JM Financial
Bajaj Corp (Buy)
CMP: ₹406.35
Target: ₹475
Bajaj Corp’s 1QFY18 earnings report remained weak with sales down 3.6 per cent — steeper sequentially (4QFY17 sales declined 1.9 per cent). Its flagship Bajaj Almond Drops’ (BAD) volumes fell 6.6 per cent; EBITDA and adjusted net profit declined 14.5 per cent and 10.5 per cent respectively.
The weak performance was completely attributable to GST led de-stocking, significantly in the wholesale channel; this is also corroborated by the sharp growth in net-realisation (4.1 per cent) despite absence of any hike in retail selling prices (wholesale channel deals largely in lower priced SKUs).
Key positive takeaway from the result was the retail volumes of Bajaj Almond Drops which grew at a healthy 12.4 per cent rate signalling a possibility of consumer demand witnessing a sharp improvement — this augurs well for Bajaj Corp’s volume growth trajectory, which could recover back to double-digit growth level as seen in the past. The stock quotes at a steep 45 per cent+ discount to the sector’s forward multiple (ex-ITC) and a recovery in volume momentum would be the much-needed catalyst for stock performance.