Accumulate Bajaj Consumer Care, target Rs 405: Elara Capital

Elara Capital has given an 'accumulate' call on Bajaj Consumer Care with a target price of Rs 405.

Shares of the company closed at Rs 338.55 on 8 May, 2019. The brokerage has set a one-year horizon for the stock to hit the target price.

Here are the key points you need to take note of:


As per the brokerage, Bajaj Consumer Care plans to become a complete hair oils (THO) company. The company wants to increase its market share in THO from 10 per cent to 20 per cent over 5-6 years, by organic and inorganic means. It has launched a cooling hair oil product, Bajaj Cool Drops, and has roped in Cricketer Ravindra Jadeja to promote it.

The management of the company wants to increase turnover and profit by four times in the next 5-6 years and seek CAGR of 31 per cent through a profitable growth strategy, the brokerage said. It aims at avoiding the low-margin coconut hair oil space and focus more on oils, such as cooling, amla (goose berry), ayurvedic and jasmine, which have higher margin.

The company has roped in Bain & Company to carry out extensive market research and review strategy to help improve quality of distribution, and rethink attributes of hair oils, such as colour and SKU size, as it found cases where colours of particular hair oils had significant recall value and sometimes an SKU is the biggest seller due to its portability.

Investment rationale:

The company has successfully brought down its wholesale exposure from 60 per cent in FY17 to 33 per cent in FY19 and increased direct reach from 1.4 lakh outlets to 5.02 lakh outlets. However, it has not yielded any results yet as it is a single brand company, the brokerage pointed out.

"We factor in 12 per cent revenue CAGR with a volume CAGR of over 8 per cent over FY19-21E (FY19: 4.5 per cent). Earnings CAGR is likely to be at 19 per cent growth over the same period, led by cost-cutting measures," said the brokerage.

The company's strategy of growing its market share from 10 per cent to 20 per cent in the next 5-6 years at a 31 per cent CAGR without getting into coconut hair oil would result in a sizeable market share dent on all incumbents non-CNO firms like Dabur (Amla) and Emami (Navratna).

However, it looks difficult, the brokerage said. "Dabur and Emami are larger companies with at least 2-3 products that are essential for any channel partners," said the brokerage.

"We raise our earnings estimate by 6 per cent for FY21E, led by cost savings on the front of employee cost. We upgrade our rating to accumulate from reduce and raise our target price to Rs 405 from Rs 382 based on 19 times FY21E PE and value the stock at PE 19 times on FY21 earnings per share (EPS) of Rs 20," said the brokerage.