Maintain ‘hold’ on Bajaj Corp, target Rs 510: Religare Institutional

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Published: January 13, 2016 12:08:29 AM

Bajaj Corp reported a below-expected Q3FY16 with net sales/EBITDA/adj. The PAT growth of 3.6%/14.7%/14.9%, and subdued volume growth...

Bajaj Corp reported a below-expected Q3FY16 with net sales/EBITDA/adj.  The PAT growth of 3.6%/14.7%/14.9%, and subdued volume growth of ~3% YoY (Q2: 8.3%) on weak consumer demand. Margins were up 310bps YoY to 31.7% on higher gross margins, but came in below forecasts. Amid weak demand and subdued volume growth, we pare our FY16E-FY18E earnings by 2-4% while rolling over to a Mar’17 TP of Rs 510.

Net sales grew 3.6% YoY to R2.13 bn (RCMLe: R2.24 bn) as volume growth declined for the fourth consecutive quarter to 3% YoY (albeit off a high Q3FY15 base of 21.1%) on weak consumer demand. Volumes for BJCOR’s flagship product Almond Drops (91% of total revenues) grew at sluggish pace of 1% YoY, even as value growth of 4.4% YoY helped it maintain a value market share at 60.6% during 8MFY16.

Nomarks’ revenues continued to decline, down 15.5%/24.7% YoY in volume/value terms due to repositioning of the brand. For Q4FY16 as well, management expects headwinds on account of severe slowdown in rural markets and a high base effect.

EBITDA grew 14.7% YoY to Rs 674 million with margins expanding 310bps YoY to 31.7% (RCMLe: 32.2%) as gross margins increased 335bps YoY to 65.9% on lower RM prices. A&P spends (as a percentage of sales) were down 170 bps YoY to 17.9% while employee/other expenses rose 95 bps each YoY to 5.4%/ 10.4%. Adjusted PAT grew 14.9% YoY to R592 million, below our estimate of R629 million as the tax rate inched up 80 bps year-on-year to 18%.

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