Bajaj Corp’s Q3FY17 revenue and EBITDA came in slightly above our estimates, while PAT stood higher following the spike in other income. The quarter was marred by demonetisation, but volume dip in Almond Drop Hair Oil (ADHO), at 4.2% y-o-y, was lower than expected.
Bajaj Corp saw 6.5% y-o-y dip in volume with 4.2% y-o-y fall in volumes of ADHO impacted by demonetisation. Volume dipped 37% y-o-y in Amla hair oil and 10% y-o-y in Brahmi amla hair oil. EBITDA margin fell by 182bps y-o-y as other expenditure/staff costs spurted 274bps/256bps y-o-y.
Volume growth is expected to improve starting FY18 led by lower base, recovery in demand and favourable rural budget. However, we would keep a close eye on the proposed strategy for Nomarks. We estimate 15.5% EPS CAGR over FY17-19 coupled with ~1,300bps RoAE improvement. The stock is currently trading at P/E of 18.6x FY19E.
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We maintain ‘hold/SU’ with target price of R436.
Secondary sales growth in general trade stood higher than primary sales due to de-stocking. Currently, out of 1,072 sales representatives, 670 are on SFA. The company has been able to link its ~1,600 distributors through ERP.
By January-end, it expects to have in all 100 sales representative who will wield hand-held devices. Cost of increasing the direct distribution will not be too high as Bajaj’s sales force is not on roll but on contract.