Bajaj Consumer’s (BaCo) volumes grew 5% despite subdued demand in both urban and rural general trade (+3% volumes). Modern trade and global markets (10% combined salience) contributed 200 basis points (bps) to the overall volume growth. We do note that this performance was on the back of aggressive consumer promotions — 3.5% price/mix growth lagged price hike of 7%. We believe BaCo will continue to invest the input cost benefits to drive growth — sole focus on increasing penetration in Almond Drops Hair Oil (ADHO). It increased direct coverage to 0.5 million outlets. We like the BaCo story of renewed focus on total hair oil rather than diversification. Retain ‘buy’.
Revenue/Ebitda/PAT grew 9%/2% /9%, respectively. General trade revenue grew 6% as demand remained sluggish in both rural and urban. Wholesale channel witnessed a sharper sequential slowdown. BaCo did no business in the Canteen Stores Department due to procedural issues in the channel. On the other hand, modern trade, e-commerce and pharma channels continued strong growth performance — up 23%, 217% and 117%, respectively. The international business growth on the back of a soft base (business reboot completed in FY2019) added 250 bps to company revenue growth.
Gross margin expanded 110 bps with subdued input costs — prices of LLP and refined oil rose only 0.5% and 2.6% year-on-year. But Ebitda margin fell as BaCo continued to invest to drive growth. Price/mix growth of 3.5% was lower than the ~7% price hike to drive growth in ADHO through higher consumer promotions, in our opinion. We also note that higher A&SP cost (+25% y-o-y) was primarily to drive penetration in ADHO and support the newly launched cooling hair oil (aggressive media campaign in Apr-May 2019). Bajaj Cool Almond Hair Drops witnessed highest offtake among new launches in hair oils. BaCo reported Rs 16.3 million consumer offtake (1.3% market share in the cooling hair oil) in June 2019. We model revenue/Ebitda/PAT CAGRs of 12%/12%/ 12% over FY19-21E. Maintain ‘buy’ with DCF-based target price (TP) unchanged at Rs 400. At our TP, the stock will trade at 21x P/E March 21E. The key downside risk is over-reliance on a single brand — ADHO.