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Centrum Broking
Bajaj Consumer Care (Buy)
CMP: ₹335.4
Target: ₹438
Bajaj Consumer Care has re-entered the cooling oil segment with the non-sticky Bajaj Cool Almond Drop, priced at a 20 per cent premium to ADHO, with strong brand endorsement and extensive ad-spend. We believe Nomarks brand extension to adjacent categories such as sunscreen lotion based on ayurveda, Face-wash, face-cream, scrub and soap could help enhance its entry into urban markets, especially in the pharma channel. We expect the CSD business to rebound in FY20E. The international business showed strong growth of 56 per cent y-o-y in Q4.
Valuation: We maintain our revenue estimates factoring in new launches, rebound in the international and CSD businesses. We expect 4-5 per cent price hikes to offset rising raw material prices (10 per cent in light liquid paraffin and 6 per cent in glass bottles). We factor in a higher tax rate of 21.8 per cent (21 per cent earlier) given the company enjoys a MAT rate for the next few years.
We lower earnings by 4 per cent factoring in higher employee costs (ESOP provisioning). We expect revenue, EBITDA and earnings CAGRs of 15.2 per cent, 21.2 per cent, 23.5 per cent over FY19-21E, respectively. Maintain ‘Buy’ with a DCF-based target price of ₹438 implying 22.3 FY20E earnings.
Risks: Over-dependence on ADHO, raw material price inflation and lag between price hikes by the company.
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