Bajaj Corp Ltd 19 th March, 2012 BUY

Company Report BROKING DEPOSITORY DISTRIBUTION FINANCIAL ADVISORY Bajaj Corp Ltd 19 th March, 2012 BUY CMP Target Price Rs.115.00 Rs.145.00 Bajaj Corp is the third largest player in the overall hair oils segment. The company s key brand- Bajaj Almond Drops Hair oil is a market leader with over 54% market share in LHO (Light Hair Oil) market. Its premium positioning commands one of the highest per unit prices in the industry. BSE Code 533229 NSE Code BAJAJCORP Market Cap (Rs Mn) 16962.50 52 Week High/Low 132.30/89.02 Industry FMCG Face Value Rs.1.00 Shares O/S 147500000 EPS 6.99 Book Value 25.51 P/E 16.45 P/B 4.51 Shareholding Pattern The company has registered smart numbers for the quarter ending December 2011. The sales moved up 30.57% to Rs. 1124.95 million for the December 2011 quarter as compared to Rs. 861.59 million during the year-ago period. Volume growth in the third quarter stood at 20.45%. This is fourth consecutive quarter where the company has shown a turnover growth of more than 30% and volume growth of more than 20%. This clearly shows the strength of the lead brand which is Bajaj Almond Drops. A comparatively good net profit growth of 48.81% to Rs. 288.75 million was reported for the Q3FY12 compared to Rs. 194.04 million of previous same quarter. During the quarter company faced major increase in the prices of its raw materials key ingredient namely LLP (Light Liquid Paraffin) and Refined Oil. Price of LLP increased to Rs 82.86/Kg from Rs 66.34/Kg in corresponding quarter of previous year i.e. an increase of 24.91%; leading to dip in margins at operating level. BCL focuses to convert coconut hair oil users to light hair oil users through sampling, targeted advertising campaigns and communicating the advantages of switching to lighter hair oils. It aims for a market share of 65% by the year 2015-16. Valuation Research Analyst: Vineeta Mahnot research@hemonline.com With leadership position in ADHO, strong distribution channels, robust volumes and high realizations, Bajaj Corp Ltd. growth prospects looks promising. We believe Bajaj Corp is trading at an attractive valuation at 14.78x and 11.93x of FY12EPS of Rs.7.78 and FY13EPS of Rs.9.64. We initiate a BUY on the stock with a target price of Rs.145 (appreciation of about 26%) with the medium to long term investment horizon. For Private Circulation Only 1 Hem Research

Business Details Bajaj Corp Ltd is one of India s leading FMCG Company with major brands in Hair care category. The company commenced manufacturing and sales of its products in April 2008. Its products have been in existence since 1953 and were sold by different Bajaj group companies. The company markets its products through our in-house sales team as well as sales personnel employed through its distributors. It manages a distribution network that includes more than 6,000 distributors distributing its lead brand across 2.2 million retail outlets over all across India. The company markets its hair oil under the brand names as follows: Bajaj Almond Drops Hair Oil: Bajaj ADHO is the key brand in the kitty of Bajaj Corp Ltd. It is India s most premium hair oil brand. Today Bajaj Almond Drops is the fastest growing brand in the hair oil category growing in double digits year-on-year. Being light, non-sticky hair oil, it provides the nourishment. Made from real Almond extracts, Bajaj Almond Drops has 300% more Vitamin E than coconut oil which helps nourish the hair roots and makes them strong and healthy. Apart from this, the Almond extracts absorbed by the hair helps maintain the moisture thus leaving hair incredibly fresh and soft while naturally bringing out the beauty of hair. Bajaj Brahmi Amla Hair Oil: Bajaj BAHO is one of the brands with longest heritage in India and has been a leading player in the Amla market for over 75 years. The one thing that makes this brand exclusive is the unique combination of Amla and Brahmi. Brahmi, is used in traditional Ayurvedic medicine. Besides being a mind tonic, it is known to be a hair growth stimulant and helps to make them thick. At the same time Amla nourishes hair and makes them strong and black. Across India, it is available in convenient packs of 400ml, 300ml, 200ml, 100ml, 50ml, and 3ml sachet. Bajaj Amla Shikakai Hair Oil: In 2006, with the launch of Bajaj ASHO; the company entered into a new segment of low price Amla Hair Oil. ASHO helps to detangle hair and reduce dandruff making hair soft and silky while natural goodness of Amla strengthens your hair from within and makes them black. It is available in convenient packs of 200ml, 100ml, 50ml across India. Bajaj Jasmine Hair Oil: It contains the lingering fragrance of Jasmine which gives beautiful aroma to hair throughout the day. It is available in convenient packs of 200ml, 100ml, 50ml across India. Bajaj Kailash Parbat Cooling Oil: This is a unique Cooling Hair Oil and is enriched with the wholesome goodness of Sandalwood Oil, Almond Oil and Ayurvedic Herbs. It is available in 200ml, 100ml, 50ml, and 3ml sachets. The company also produces oral care products under the brand name Bajaj black tooth powder. For Private Circulation Only 2 Hem Research

Strong Industry growth Hair Care industry contributes about 8% to total FMCG industry at Rs.12,815 cr. Shampoo, Hair Oils, Hair Conditioners and Hair dyes are the major constituents of the industry contributing 31%, 52%, 2% and 15% respectively. Hair oils enjoy the major contribution in hair care industry. Overall hair oil market has witnessed a CAGR of 20% between FY07-FY11 in terms of value (in cr.) while in terms of volume (in Ltr) it has seen a CAGR of 16.7% over the like period. Rural development and shift of focus from unbranded to branded products has lead to such strong growth in hair oil industry. Source: Company For Private Circulation Only 3 Hem Research

Light hair oil (LHO)-outperforming overall hair oil growth Light hair oils is one of the fastest growing segments in the hair oil market in India. This segment has outperformed to overall hair oil market CAGR. In terms of volume light hair oils (LHO) has witnessed a CAGR of 17.6% between FY07- FY11 as compared to 16.7% CAGR of overall hair oil market. While in terms of value it has shown 25.5% CAGR between FY07 to FY11. Increase in disposable income and consumer shift of focus from sticky hair oil to non-sticky hair oils has contributed to such strong growth. Market leader in Almond hair oil market Almond Drops is the brands which is driving light hair oils and in turn the overall market. Almond Hair oil market has grown with a CAGR of 29% in terms of volume and 37.5% in terms of value over FY07-FY11. Bajaj Corp is the market leader in Almond hair oil market with its popular brand Bajaj Almond Drops Hair Oil. Today s youth prefers Bajaj Almond Drops as it fulfills the dual benefit of do good due to the almond nourishment and look-good because of its Non-Sticky feel. For Private Circulation Only 4 Hem Research

Almond hair oil enjoys a strong market share in light hair oil market. Its share grown from 40.3% in FY08 to 53% in FY11 and to 53.3% for 9MFY12. Similarly, in volume terms it has gained a market share of 49.1% in FY11 and 49.9% for 9MFY12 from 38.4% in FY08. Bajaj corp has dominant share in almond hair oil market with its strong distribution channel. As on 31 st December, it has more than 6,000 distributors distributing its lead brand across 2.2 million outlets over all across India. The company is going deeper into the rural areas and as a result 36% of its sales come from rural area and Bajaj Almond Drops continues to gain market share. Further, the company enjoys premium pricing due to its different packaging (glass bottle) and also achieved high realizations. Entry in cooling hair oil market Bajaj Corp has marked its presence in cooling hair oil market with the launch of Kailash Parbat Cooling Oil in May 11. Cooling hair oil market is one the of the fast growing category with 16.5% CAGR over FY08 to FY11 in terms of value and 14.5% CAGR in terms of volume for the same period. Over the last six months, the company has managed to build distribution channel for the KPCO and is available in approximately 2 lakh outlets all over the country. The company plans to touch 3 million outlets by the end of next year. For Private Circulation Only 5 Hem Research

Look out for acquisition BCL is planning to seek inorganic growth opportunities in the FMCG and hair oil market as part of its growth strategy. It will focus on targeting niche brands which can benefit from BCL s strong distribution network so that they can be made pan India brands. It is open to acquiring companies beyond hair oil space but it will be in personal care segment inside India and outside and would complement its core categories. BCL is looking at a size which will not stretch its finances more than 1:1 cash versus debt; which means an acquisition maximum of cash plus debt in equal amounts. Since, the company is a debt free company and has sufficient internal accruals too; funding won t be an issue for it. Company s management also believes that the first acquisition should not be a very large acquisition, which will be difficult to absorb. Key Risks BCL has ADHO as the main product of the company; Bajaj Almond Drops Hair oil contributes about 95% of overall revenue. Any adverse move in this key product volumes or pricing would affect profitability. Thus single product concentration poses a threat to the company. Any slowdown in consumer spending/disposable income due to economic slowdown or rising inflation would hinder BCL s revenue growth as its revenues from rural markets has started kicking in nicely. Any adverse move in LLP (Light Liquid Paraffin) and Refined oil; key raw materials; which the company won t be able to pass on to consumers through price hike would hinder its profits. For Private Circulation Only 6 Hem Research

Standalone Profit & Loss Account Rs. Million Particulars FY09 FY10 FY11 FY12E FY13E Net sales 2444.22 2945.78 3586.73 4483.41 5290.42 Growth 20.52% 21.76% 25.00% 18.00% Expenditure 1928.44 1973.11 2506.16 3272.89 3814.39 EBITDA 515.78 972.67 1080.57 1210.52 1476.03 Growth 88.58% 11.09% 12.03% 21.93% EBITDA margin 21.10% 33.02% 30.13% 27.00% 27.90% Other income 17.65 51.34 177.82 246.59 328.01 Depreciation & Amortization 4.40 8.44 17.94 22.42 27.15 EBIT 529.03 1015.56 1240.45 1434.69 1776.88 EBIT margin 21.64% 34.48% 34.58% 32.00% 33.59% Interest 0.00 0.00 0.00 0.00 0.00 PBT 529.03 1015.56 1240.45 1434.69 1776.88 Tax 59.11 176.42 209.80 286.94 355.38 Adjusted PAT 469.92 839.14 1030.65 1147.75 1421.51 Growth 78.57 22.82 11.36 23.85 Net Profit margins 19.23 28.49 28.74 25.60 26.87 Extraordinary item 0.00 0.00 (189.63) 0.00 0.00 Reported PAT 469.92 839.14 841.02 1147.75 1421.51 Equity Capital 50.00 125.00 147.50 147.50 147.50 Res. & Surplus 466.34 154.12 3615.85 4,321.10 5,152.61 Equity Shares 5.00 25.00 29.50 147.50 147.50 EPS 93.98 33.57 34.94 7.78 9.64 EPS* 3.19 5.69 6.99 7.78 9.64 *Adjusted for current no. of equity shares Ratios Particulars FY09 FY10 FY11 FY12E FY13E Return on Equity 91.01 300.64 27.39 25.68 26.82 Asset turnover 3.29 5.38 0.78 0.83 0.83 Current Ratio 2.96 1.19 1.30 1.57 1.63 Cash per share 3.46 1.14 5.51 7.51 9.32 Book value per share 3.50 1.89 25.51 30.30 35.93 For Private Circulation Only 7 Hem Research

Balance Sheet Rs. Million Particulars FY09 FY10 FY11 FY12E FY13E Share Capital 50.00 125.00 147.50 147.50 147.50 Reserves & Surplus 466.34 154.12 3615.85 4,321.10 5,152.62 Shareholders funds 516.34 279.12 3763.35 4468.60 5300.12 Borrowings 0.00 0.00 0.00 0.00 0.00 Minority Interest 0.00 0.00 0.00 0.00 0.00 Deferred tax Liability -2.15 0.57 0.48 0.00 0.00 Sources of funds 514.19 279.69 3763.84 4468.60 5300.12 Gross block 49.97 196.37 247.29 298.89 348.05 Accumulated Depreciation 4.31 12.75 30.43 52.85 80.00 Net block 45.66 183.62 216.86 246.04 268.05 Capital work in progress 18.00 0.00 2.90 0.00 0.00 Investments 0.00 21.01 3,300.63 3,707.11 4,359.45 Projects in progress 0.00 0.00 0.00 0.00 0.00 Inventories 77.36 98.92 144.26 184.57 208.83 Sundry debtors 3.25 29.01 60.35 70.99 87.01 Cash and bank balance 510.35 167.52 813.44 1,107.40 1,374.81 Other current assets 0.00 0.00 0.00 0.00 0.00 Loans and advances 88.80 24.63 42.82 56.79 69.61 Total current assets 679.76 320.07 1,060.86 1,419.75 1,740.27 Deferred tax asset 0.00 0.00 0.00 0.00 0.00 Current liabilities & provisions 229.78 268.03 818.10 904.30 1,067.65 Net current assets 449.98 52.04 242.76 515.45 672.62 Misc exp 0.55 23.02 0.69 0.00 0.00 Uses of funds 514.19 279.69 3,763.84 4,468.60 5,300.12 For Private Circulation Only 8 Hem Research

Quarterly Financial Highlights Rs. Million Particulars Q3FY12 Q3FY11 Q2FY12 YoY% QoQ% Revenues 1124.95 861.59 1071.03 30.57 5.03 Expenditures 838.51 601.45 796.78 39.41 5.24 Operating Profit 286.44 260.14 274.25 10.11 4.44 Net Profit 288.75 194.04 287.45 48.81 0.45 OPM% 25.46 30.19 25.61 (473bps) (15bps) NPM % 25.67 22.52 26.84 315bps (117bps) EPS* 1.96 1.32 1.95 48.48 0.51 *Adjusted at current number of equity shares Past Price movement of the stock For Private Circulation Only 9 Hem Research

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