Sub-par monsoons could spoil volume growth story for Bajaj Consumer

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Bajaj Consumer Care experienced healthy demand for its flagship hair oil business, defying the odds following cautious commentary on rural consumption demand from some consumer staple majors.

During an analyst call on Wednesday, the management said rural demand is not slowing down, at least for the hair oil category, and a gap between urban and rural growth has widened in favour of the latter. At the same time, the company is wary of a sub-par monsoon, which could weigh on consumption.

In this context, sustaining volume growth might be impossible for the company, cautions Vishal Gutka, AVP at Philip Capital.

Though Bajaj Consumer’s almond drop hair oil (ADHO) segment posted 7.4 per cent volume growth in the March quarter (Q4), its overall volumes rose a meagre 5.5 per cent. This indicates a dismal performance by other segments/portfolios, besides lower offtake by CSD (canteen store department).

ADHO contributes around 90 per cent to Bajaj Consumer’s overall business. Excluding CSD, volume growth came in at 7 per cent in Q4, up from 6.3 per cent in Q3 (December quarter).

What could support overall volumes are new launches and faster growth of the e-commerce channel. In addition to this, the company is looking at improving sales of hair oil, with strategic inputs from management consultant Bain & Company.

The firm clocked a 11.1 per cent year-on-year (YoY) rise in net sales to Rs 238.3 crore in Q4. This was on the back of a changing product mix with a higher share of high-margin premium products, and improvement in realisation. The reported top line is a tad lower than analysts’ expectations of Rs 243 crore, as per a Bloomberg consensus.

These two factors also helped arrest inflationary pressure. Prices of key inputs and packing material were higher in the quarter. For instance, prices of liquid paraffin and refined oil, accounting for 43 per cent of Bajaj Consumer’s total cost in Q4, rose 10 per cent and 7 per cent, respectively.

The company’s Ebitda (earnings before interest, tax, depreciation and amortisation) margin contracted by 78 basis points YoY to 31.6 per cent. Net profit rose 9.4 per cent YoY to Rs 60.6 crore, lower than the Rs 61.4 crore estimated by analysts.

Overall, the volume trend and margins in the June 2019 quarter will be key factors for the stock.

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