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 Operating profit to witness healthy growth: Bajaj Corp’s operating margin is expected to grow at 2-year CAGR of 16.8% till FY13. However, during Q1FY12, raw material inflation remained intact. Further, during the quarter Bajaj Corp had launched KPCO which increased its A&P expenditure during the quarter. These factors will have dilutive impact on operating margin of the company during the year. Thus, we expect operating margins to contract by 351 bps yo-y during FY12. However, Management expects KPCO to achieve break even during second year of the launch with approximately 6% market share. Further, we expect a decline in LLP cost during FY13. This will result into margin expansion by 129 bps during FY13 as compared to FY12. 1600.0 1400.0 1200.0 1000.0 800.0 600.0 400.0 200.0 0.0 EBITDA (Rs. Mn) & EBITDA Margin FY10 FY11 FY12E FY13E EBITDA EBITDA Margin Source: Company, A C Choksi Institutional Research Strong growth in net profit: A C Choksi Institutional Research 22 35.0% 30.0% 25.0% 20.0% 15.0% 10.0% We expect net profit to grow at 20.7% 2-year CAGR by FY13. We have factored in tax rate of 20% during FY12 and FY13. Despite of high tax rate as compared to FY11 and margin contraction at operating level, net margin is expected to contract by just 117 bps during FY12, primarily due to an increase in other income. During FY13, PAT margin is expected to expand by 86 bps. 5.0% 0.0%
A C Choksi Share Brokers Private Limited INITIATION REPORT | BAJAJ CORP LTD. Sept 09, 2011 1600 1400 1200 1000 800 600 400 200 0 PAT (Rs. Mn) & PAT Margin FY10 FY11 FY12E FY13E Adjusted PAT Net Margin Source: Company, A C Choksi Institutional Research Negative Working Capital Cycle: A C Choksi Institutional Research 23 29.0% 28.8% 28.6% 28.4% 28.2% 28.0% 27.8% 27.6% 27.4% 27.2% 27.0% 26.8% Bajaj Corp has a policy to sell in cash. Thus, its trade account receivable days were as low as 6.14 during FY11. This resulted into negative working capital cycle during the year. Going forward, we believe that the company will maintain its strong receivable policy. Further, inventory days are expected to decline from FY13, as exceptionally high raw material cost scenario seems to be over which will lead to a decline in raw material position building. Thus, we expect that the company will continue to maintain negative working capital cycle going forward. Cash rich business model; capable to fund capex through internal accruals: During FY10, Bajaj Corp had raised Rs. 2,970 mn through IPO. Out of this, the company had allocated Rs. 2200 mn for promotion of new products and Rs. 500 mn for acquisitions and strategic activities. In the recent past, acquisitions deals commanded high valuations in FMCG space. Thus, we believe that Bajaj Corp is scouting for a regional brand which it will scale up at pan-India level leveraging on its wide-spread distribution network. The company generates healthy cash flow at operational level; it generated Rs 1,014.6 mn for FY11 and will continue to generate healthy cash flows in future on account of negative working capital cycle. We have factored in a maintenance capex of Rs. 150 mn and Rs. 180 mn during FY12 and FY13 in our estimates.
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