Add Bajaj Consumer, target price Rs 160: ICICI Securities

ICICI Securities has given an add rating to Bajaj Consumer Care with a target price of Rs 160. The share price moved down by -0.16 per cent from its previous close of Rs 152.15. The stock’s last traded price is Rs 151.90.

According to the brokerage Bajaj Consumer is a rare consumer staple where cash utilisation plans have materially impacted fair value. A payout ratio of 15 per cent - lowest in a decade - is highly disappointing, says the brokerage which did not find the management commentary on the low payout convincing. For a business which operates on negative working capital, very low capex intensity and high gross margins - cash conservation for M&A is only the plausible reason, says the brokerage.

Investment Rationale


With Q4 volumes declining 30 per cent, Bajaj Consumer had the worst performance since its IPO in 2010. In the brokerage view, new MD (effective July 1), Jaideep Nandi has his task cut out, taking charge during a weak demand situation. On the positive side, Bajaj Consumer has the levers of (1) higher A&P spends, (2) increasing direct distribution and (3) Bain-advised cluster based approach to revive growth. The brokerage likes the long-term opportunity in the company, while near-term apparent upside triggers are lacking. The brokerage retains add rating as the stock trades at FY22E P/E and EBITDA multiple of 11 times & 9 times which are 79 per cent & 77 per cent lower than sector (ex-ITC) multiples.

Q4FY20 Result Review

Financials

For the quarter ended March 31, 2020, the company reported consolidated sales of Rs 172.01 crore, down -19.09 per cent from last quarter sales of Rs 212.58 crore and down -28.35 per cent from last year's same quarter sales of Rs 240.05 crore. The company reported net profit after tax of Rs 23.29 crore in the latest quarter.

Promoter/FII Holdings

Promoters held 38.04 per cent stake in the company as of March 31, 2020, while FIIs held 28.09 per cent, DIIs 21.52 and public and others 12.35 per cent.