Hello Sir,
Hope you are doing well.
I am sure you might be well aware of Bajaj Almond Drops Hair Oil (ADHO). It's a leading brand in the light hair oil segment and the company behind the same is Bajaj Consumer.
![](https://ci4.googleusercontent.com/proxy/0Rx5dsxnQ0-vJLvK3H4jciTdXHrPQBpN53WY7NeQd1oxIscMMhcP_GmtzpgnUBChHCYSp7rUNjVZX46s_ZkoaFtf9Qrtb1m5fXdgzekXY1ohipmR93sjcl46_-ZQkHsiAe7kVhbEekT_BG8=s0-d-e1-ft#https://katalystwealth.com/wp-content/uploads/2022/12/Bajaj-Almond-drops-1-1024x1024.jpg)
Bajaj Consumer has a bad track record in terms of wealth creation for the shareholders. However, recently there have been some changes at the top level management. Further, the company has also been working on reducing dependence on ADHO and expanding product pipeline. The company has also been aggressively pushing its brands through advertisement and sales promotion.
We decided to check out what the management has to say and their guidance for the next 2-3 years. Below, we have shared notes from Q2 FY 23 concall of the company.
Hope you find the insights useful for your own investments or to add the stock to your watch list.
Before that, recently, we released our New Stock Recommendation for Alpha and Alpha + Members
It's a food processing company, virtually debt free, compounded profits at 20% + consistently, maintained returned ratios like ROE and ROCE at 20% +, doubled its market share in exports in its segment in the last 6-7 years and yet available at less than 7 times Pre-tax earnings.
You can get it along with other recommendations, by subscribing HERE
Bajaj Consumer - Notes from Q2 FY 23 concall
General points
- We continue to witness unprecedented inflation impact the disposable income and as a result, consumer spending adversely. This is more pronounced in rural as compared to urban
- While there has been some easing of commodity prices and supply chain pressures, most commodities, except copra, remain volatile and at elevated levels compared to historical averages
- Despite tough market conditions, both in terms of demand scenario and inflationary pressures, the company posted a healthy top line growth of 7.2% for the quarter (volume growth of 5.8%) and 11.1% for H1, aided by an expanding portfolio
- The company's gross margin continued to remain adversely impacted due to high dependency on both LLP and RMO. Prices for LLP for the quarter were higher by 51% for the same period last year
- In spite of pressure due to reduced gross margins, the company continues to make marketing investment in both its existing products as well as new launches to support its long-term growth aspiration to build significant brands in a diversified portfolio
- The A&P spend for the quarter was at 18.2% of sales, which was higher by 22.2% over the same period last year
- The company now operates with a diverse portfolio in hair oils covering 83% of the total addressable hair oils market
- Amla portfolio of the company grew by mid-single digits in H1 over the same period the previous year. Share of Amla portfolio remained steady in mid-single digit at all India level
- Steady progress is seen in Bajaj 100% pure coconut oil. Bajaj's Coco Onion saw good traction in modern trade and e-commerce while distribution expansion continues in general trade
- The almond drop soap launch in the last quarter is supported with TV media as well as digital and continues to receive positive and encouraging feedback from consumers
- Almond plus Argan Oil with serum under the Almond Drop extension portfolio has been live on e-commerce and will drive off-takes in the coming quarters
- Nearly 12% of our contribution is now coming from our new products, which is a pretty substantial improvement from where we were. And this is something that we would like to keep on growing because ADHO will remain restricted and limited in terms of growth
ADHO
- ADHO's share of revenue was 83%, 17% comes out of non-ADHO
- ADHO had a value growth both in this quarter (2%) as well as in H1 (3%). Volume was slightly negative
- Urban was double digits positive. Rural was double-digit negative
New Products (NPD)
- NPD is what we define as any product that has been launched in the last three years. That includes, starting from the Amla, Aloe Vera, Sarso Amla, the Bajaj coconut, the Coco Onion, the digital-first brands and the Almond drop extensions which are soaps, Serum and Argan oils
- At this moment, we stand at 12% (NPD contribution), and our expectation over a longer-term period is to take this number to about 40% or even higher depending upon what kind of portfolio we build
- The Amla portfolio has started to come out well. The soaps have started adding to our portfolio and the entire almond drop extension portfolio, which is with the Serum and the Argan oil added this year and two more products, which will come up next year
- And the coconut portfolio with value-added coconut, as well as pure coconut, has also started tracking there
Price increase
- Bajaj Almond - if you look at in the last six quarters, we have taken about a 7% price increase. And in the last four quarters, we have -- that is about 4% overall. And in the last three months, we have not taken a price increase given the market conditions
Raw material price
- In terms of mustard, if you look at, clearly, there has been some correction that we have seen. So mustard crop is a bumper crop. So we expect a downward price that we are seeing in mustard to continue
- LLP clearly is unfortunately not showing a similar trend. It has still been upward. In Q2 specifically, we faced the brunt of it because between Q1 and Q2, we had about a 18% increase in terms of our consumption price
Path to 20% EBITDA margin?
- Two clear drivers. One is today, you see far higher elevated investments that we are making for the future as far as the brands are concerned.
- At this moment, as I said, we'll keep at 18%, 18.5% closer to 19% (of sales). We expect it to come down to average 15%, 16% over 2-3 years
- The other is, obviously, we'll have to wait for the LLP correction or the demand conditions to become better. One of the two, either we are able to take a price increase to offset the increasing raw material prices or expect the raw material prices to come down itself. So, expecting another 3%, 3.5% from our gross margin aspect
(End)
Disclaimer: This is not a recommendation to buy/sell Bajaj Consumer. These notes are as announced by the companies on exchanges and only for the purpose of information and education.
Best Regards,
Ekansh Mittal
Research Analyst
Web: https://www.katalystwealth.
SEBI Research Analyst Registration No. INH100001690
Research Analyst Details
Name: Ekansh Mittal Email Id: [email protected] Ph: +91 727 5050062
Details of Associate: Not Applicable
Analyst Certification: The Analyst certify (ies) that the views expressed herein accurately reflect his (their) personal view(s) about the subject security (ies) and issuer(s) and that no part of his (their) compensation was, is or will be directly or indirectly related to the specific recommendation(s) or views contained in this research report.
Disclaimer: http://www.
The views expressed are based solely on information available publicly and believed to be true. Investors are advised to independently evaluate the market conditions/risks involved before making any investment decision
This report is for the personal information of the authorized recipient and does not construe to be any investment, legal or taxation advice to you. Ekansh Mittal/Mittal Consulting/Katalyst Wealth is not soliciting any action based upon it. This report is not for public distribution and has been furnished to you solely for your information and should not be reproduced or redistributed to any other person in any form. This document is provided for assistance only and is not intended to be and must not alone be taken as the basis for an investment decision. Ekansh Mittal or any of its affiliates or employees shall not be in any way responsible for any loss or damage that may arise to any person from any inadvertent error in the information contained in this report. Neither Ekansh Mittal, nor its employees, agents nor representatives shall be liable for any damages whether direct or indirect, incidental, special or consequential including lost revenue or lost profits that may arise from or in connection with the use of the information. Ekansh Mittal/Mittal Consulting or any of its affiliates or employees do not provide, at any time, any express or implied warranty of any kind, regarding any matter pertaining to this report, including without limitation the implied warranties of merchantability, fitness for a particular purpose, and non-infringement.
The recipients of this report should rely on their own investigations. Ekansh Mittal/Mittal Consulting and/or its affiliates and/or employees may have interests/ positions, financial or otherwise in the securities mentioned in this report. Mittal Consulting has incorporated adequate disclosures in this document. This should, however, not be treated as endorsement of the views expressed in the report.
We submit that no material disciplinary action has been taken on Ekansh Mittal by any regulatory authority impacting Equity Research Analysis.
Disclaimer: You can access it here - LINK
Whether the research analyst or research entity or his associate or his relative has any financial interest in the subject company/companies and the nature of such financial interest – No
Whether the research analyst or research entity or his associates or his relatives have actual/beneficial ownership of 1% or more securities of the subject company (at the end of the month immediately preceding the date of publication of the research report or date of the public appearance) – No
Whether the research analyst or research entity or his associate or his relative has any other material conflict of interest at the time of publication of the research report or at the time of public appearance – No
Whether it or its associates have received any compensation from the subject company in the past twelve months – No
Whether it or its associates have managed or co-managed public offering of securities for the subject company in the past 12 months – No
Whether it or its associates have received any compensation for investment banking or merchant banking or brokerage services from the subject company in the past 12 months – No
Whether it or its associates have received any compensation for products or services other than investment banking or merchant banking or brokerage services from the subject company in the past 12 months – No
Whether the subject company is or was a client during twelve months preceding the date of distribution of the research report and the types of services provided – No
Whether the research analyst has served as an officer, director or employee of the subject company – No
Whether the research analyst or research entity has been engaged in market making activity for the subject company – No