The recent GST rate cut, along with a good monsoon, has brought FMCG sector stocks in focus as demand may rise this fiscal. Nuvama Institutional Equities has raised the target price to Rs 307 from Rs 291 on Bajaj Consumer Care, a hike of 5.5%. The new target price implies an upside of 28.5% from the current market price. The brokerage maintained its Buy call on the stock.
The analysts of the brokerage firm met Naveen Pandey, MD of Bajaj Consumer Care. He highlighted that the focus is on double-digit revenue growth and mid-to-high single-digit volume growth for the ADHO (Almond Drops Hair Oil) portfolio over the next five years.
Nuvama on Bajaj Consumer Care: Aiming to bring EBITDA margins to industry level
The company’s target is to push EBITDA margins into the early twenties from 13.2% in FY25. Historically, EBITDA margins have reached 30%, but as of now, they are in the mid-teens. The company is targeting a return to early-twenties margins in line with industry levels. Margin initiatives include mix improvement, pricing and better realised value (through price/pack changes). Also, the advertising & promotion (A&P) spending shall remain at current levels. However, ADHO’s share within the overall A&P shall increase by 50 basis points at the cost of the non-ADHO portfolio.
Nuvama on Bajaj Consumer Care: Recent GST cuts to benefit more than 90% of portfolio
Bajaj Consumer Care’s entire portfolio, 90% of the portfolio (except coconut oil), has shifted from the 18% GST slab to 5%. It has a strong presence in Rs 1–2 packs, but has a limited presence in Rs 10–20 packs. The MD stated that the aim is to scale up presence in Rs 10–20 packs as the life of these packs shall improve due to GST 2.0 benefits, making them relevant for the next five to eight years. “GST cuts are a boon for the FMCG sector as lower unit packs to offer more value to the bottom end of consumption and extend their life over the next 5–8 years,” said Nuvama.
“Overall, we reckon consumption shall revive due to good monsoon, soft inflation and affordability due to GST reductions (moving from non-consumption to entry-level consumption),” said the brokerage house.
