That Bajaj Almond Drops Hair Oil comprises 90% of Bajaj Consumer Care's total sales has investors concerned, especially since the product's volume growth has slowed sequentially. (Vipul Sharma/Mint)
That Bajaj Almond Drops Hair Oil comprises 90% of Bajaj Consumer Care's total sales has investors concerned, especially since the product's volume growth has slowed sequentially. (Vipul Sharma/Mint)

Bajaj Consumer Care may need more than the good performance in Q4

The success of recently launched Bajaj Nomarks Antimarks Ayurvedic Sunscreen and Bajaj Cool Almond Drops Hair Oil and that of its future launches will be crucial to reassure investors of Bajaj Consumer Care

Mumbai: Bajaj Consumer Care Ltd’s March quarter (Q4) results do not disappoint. The problem is, they do not impress either.

Revenue and Ebitda (earnings before interest, tax, depreciation and amortization) for the three months ended 31 March rose 11% and 8.2%, respectively, year-on-year.

The March quarter performance was driven by the 7.4% volume growth of its flagship, Bajaj Almond Drops Hair Oil. This comprises about 90% of its total sales. Investors have been concerned about the huge concentration on this single category.

In Q4, the company launched Bajaj Nomarks Antimarks Ayurvedic Sunscreen and Bajaj Cool Almond Drops Hair Oil.

Needless to say, the success of these products and that of its future launches will be crucial to reassure investors. Bajaj Consumer’s overall volume increased 5.5% over the same period last year.

The company told analysts that demand for hair oil from rural markets is upbeat. But investors should watch out for the monsoon, as it can pose a risk to rural demand.

Higher raw material costs took a toll on the Ebitda margin, which slipped 80 basis points to 31.6%. A basis point is one hundredth of a percentage point.

According to analysts at Edelweiss Securities Ltd, the Ebitda margin contraction is largely attributable to the 100 basis point year-on-year compression in gross margin.

“That said, price hikes (3.7% in April 2019) should help the gross margin expand ahead," added Edelweiss in a report on 10 April. The company’s net profit increased 9.4% to 60.6 crore.

Investors haven’t had much luck with this one. In the past year, the Bajaj Consumer stock has substantially undershot the Nifty 500 index. At present, it trades at 18.5 times estimated earnings for FY20. Undoubtedly, valuations are not overboard, but the outlook is far from bright.

JM Financial Institutional Securities Ltd said the market will need a trigger for investors to warm up to the stock. This is not visible at this time. Added to that, promoter pledging (40.6%) is a key concern, said Edelweiss.

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