FMCG – 1st April 2011

Bajaj Corp is 85% owned by Shishir Bajaj Group through a holding company called Bajaj Consumer Care Limited. It is engaged in manufacturing, distributing and retailing of hair oil brands like Brahmi Amla, Amla Shikakai etc. It reaches 1.74 million outlets through its ~5500 distributors and ~10000 wholesalers. It has 5 manufacturing facilities out of which 3 are owned by the company and 2 are owned by third parties.

Key Investment Arguments:

• Hair Oil Market: Branded hair oil market is worth Rs. ~5000cr, dominated by Coconut Oil (51% share). Bajaj primarily competes in LHO segment (14% share) with its flagship brand Almond Drops Hair Oil (ADHO), which has >50% share of LHO market. Other brands in LHO are Keo Karpin (Dey’s Medical), Hair Care (Marico) and Clinic All Clear (HUL).

• Dominant market position in LHO market: ADHO (95% of sales for Bajaj) has a dominant market position in LHO market, >2x of the next biggest brand (Keo Karpin). It has raised prices of its products over the last 6 years and sells at ~1.5x of price of coconut oil. Still it has increased vol/value mkt share in total hair oil market by 150/300 bps in 4 years.

• New Launches: Bajaj Corp wants to take ADHO’s market share to 65% of LHO by FY16. Then, its growth will be entirely guided by that of LHO market and its ability to penetrate into the coconut oil market, which has proved to be very difficult for the entire industry over the years. Bajaj spoke about new product launches or brand acquisitions during its recent public issue. It is important for the company to launch new products and make it successful by FY15-16 in order to reduce dependency on LHO and ADHO.

Valuation and view:

• The stock trades at 13x FY12E EPS, which is at a discount of ~45% to companies like Marico and Dabur. Looking at the current strong franchise, growth prospects and sustainable high RoE, stock looks to be attractively priced. Successful launches should provide further upside to the valuations. We recommend BUY with 15 month target price of `600(17x FY12E, discount of 30% to current valuation of peers.

CMP (Rs.) 501
MBP (Rs.) 525
Face Value 5
Equity Shares (Mn) 29.4
52-Week Range (H/L) 812 / 366
M.Cap. (Rs b) 14.7