Bajaj Corp Q3FY17 Concall Summary

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Bajaj Corp Q3FY17 Performance Summary.png

Company has declared a dividend of Rs 11.5 per share

Effect of Demonetization

  • Profound effect on the way business is done by Bajaj Corp
  • Consumer updates are back to normal but general trade and canteen stores have been worst affected
  • Retail trade back to normal with the consumer uptakes being bac to normal levels. However, decline in turnover due to destocking
  •  Canteen stores
    • Reduction in canteen store orders by 13.5%
    • Ministry of Defence has consciously reduced stocks at the depot as well
  • Wholesale Trade
    • Worst Affected. Showed a decline of 30%
    • Three types of wholesalers
      •  Sub wholesalers- who travel to retail outlets and sell. They are back to normal
      • Feeders- supply to semi urban and rural areas. Still below October numbers.
      • Brokers or traders- Biggest chunk and the worst affected. They have to change the way of business. Either become sub wholesalers or become distributors.
    • Coverage down by 1 lakh outlets.
    •  Normalcy will take more than 2-3 months
  • Modern Trade
    •  Impressive growth of 27% in volumes during the quarter
  •   Urban offtakes have recovered much faster than rural offtake
  • Company announced a temporary incentive scheme and took steps to ease stocking at distributor level. The short-term incentive is to push direct distribution
  •  North region most affected and no significant improvement despite company’s incentive scheme
  •  Sales in Q4 will be lower than October level as wholesale is not going to come back that soon
  • No effect on raw material price due to demonetization but production reduced and so raw material procurement came down

Segmental Growth

  • Growth of light hair oil from Apr -Dec2016 by 2.1%
  • Total hair oil growth by 1.5%
  • Change in proportion of Bajaj Almond Drops from rural.42.5% in Q3FY17 vs 43.6% in Q2 FY17
  • Diwali season has minimal impact on volumes
  • International business contribution is 5% to total turnover while that of modern trade is 5%
  • Primary vs Secondary
    • Modern trade- Primary and secondary are equal both at 24%
    • International business- Secondary trend does not matter
    • General trade- Primary growth is higher that secondary growth mainly due to destocking
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New Initiatives

  • New Ad Campaign
    • New campaign “Load Mat Lo” which highlights the light non-sticky nature of Bajaj Almond Drops.
    • Parineeti Chopra is the brand ambassador
    • Key message: light hair oil can also be high on nutrition because of the high Vitamin A content
  • IT and Automation

    • Top 600 distributors linked on ERP. Enables the company to view real time data and helps react to market changes
    • Bajaj Sathi
      •  Connected 775 of sales managers to ERP, under the project called Bajaj Sathi launched in Nov 2016
      • The team uses handheld devices to measure order booking, productivity and competitive intensity
      • Target to get complete sales force of 1100 sales reps on handheld devices by Jan 2017

No Marks Business

  • Revenue from No Marks at Rs 5.3 Cr in Q3 FY17
  • Strategy to move away from cream and focus on facewash didn’t pan out
  • Company is testing out new strategy of focusing on No Marks cream in one state. Once the result of this project is out, the company will roll this strategy across India
  • The state where trial is being conducted contributes around 40-43% of total no marks category. If the trials are successful, the strategy will be rolled out in 8 states covering 80% of total category

International Business

  • Growth of 72% in Q3FY17
  • International business now contributes 5% to turnover·
  • Plans to enter larger markets like Russia, Indonesia and Egypt
  • Bajaj Almond Drop campaign has started in UAE, Nepal and Bangladesh whereas advertising for No Marks in on in Myanmar, Sri Lanka and Malaysia.
  • International business should touch sales of Rs 70 Cr in this year

  Cost and Price Hike

  • Raw Material Cost
    • Crude has started rising and so LLP has started rising in tandem
    • Sufficient stock of LLP so no effect of rise in price of raw material till April 2017
    • LLP price in Q1 FY16 was Rs 54.7 per kg. LLP price in Q3FY17 is Rs 46.37 per kg
    • Current LLP price at which the company buys is at Rs 54 per kg
  • Employee Cost
    • Increase of 37% YoY
    • Hiring high quality people at head of each department
  • Distribution Cost
    • Company has much lower distribution cost model because of contract sales. Sales people are not in direct hold but under the distributor’s hold
    • Cost of increasing direct distribution will not be much as the company uses indirect model of employing people
  • Advertising Cost
    • Advertising cost is lower because of delay in launch of new campaign, Campaign was earlier expected to start on 15th Nov 017 . It got delayed due to demonetization and got launched on 18th December 2017
    • Company will over spending the coming months due to the campaign
  • Price Hike
    • If crude stabilizes at $60-$65 a barrel, there will be a price hike by the company
    • Price hike CAGR has been 5-6% over past 12 years
    • No comment on timing of next price hike

Tax

  • Company’s preparedness for GST almost complete but there are still issues to be sorted out by the Government
  • Tax rate for FY18-19 will be MAT rates if GST doesn’t get implemented

Market Share Outlook

  • GST and Demonetization will not have much effect on company’s market share. Not may marginal players in hair oil and value added perfumed hair oil segment. So, no gain in market share expected at their expense
  • GST will not affect market share due to launch of new products. Immediate effect of GST will be destocking. Hence, not much enthusiasm expected to take more new products by retailer
  • No loss in market share. Lower volumes mainly because SKUs are now getting down traded. Value market share not affected

Competition

  • Company is back in December with aggressive advertising in December. Keo Karpin is not back yet
  • Company will spend 45 times the amount of money spent by Keo Karpin on the TV over the next three or four months due to new campaign.
  • Company hopes to gain market share due to aggressive advertising

New Product Launch

  • Launch slated in Q2 FY18
  • No change in timeline due to GST or demonetization

Rebalancing of Distribution

  • Wholesale component will come down by 5-10% in a year as company focusses more on direct distribution
  • No effect on total industry stock but wholesales stock will be lower

Down Trading

  • Down trading was happening in the overall hair oil segment even before demonetization
  • Hasn’t been affected due to demonetization
  • Growth in sachets continues
  • Down trading more pronounced in the case of Brahmi Amla as it is closer to the bottom of pyramid

Inorganic Growth Strategy

  • Company looking at acquisitions
  • No timeline given
  • No idea about expected margins from new acquisitions as targets haven’t been identified yet

Pledge Of Shares By Promoters

  • Pledge hasn’t increased. Share price has dropped and consequently, number of shares pledged has increased

Dividend Vs Buyback

  • Dividend more minority shareholder friendly. Buyback can only be for 25%of total network, i.e. Rs100 Cr- Rs 120 Cr
  • Not significant enough to change the structure of the company.
  • Company is spending Rs 210 Cr to pay dividends. Buyback would have been only for RS 20 Cr out of which Rs 67-68 Cr would be the promoters part. So, general public would have got only 33% of Rs 120 Cr

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