Bajaj Corp Q3FY18 Concall Summary

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Financial and Business Highlights

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  • 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.
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Innovation pipeline

  • 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.

Vision 2020

  • 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.

Industry Growth

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  • 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:
  1. 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]
  2. 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

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  • 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.

International 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.