JMFL
Bajaj Consumer Care (Buy)
CMP: ₹315
Target: ₹390
Bajaj Consumer Care is engaged in the business activity of trading and manufacturing of cosmetics, toiletries and other personal care products.
Bajaj Consumer reported a rather weak Q1 FY20 performance with domestic volume growth trajectory (even ex of CSD which reported nil turnover during the quarter) decelerating sharply to mere 3 per cent (versus 6-7 per cent clocked in the past two quarters); on the other hand, surprisingly high growth in overheads and ad spends squeezed operating margin and constricted EBITDA growth to just 2 per cent.
Interestingly: 1) Primary volume growth of ADHO (Almond Drops Hair Oil) now appears in-line with the retail growth reported by Nielsen after past 3 quarters of high divergence therein; 2) ADHO’s retail volume growth is now trailing the overall hair-oil category’s growth after growing at nearly 2x industry growth in FY19 — we suspect this could possibly be on account of increased price-premium of ADHO post the recent price-hike.
Given softness in overall demand environment, near-term volume growth and earnings trajectory could remain weak. Valuations continue to look attractive at 18x NTM earnings (60 per cent discount to consumer universe) and 4.7 per cent FCF yield but the stock lacks trigger on growth front.