JMFL
Bajaj Consumer Care (Buy)
CMP: ₹229.45
Target: ₹360
Bajaj Consumer Care, formerly Bajaj Corp, is engaged in the business activity of trading and manufacturing of cosmetics, toiletries and other personal care products.
Bajaj Consumer Care’s 2QFY20 earnings clearly reflect the adverse impact of stress in rural incomes on consumption with domestic volumes down 1 per cent y-o-y despite an easy base (volumes were flattish in 2Q LY). Bajaj Almond Drops Hair Oil (ADHO) is now faced with twin issues of subdued hair-oils industry growth (volumes were flattish in Q2 as per our calculations) and some downtrading to low-cost Amla hair-oil. This trend needs some careful monitoring — problem of lacklustre demand tends to be further accentuated by channel destocking as seen in the past (2HFY14, 2HFY17).
We are still hopeful that the recent good monsoon would aid demand recovery through the course of the year. Operating profit growth in 2QFY20 was in-line with sales — GPM compression and higher ad-spends (+12.6 per cent y-o-y) were offset by efficient overheads management.
The company has so far not delivered on its hair-oils market share gains strategy — the flagship ADHO has, in fact, had a marginal share decline. Lack of near-term catalyst could keep the stock under pressure, in our view, notwithstanding extremely attractive relative valuations of mere 13x NTM earnings cf. consumer ex-ITC’s 48x and its own five-year average of 25x.