Accumulate Bajaj Corp - Motilal Oswal

Bajaj Corp (BJCOR IN; Mkt Cap USD372 mn, CMP Rs573, Accumulate)

Q4FY11 total income/net profit grew by 28%/1% on yoy basis. Net profit growth remained muted for IPO expenses of Rs 6.3 cr grew.Adjusted for this the net profit grew by 20% yoy.FY11 total income/net profit grew by 32%/0.2% yoy, adjusted for IPO expenses of Rs 19 crore net profit grew by 18%. Volume growth for the quarter stood strong at 24% yoy.

OPM for the quarter decreased by 200 bps qoq due to 15% rise in LLP cost, which is dependent on crude oil prices and at the same time company did not increase the product prices. The company increased the product prices by 10% in April 2011 to take care of increase in LLP costs.

The company has launched new product in the cooling oil category with brand name of Kailash Parbat. We have assumed Rs 35 crore of sales and EBIDTA loss of Rs 7 crore for the new product during FY12E.

Rapid appreciation in crude oil prices from hereon will force product price increase, which can hamper volume growth.

The stock has witnessed an upmove of 23% since our recommendation on 30th March 2011 and is now trading at 17x FY12E EPS, which is at ~ 20% discount to peers, who are much larger in size and have more diversified product portfolios. Therefore, we are recommending to book partial profits on the stock.However,we continue to remain positive on the stock with its dominant market position in light hair oil category.The company is also trying to diversify its product portfolio by launching new products, which will reduce dependence on single product. We are reducing our EPS estimates by 2% for FY12E to accomodate for launch of new product and associated expenses and also changing our reco to ACCUMULATE on the stock with target price of Rs 600 in 12 months time. The long term investors with horizon of 1 year and above should remain invested in the stock.

Source : Equity Bulls

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