Financial and Business Highlights
- Turnover of Rs.197 Crores, growth in turnover vis-à-vis the 3rd quarter of last year is 5.86%.
- Volume Growth of the company is 5.17%, volume of hair oil brand has grown by 8.3% in last quarter in the domestic market.
- EBITDA is at an all-time high of 35% at 69.1 Crores, growth of 10.87% over EBITDA compared to Q3 of last year [While calculating EBITDA, budgetary support by GOI has been accounted for].
- PAT and PBT for this quarter stands at 55.17 and 70.15 Crores respectively.
- With the increase in the operating profit, the management has decided to announce an all-time dividend of Rs.12 per share.
- GST related issues such as claiming of refunds, filing returns and forms related to TRAN-2 still is in the process of settling down.
- Ignoring the QoQ basis of the growth figure since last year, it was calculated with 14% VAT impact, whereas this year we have 18 % GST tax, the actual growth of the company stood at 10.08%.
- Domestic business growth stood at 13.38%, growth in the total hair oil slowed in the 3rd Quarter against the volume growth of 6.7% in the second quarter.
- Offtake growth dropped to 3.6% in Q3, for light hair oil segment, growth in offtake volume is 2.3%.
- Bajaj Almond drops has grown by 3.7% in volume as a result of these segmental growths.
- General trade business is showing a growth of 12.3% Post GST, International trade is showing signs of concern.
- Modern trade has shown appreciable growth by a margin of over 14.25%, CSD business declined by 2.7% which is a significant improvement compared to the drop in the margins last year.
- IT sales is another major sector of concern. Strains in offtake in MENA as well as in Nepal which are the company’s largest markets outside India.
- Employed the well-known services of consultants from E&Y, PWC to identify areas for improvement. Based on these, recommendations are expected to be in place.
- Nomarks showing visible signs of recovery and achieved a 122% growth in turnover in UP since launch. Attributed to the results of advertising and distribution. Brand has grown by 101% in the market, yet declined in the international market has reduced the growth to just 30%.
- Pilot projects in other states of India has been sped up to the increase the results before the year end.
- Organization plans to achieve its first milestone by 20201, which includes the visible changes in the way works and structure related to the firm.
- Target to become a complete FMCG company and diversify in other areas apart from Hair Oil, propagating the same throughout the breadth and width of the company.
- Naya Bajaj the theme behind the vision is all about improving the efficiencies as the most objective KPI.
- Firm has system in place, where there is propensity to take more risks, hence the pre-invested capital in the last two years, the operating leverage from these would come into effect, and margin contraction may not as high as predicted in the near future.
- Difference in the reports between Nielsen and company is from the standpoint that one is based on Offtake and the other is based on primary sales data.
- Amla is continuing to grow faster than the rest of the category in the hair oil sector.
- In terms of coconut, value growths are good, but slowing down in the rural markets, but overall company’ market share is gaining sequentially.
Almond Drops Hair Oil
- Slowdown in the segment has been attributed to the sales processes, but largely due to macro.
- Decrease in the slowdown in the Almond can be contributed to the following factors:
- transition from the unbranded hair oil to value added has been migrating to the low cost Amla space and not the premium Almond Segment as expected [Evident from the fastest growing segment in the Amla results]
- Second has been the slowdown in the rural areas, management waiting on the shift from unbranded to value added from rural will largely speed up conversion to Almond Market.
- Crude prices and LSP are going up sharply, hence margins would be an added constraint on all.
EBITDA Margins vs Advertising & Promotions
- Current level of EBITDA margin of 30% to 35% is high and company will not be able to sustain it in the long-term.
- Hence, company is shifting to advertising to compensate for the continued better margins
CSD Sales Growth
- Changes taking place in CSD in terms of stocking pattern of closing of smaller URC’s.
- Uncertain about growth picking up in next quarter.
- Changes in the growth of 14 % this quarter compared to 20% last quarter must be attributed to the base effect of Demonetization.
- 14% growth is the highest among all sales verticals in the company.
- Forecast trend in CSD sales is positive but not sure until there is complete recovery in this frontal.
Government Rebates in CGST
- Initial rebates was capped at 58% of CGST which has been modified to 58% of CGST minus tax credit input.
- Hence, 6.4% planned has dropped to 5.2% and the remaining is for the third quarter.
- Rebates (estimated at more than 50 Million) should be largest in the fourth quarter since the fourth quarter is the largest for the firm.
Growth Margin Expansion
- Growth is not in terms of sachet where the margins is low, but in the larger sku’s and hence naturally the margins are bound to expand.
- Newer launches would start from Hair and then Skin with gradual expansion in other categories.
Modern Trade beating General Trade
- Modern trade is a small part of the total company contributing around 6-7% and the reason for it beating General trades due to poor performance in rural areas.
- Firstly, urban trade is doing better. Secondly, modern trade is premium and people seek better products.
High Depreciation and Tax Rate
- Depreciation is going up due to the new factory coming up in Guwahati.
- 2018 tax rate would be completely MAT and will remain till 2019 End. 2019-2020 may see a mix of both MAT and full tax.
- 2020 Tax rate would also depend on the growths in 2018-2019.
Expanding Direct Distribution
- Currently firm has 1300 Sales persons covering Rs.5.5 lakhs outlets directly.
- Direct distribution has been augmented with the induction of the additional 300 sales representatives.
- Management focused on improving the efficiency and increasing the per store unit revenue.
- After the current outlets have been exhausted, future expansion will be proposed on.
- Focus shifting from Wholesale to distribution, since the number of new products would increase the success of the new launches. Direct Distribution will be keep going up quarter by quarter.
- 20% of the total sales would be expected from the direct distribution which translates into 7.2% at this quarter in time.
Repackage of Brahmi Amla Brand
- Restage the product through new packaging, new brand ambassador and also reformulate to incorporate Ayurvedic formulation into the new package.
- Cater to the people who are Ayurved target customers.
- Also, this product is being integrated into the general trade from the modern trade to cater to the much larger part of the business.
- Growth rate is -44% in the current quarter.
Depot Optimization program
- Optimization is already down by 4 depots and bringing it down to 19.
- GST makes it much easier for the firm to carry out a centralized operation with regards to billing and filing anywhere in India.
- Optimization is expected to be carried out in the Hindi Speaking belt which the firm’s largest area.
Southern Market Penetration
- A separate new product must be rolled in south and hence focus is in innovation and later on to distribution.