Maintain 'hold' on Bajaj Corp with a revised March 2016 target price of Rs 525 given the given the fair valuations of the stock...
Maintain ‘hold’ on Bajaj Corp with a revised March 2016 target price of Rs 525 given the given the fair valuations of the stock, even as company reported net sales/ ebitda/ adjusted PAT growth ahead of estimates led by strong volume growth. We raise our FY16/FY17 earnings estimates by 8% on the back of better volumes and margins during the quarter.
The company’s net sales growth of 27.8% y-o-y to R240 crore in Q4FY15 backed by 23% volume growth. Secondary sale volumes grew 13% y-o-y. The company improved its market share in volume terms by 90 bps to 58.8% in 11 months FY15. Its Nomarks skin cream sales grew 39% y-o-y in volume terms during the quarter. Bajaj Corp has taken a price hike of 5% for its Almond Drop hair oil and 6.8% for Nomarks from April 1, 2015 onwards, which is likely to result in an 18% top-line CAGR over FY15-FY17.
Bajaj Corp’s ebitda grew 40% y-o-y to Rs 734 million in Q4FY15 with margins up 275 bps y-o-y to 31.2%. The company gross margin also expanded by 380 bps y-o-y to 62.6%. Gross margin for the Nomarks brand basket stood at 62% in Q4FY15, lower than 66% in Q3FY15 mainly due to higher contribution from the soap segment to the overall product mix. To revive demand, Bajaj Corp increased its A&P spends from 15.5% of sales in Q4FY14 to 17.4% in Q4FY15. Adjusted PAT grew 32.6% y-o-y to R6,410 crore (reported PAT of R5,440 crore included goodwill amortisation of R1,175 crore due to the Nomarks brand acquisition).