Accumulate Bajaj Consumer Care; target of Rs 359: Dolat Capital

Dolat Capital's research report on Bajaj Consumer Care

The company reported a topline growth of 10.9% in Q4FY19, driven by a 6% volume growth during the quarter. The company maintained its volume performance posted in Q3FY19. Despite RM inflation, the company was able to restrict margin fall to 80bps was encouraging considering 30%+ margins, highest margins in the consumer space. The ADHO brand, continues to gain volume and value market share. Strong volume growth in modern trade (+21%) and general trade (+11%) along with +56% growth in IB helped sales growth to accelerate during the quarter. However, 15% decline in CSD channels remains a weak spot. Going ahead, we believe that the rural areas would benefit from stimulus and general elections. However, below average monsoon expectation remains a risk for rural performance. As GM have declined during the quarter, we believe the company would increase prices in a calibrated manner to mitigate cost increases. However, new product launches may accelerate A&P spend.

Outlook

We marginally revise our FY20E and FY21E earnings to ` 16.5 and ` 17.9, respectively, to factor in expected increase in A&P spends. Valuing the stock at 20x (23x earlier) FY21E to arrive at a TP of ` 359. Considering recent correction in the stock price we are upgrading the rating to Accumulate.