajaj Corp Ltd in April 2008. The company has since become India's third largest producer of hair oils and the largest producer of light hair oils, capturing an estimated 54.2% of the light hair oil market (based on value) in Q1FY12, according to Nielsen Retail Audit Report. The company’s key product is Bajaj Almond Drops Hair Oil (ADHO), a premium brand that is currently the market leader in the light hair oil segment. In addition, the company also markets other hair oil brands viz., Brahmi Amla Hair Oil (BAHO), Amla Shikakai (ASHO) and Jasmine Hair Oil (JHO). The company also produces oral care products under the brand name Bajaj Black Tooth Powder (BTP). During Q1FY12, Bajaj Corp forayed into cooling oil category with Kailash Parbat Cooling Oil (KPCO). A C Choksi Institutional Research 3
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