JM Financial Services

Bajaj Consumer Care (Buy)

CMP: ₹148.65

Target: ₹210

Bajaj Consumer’s March quarter performance was nothing short of a disaster (steepest revenue decline of 29 per cent in the sector), but even worse has been the board’s decision to cut dividend from the past five years’ ₹11-14/share level to ₹2/share this year. There is nothing per se to suggest that the company is in dire need of funds, and neither is there any liquidity issue looming — the company’s net cash surplus stood at ₹440 crore in FY20 – not too different vs earlier years’ pre-payout levels, and Bajaj Consumer being an FMCG business would, for all practical purpose, be able to generate cash even in a year like FY21, unless turnover dries up altogether.

Past acquisition was nowhere close to being a success. Whilst there have been indication of some small downward dividend adjustment to make room for higher marketing investments, a cut of this magnitude does not augur well at all, more so when it coincides with a sharp reduction in promoter shareholding to 38 per cent from 66.9 per cent (during the time when the last dividend was paid out).

We are maintaining our rating, given that we still like the brand, the business, the professional managers at the helm, and the stock’s very low relative valuation (11-12x NTM EPS).