Buy Bajaj Corp; target of Rs 495: JM Financial

JM Financial's research report on Bajaj Corp

Bajaj Corp reported a better than expected 1QFY19 earnings buoyed by a much stronger than expected acceleration in volume growth of its flagship Bajaj Almond Drops (BAD) to 11.2% - this is the highest seen in the last 13 quarters, albeit on an easy base (volumes fell 6.6% in 1Q last year due to GST-transition related downstocking by the trade). Domestic volume growth was even stronger at 13.9% and more importantly, retail-level offtakes, which are free of base and destocking-related issues, also grew 10.2% during the quarter. Management is, after quite a long time, sounding reasonably bullish about the business’ trajectory, and understandably so, in our view. The company’s plan to nearly-double its direct retail reach (targeting to cover 540k outlets directly by end-Mar’19 vs 280k at Mar’18) should also help in this regard.

Outlook

We expect the stock to do well on the back of this result - business momentum is finally looking up and valuation remains extremely reasonable with the stock trading at 55% discount to the sector ex-ITC’s PER.