Shares of Bajaj Consumer Care Ltd have declined as much as 14% so far this calendar year, thanks to slowdown worries. If investors hoped to find some relief in its June quarter results, they would be disappointed.

For one, volume growth in the almond drops hair oil (ADHO) category increased by only 5.2% year-on-year for the June quarter. For perspective, the measure had increased by 7.4% and 9.4% in the March quarter and December quarter, respectively.

The outlook for the future isn't bright either. “A broad-based moderation in demand and step-up in focus on the hair oils category by peers (Dabur, Marico and Hindustan Unilever) could weigh on near-term performance," said analysts from Kotak Institutional Equities in a report on 16 July.

In Q1, overall revenues increased by 8.5% over the same period last year to Rs240 crore. Relatively slower pace of growth in raw material costs helped gross margin expansion. However, 26% growth in other expenses took a toll on Ebitda (earnings before interest, tax, depreciation and amortization) which increased by a mere 2%.

For investors, the results are pretty much forgettable. The big comfort, however, lies in valuations. At the current market price, the Bajaj Consumer stock trades at 19 times estimated earnings for financial year 2020, which is much lower than other consumer goods stocks.

Expansion in valuations would depend to a good extent on the success of its growth strategy. After evaluation of its core business, the company has decided to focus on its hair oils business rather than diversifying. “Bajaj Consumer aims to double its market share in the total hair oil category (sized at Rs13200 crore for FY19, likely to grow at about 11% CAGR, as per the management) from 10.1% (up from 4.4% in FY07) to about 20% by FY25," point out analysts from SBICAP Securities Ltd in a report on 16 July.

The company is consulting with Bain & Co. on this matter and has recently started a pilot. Sure, this would take time to show results. Nonetheless, investors should watch progress on this front closely.

In the short run though, the situation remains rough. “Consumption slowdown appears to have legs and could sustain for a bit. We have accordingly trimmed our short term forecasts," Kotak’s analysts added.

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