‘Drops’ Of Fortune - Bajaj Corp

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Bajaj Corp, is the second-largest company in the Shishir Bajaj Group. It manufactures and markets five major brands and its flagship brand ‘Bajaj Almond Drops’ is a market leader in its segment with a market share of 49.6 per cent at the end of CY09. Apart from Bajaj Almond Drops, the company also markets hair oil under the brand names Bajaj Brahmi Amla, Bajaj Amla Shikakai and Bajaj Jasmine Hair Oil. But it is Bajaj Almond Drops which is a major contributor to the company’s topline and for the 9MFY10 it has contributed up to 92 per cent of the net sales.

This is like a double-edged sword for the company since although a strong brand helps the company to maintain its growth momentum in sales, it also runs the risk of higher dependence on a single product. Out of the net proceeds of the issue the company intends to use Rs 220 crore for the promotion of future products in the personal care segment and Rs 50 crore for acquisitions and other strategic initiatives. Since a major share of the topline is contributed by the Bajaj Almond Drop hair oil, the company is likely to put more stress on brand extension to de-risk its product portfolio. It also aims to enter the non-hair oil market in the near future.

On the financial front, the company has posted topline growth of 32 per cent on a YoY basis with Rs 334.87 crore for FY10. The net profit grew by 78 per cent on a YoY basis and was Rs 83.91 crore for FY10. The company claims to enjoy a 50 per cent market share in the light hair oil market. At the upper and lower price band the stock is likely to trade at a P/E of 22.14x - 23.20x on its FY10 earnings on the post-issue capital. Other listed peers like Hindustan Unilever, Marico, Godrej Industries, etc. trade at a PE multiple of 28x.

The market capitalisation to sales at the upper and lower price bands comes to around 5.56x - 5.83x which looks a bit stretched when compared with the peers mentioned earlier. Therefore our suggestion is that investors could park their funds in this with limited exposure.