Bajaj Consumer Care shares rise 5%; is the stock buy-worthy?

The company’s Q4FY23 consolidated profit after tax (PAT) rose 21.9 per cent QoQ and 12.95 per cent year-on-year (YoY) to ₹40.46 crore.

The company’s PAT was at ₹33.20 crore in Q3FY23 and ₹35.82 crore in Q4FY22.

Total revenue from operations rose 14.3 per cent YoY to ₹249.42 crore in Q4FY23 against ₹218.24 crore in the same quarter last year, led by steady volumes.

Q4FY23 EBITDA stood at ₹42.9 crore rising by 18.7 per cent from ₹36.1 crore in Q4 of the previous fiscal. EBITDA margin expanded slightly to 17.4 per cent versus 16.8 per cent a year ago same quarter.

Read more: Bajaj Consumer posts double-digit growth in Q4 PAT to ₹40.5 cr, declares 500% dividend

The stock ended with a gain of 4.25 per cent at ₹171.55 on BSE on May 4.

Brokerages see growth potential

Most brokerage firms are positive about Bajaj Consumer Care‘s long-term growth prospects as they believe the company’s margins will improve further due to its aggressive premiumisation and market leadership position.

Brokerage firm ICICI Securities has maintained a buy call on the stock but cut the target price to ₹200 from ₹250.

The brokerage firm believes expanding popular hair categories of Amla and Coconut and developing premium brands and products are steps in the right direction.

“We like its focus on investing in both brand building and distribution expansion. The problem is that Bajaj’s expansion focus has come at a time when the core started to struggle (both volumes and margins),” said ICICI Securities.

The brokerage firm, however, has cut earnings estimates by about 5 per cent for FY24-25E, modelling revenue, EBITDA and PAT CAGR of 9 per cent, 16 per cent and 14 per cent, respectively, over FY23-25E.

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Brokerage firm B&K Securities, too, has maintained a buy call on the stock with a target price of ₹185, citing the company’s reported better-than-expected numbers.

“The company reported better than expected numbers with operating performance improving sequentially. While the overall demand environment is still muted in the rural belts, there have been some encouraging signs of a gradual recovery,” the brokerage firm observed.

B&K Securities believes stability in raw material prices will aid gross margin going forward while the new product launches are also scaling up well.

“Going forward, the company will focus on increasing its distribution reach in under-indexed Urban markets, re-shaping the portfolio and expanding beyond ADHO (Bajaj Almonds Drops Hair Oil) – whose current salience is at nearly 85 per cent – strengthening its network across channels, agility in product launches and scaling up its digital marketing initiatives for better consumer engagement,” said B&K Securities.

The brokerage firm has broadly maintained its estimates for FY24E/25E given the gradual uptick in the demand environment and the company’s focus on brand building and demand creation initiatives, coupled with an expected improvement in margins.

Brokerage firm Arihant Capital has initiated coverage on Bajaj Consumer Care stock with a buy call, pegging the target price at ₹364.

Aggressive premiumisation, expectations of margin expansion and the market leadership position of the company are some of the key positives that the brokerage firm highlighted.

“The company has grown despite the challenges faced by the operating environment because of its continuous portfolio expansion into new categories and premiumization of existing categories which helped build significant brand strength,” said Arihant.

The brokerage firm expects the company to see significant margin expansion going forward on account of the growing share of high-margin, premium products coupled with the softening in key inputs like LLP (light liquid paraffin), RMO (refined mustard oil), and packaging costs will lead to long-term margins stabilising at nearly 20 per cent.

While the stock looks set for decent growth in the long term, some brokerage firms are cautious about it considering the persisting challenges.

Brokerage firm Elara Capital believes the company’s sales growth challenges exist in the medium term as the portfolio diversification strategy will play out in the long term.

The brokerage firm has revised its call to a ‘reduce’ from a ‘sell’, raising the target price to ₹170 from ₹140. It also upgraded its earnings estimates by 6 per cent for FY24E to factor in higher-than-expected margins due to softening in input prices.

Disclaimer: The views and recommendations given in this article are those of the brokerage firms. These do not represent the views of Mint. We advise investors to check with certified experts before taking any investment decisions.