Buy Bajaj Corp; target of Rs 475: JM Financial

JM Financial's research report on Bajaj Corp

Bajaj Corp reported a very subdued revenue performance in 2QFY19 with domestic volumes being flattish as per our workings .This is probably attributable to channel inventory clearance prior to the re-launch of its flagship Bajaj Almond Drops brand and some destocking in the rural wholesale channel. Management remains quite confident of delivering a sharp improvement in volume growth from next quarter onwards aided by higher media activation post re-launch of BAD and the festive season demand. Interestingly, as per Nielsen, retail offtakes grew in excess of 25% (of a weaker base though as volumes were merely 5% higher on a sequential basis) and BAD was able to further enhance market share in both value and volume terms. The company has increased its direct reach by 75% in the first half and is well on course to achieve its target of nearly doubling its direct distribution by the end of FY19 (targeting to cover 540k outlets directly by end-Mar’19 vs 280k at Mar’18) which should help in improving volume growth trajectory in second half of the year.

Outlook

The stock could though remain under pressure despite reasonable valuations (21x NTM earnings) given high volatility in its volume growth trajectory