| | STOCK UPDATE Bajaj Corp
Cluster: Ugly Duckling
Recommendation: Buy
Price target: Rs142
Current market price: Rs102 Operating performance in-line with expectation Key points -
Operating performance in line with expectation: Bajaj Corp Ltd (BCL)'s operating performance was in line with our expectation with the gross profit margin (GPM) standing at 25.6% and the operating profit at Rs27.4 crore (in keeping with our expectation of Rs27.3 crore) in Q2FY2012. The sales volume growth stood at 22% year on year (YoY), which was the highest in eight quarters. -
Volume-led top line growth: The total revenues (including the operating income) grew by 31.8% YoY to Rs107.1 crore during the quarter. This was on the back of a strong 22% year-on-year (Y-o-Y) volume-led growth and an improvement in the sales realisation. The company did not implement any fresh hike during the quarter and hence the year-to-date price hike stands at 8.5%. The 20%+ Y-o-Y volume growth was achieved on the back of around 23% Y-o-Y volume growth in Almond Drops hair oil (ADHO; which contributes around 96% to the top line). Kailash Parbat hair oil (KPHO), which is currently available in 3.6 lakh outlets, contributed around 1% to the total volume growth. -
GPM improved on Q-o-Q basis: The prices of the key raw materials such as LLP, glass bottles and refined oil were up by 31.1%, 27% and 31.5% YoY respectively during the quarter. Hence the GPM was down by 331 basis points YoY to 53.8%. Having said that, the prices of the key raw materials (except for refined oils) remained stable on a quarter-on-quarter (Q-o-Q) basis, which resulted in a 133-basis-point improvement in the GPM on a Q-o-Q basis. -
Operating profit grew by 19% YoY: The operating profit margin (OPM) was down by 277 basis points YoY to 25.6%. Hence the operating profit grew by 19% YoY to Rs27.4 crore (which was lower than the top line growth of about 32% YoY). However the OPM improved sequentially by 90 basis points during the quarter. -
Higher other income boosted bottom line growth: The higher other income helped the company to achieve a 45% Y-o-Y growth in the bottom line to Rs28.7 crore (ahead of our estimate of Rs25.1crore) during the quarter. The other income stood at Rs9.9 crore in Q2FY2012 as against Rs2.6 crore in Q2FY2011. The other income was higher on the back of the huge cash of around Rs400 crore during the quarter. However, with the company investing around Rs90 crore in non-yielding assets (at the end of Q2FY2012), we expect the other income to be lower in H2FY2012 in comparison with that in H1FY2012. -
Upward revision in estimates: We have slightly revised upwards (by 3.6%) our estimate for FY2012 to factor in the higher than estimated sales volume growth and other income. Also, we have fine tuned our estimates for FY2013. -
Outlook and valuation: With the category growth likely to sustain above 15% YoY, we expect BCL's volume growth to sustain in the range of 18-20% in the coming quarters. Overall, we expect the company to achieve around 31% top line growth in FY2012. With the volume growth in ADHO likely to sustain above 15% YoY, we expect the FY2013 top line growth to be at around 20% YoY. With the OPM sustaining in the range of 27-28%, we expect the bottom line to grow at a compounded annual growth rate (CAGR) of 17% over FY2011-13.
VIEWPOINT CMC
Extraordinaries pull down otherwise strong operating performance Result highlights -
On reported basis, for Q2FY2012, revenues grew by 17.1% quarter on quarter (QoQ) and 32% year on year (YoY) to Rs357.7 crore with the rupee depreciation benefiting by Rs4 crore. The EBITDA margin dropped to 14.9%, down 170 basis points QoQ affected by a wage hike (of 9% taken w.e.f. July 1, 2011), mark-to-market (MTM) foreign exchange (forex) losses of Rs3.63 crore and a one-time charge of Rs2.2 crore on re-calculation of gratuity and leave encashment benefits. The effective tax rate increased to 38.1% from 29.6% in the sequential quarter on the back of an additional tax charge of Rs4.16 crore on the dividend received from CMC Americas Inc (its 100% subsidiary). The reported net profit was down 6.5% QoQ and 25.2% YoY to Rs32.6 crore. -
Adjusting for the forex loss of Rs3.63 crore and one-time gratuity and leave encashment charge of Rs2.2 crore, the EBITDA margin stood at 16.5%, down 10 basis points on a sequential basis and 290 basis points on a year-on-year (Y-o-Y) basis. Adjusting for the tax on the dividend of Rs4.16 crore, the effective tax rate stood at 27.2%, down from 29.6% in the sequential quarter. The adjusted net profit grew 22.2% QoQ and declined 2.3% YoY to Rs42.6 crore. -
The depreciation charge for the quarter increased by 45.1% QoQ and 122.8% YoY to Rs5.4 crore on the back of capitalisation of part of Phase II of the Hyderabad special economic zone (SEZ) facility. The total amount capitalised in H1FY2012 is Rs118 crore. -
The services revenues grew 17% QoQ to Rs316.5 crore contributing 88.6% of the total revenues. Equipment sale grew 17.7% QoQ to Rs40.7 crore. The international business revenues grew 19.3% QoQ to Rs211.1 crore, contributing 59.1% of the total revenues, whereas the domestic revenues grew by 14% QoQ to Rs146.1 crore. -
In terms of business segments, the customer services (CS) revenues grew 12% QoQ to Rs84.5 crore with the EBIT margin up 80 basis points QoQ to 7.9%. The system integration (SI) revenues grew by 19.9% QoQ to Rs204.5 crore with the EBIT margin down 480 basis points QoQ to 21.4%. Within the SI revenues, the embedded systems revenues grew by 10% QoQ. The IT enabled services (ITES) revenues grew by 13% QoQ to Rs48.4 crore with the EBIT margin down 470 basis points QoQ to 28.6%. The education & training revenues grew 20.9% QoQ to Rs15.4 crore with the EBIT margin up 820 basis points QoQ to 18.4%. | |
