Bajaj Corp is the leader in the light hair oil market, with a volume market share of 58.7 per cent. You would know the company more by its Bajaj Almond Drops hair oil, which brings in 90 per cent of the company's revenues.
Profitability. Bajaj Corp's EBITDA margins average at 32 per cent in the last ten years. It has managed to hold onto its historic margin levels even in the last 12 months. Softening of light liquid paraffin (LLP) prices in recent months helped it boost EBITDA margins by 180 basis points to 28.6 per cent in the latest quarter, wherein LLP prices declined 11 per cent (q-o-q) to ₹77 per kg. Continued weakness in crude has resulted in LLP prices falling further to `66 per kg levels, thereby promising more gains in the quarters ahead. LLP constitutes 35-40 per cent of raw material costs. LLP prices could correct as much as 25 per cent in FY16, says Kotak Securities.
Outlook. The December 2014 quarter saw volume growth of 21.1 per cent. Almond Drops hair oil continued to be the star, with a 19.2 per cent volume growth (y-o-y) on the back of low base and dealer re-stocking. According to Kotak Securities, the company is likely to report revenue growth of 19 per cent and 22 per cent, respectively, in the next two financial years, while the EPS could grow by 27.7 and 17.4 per cent, respectively, in the same period.
Valuations. Bajaj Corp trades at 45 times its TTM earnings. Though not cheap, it is one of the better-performing FMCG players. While most FMCG players in the country have to contend with lower to stagnating volume growth, Bajaj Corp's near 20 per cent volume growth makes it stand apart from the rest of the sector. Hold.