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Lower crude prices will help boost margins for Bajaj Corp leading to higher volume growth

We recommended Bajaj Corp for the dominant position it had acquired in the light hair oil market, capturing 56.8 per cent market share by volume and 58.3 per cent by value. Bajaj Almond Drops Hair Oil did most of the hard lifting to make Bajaj a household name.

Two years later, Bajaj has kept its momentum unabated. Revenue was up 30 per cent (YOY) in Q3FY15, mainly because of a strong 21.1 per cent (YOY) volume growth. Volumes, in turn, were up on low base and dealer re-stocking.

EBITDA margins expanded 180 basis points to 28.6 per cent on account of lower raw material prices, lower staff costs and lower other expenditure. LLP, a crude derivative and key ingredient that accounts for an estimated 35-40 per cent of raw material costs, declined 11 per cent (QOQ) in Q3.

Outlook
Lower crude prices will help boost margins. According to Kotak Institutional Equities, LLP prices could correct by as much as 25 per cent in FY16. Kotak further estimates higher volume growth of 16.5 per cent CAGR between FY15 and FY17 and bottom line growth of 23 per cent CAGR in the same period. Buy.

Gain of 80 per cent at market price of ₹428. Recommended in October 2013 at ₹237.