Stock Review: Bajaj Corp

 

Bajaj Corp, the latest consumer goods company to get listed on the bourses, has been witnessing recent buying interest in its scrip. The . 358-crore hair oil company owns Bajaj Almond Drop as its flagship brand. The brand in the light hair oil category contributes over 90% to the company's revenues. Its other brands include Bajaj Brahmi Amla, Amla Shikakai, Jasmine hair oil and Kala Dant Manjan.

The company's net sales have been growing at an higher rate over the past four quarters. However, asteep rise in price of its major raw material — light liquid paraffin (LPP), a derivative of crude oil — has impacted its bottomline. For the fiscal year ended March 2011, the company's net revenues grew 22%, while operating profit margin dropped to 25% from 33% in the previous year.

The company has increased prices by 8.5% in April 2011 to offset the negative impact of a rise in raw material cost. It has also launched a new product 'Bajaj Kailash Parbat' in the cooling oil category. While this launch may not be an EPS accretive from the first year, it will help in the company enter the fast-growing segment of cooling hair oil. The rise in raw material prices, however, remains a key challenge for the company as it may not be able to pass it on to consumers in the near term. The company is looking at launching three more products and aggressively expanding its distribution network. While its flagship brand is more popular among the urban consumer, the company is looking at increasing its rural penetration. It is also likely to pursue inorganic growth opportunities through targeting niche brands, especially in the personal care category. However, high valuation commanded in the FMCG space is going to be a concern for the company that has earmarked . 50 crore from the IPO proceeds towards acquisitions.

Trading at over 20 times its FY11 earnings and valued at a little over five times its FY11 revenues, the valuations of the company appear to be stretched. However, this is an issue witnessed in most consumer goods firms due to expectation that the sector would continue to see higher demand. However, despite a 16% appreciation in the past three months, the company's stock is still trading below its listing price of . 146.