Bajaj Consumer Care Rating ‘Hold’; Results show recovery is underway

Cost optimisation and a favourable base, however, drove Ebitda margin expansion of 1,125bps y-o-y.

Bajaj Consumer Care (Bajaj) posted higher-than-expected revenue (up 40.3% y-o-y) and Ebitda (up 157.4% y-o-y) while PAT (up 119.8% y-o-y) came in line. ADHO grew 40% y-o-y each in value and volume terms with larger packs continuing to do well. On a two-year CAGR basis, revenue growth is about 1%. Rural markets continue to do well with van operations helping the company scale up rural business by 61% y-o-y in Q4FY21. Urban markets are showing signs of recovery with 23% y-o-y growth compared with a 7% y-o-y uptick in Q3FY21. Dividend payout normalised; the company announced Rs 4 as final dividend, taking the full-year dividend payout to Rs 10. Maintain ‘HOLD’ with a revised TP of Rs 350.

Hair oil category continues to recover; costs inflationary: The hair oil market has continued to recover, growing 3% y-o-y in January and February compared with 1.5% y-o-y in Q3FY21 led by strong rural growth. The company’s overall value market share in the hair oil category reached an all-time high of 11.1% for Jan-Feb-21 (~10.3% in Q3FY21). The Amla category in hair oil has rebounded the fastest. It has outgrown total hair oil market (THO) in Q4FY21 (6% y-o-y growth for Amla versus 1% y-o-y for THO in Q4FY21).

E-commerce business grew by ~4x for the quarter and now contributes about 3% to revenue. Inflationary raw material prices dragged gross margin by 700bps y-o-y. Cost optimisation and a favourable base, however, drove Ebitda margin expansion of 1,125bps y-o-y.

Outlook: Gradual recovery– After a few years of low hair oil category growth, growth rates have started to pick up. Baking in the sector revival and Bajaj’s steady improvement, we are raising the target valuation to 20x (from 15x), which yields a revised TP of Rs 350 (earlier Rs 260). Maintain ‘HOLD/SN’. The stock is trading at 16.7x FY23e EPS.