Investor's Eye Sep30_11.pmd DPG110/120 BAJCORP 20110930
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Stock Update >> Bajaj Corp
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Promoter
s
86%
Domestic
institutions
4%
Others
5%
FIIs
5%
investor’s eye stock updateinvestor’s eye stock update
Company details
Price chart
Shareholding pattern
Price performance
(%) 1m 3m 6m 12m
Absolute 4.1 4.1 31.7 -14.3
Relative 2.3 16.1 49.0 0.9
to Sensex
Price target: Rs142
Market cap: Rs1,563 cr
52 week high/low: Rs146/73
NSE volume: 42,263
(No of shares)
BSE code: 533229
NSE code: BAJAJCORP
Sharekhan code: BAJAJCORP
Free float: 2.2 cr
(No of shares)
Event: acquisition of property for Rs75 crore for its corporate office
Bajaj Corp Ltd (BCL) has acquired Uptown Properties and Leasing Pvt Ltd (Uptown)
for Rs75 crore (including liabilities of Rs49.5 crore). Uptown owns a building in
Worli (Mumbai) with a built-up area of 33,600 square feet. The sole reason behind
the acquisition is to develop a corporate office on the acquired plot to bring in all
the scattered divisions at various locations under one roof to improve the
operational efficiencies.
Expensive acquisition compared to recent deals
Judicious utilisation of free cash on the books to expand its product range or to
grow inorganically was one of the key triggers in the stock and the market was
enthused by the recent launch of the cooling hair oil, Kailash Parbat, which was in
line with the stated strategy.
However, the move to spend a substantial chunk of this cash on non-yielding assets
such as property, that too at a premium, would dilute its earnings and is seen as a
de-rating factor by us. More so, since the company would have to spend additional
Rs15-20 crore on either refurbishing the existing property or rebuilding a new
structure.
Valuation corrects in response to move
To factor in the deal, we have downgraded our earnings estimates by 1.6% and
2.4% for FY2012 and FY2013 respectively. The BCL stock has already reacted
negatively to the announcement of the property deal and factors in the negative
implication of the same at the current market price. Going forward, any initiative
on the company’s part to expand its limited product portfolio or strengthen its
core business would be the key upside trigger for the stock.
At the current market price the stock trades at 13.4x its FY2012E earnings per
share (EPS) of Rs7.8 and 11.1x its FY2013E EPS of Rs9.5. We maintain our Buy
recommendation on the stock with the price target of Rs142 (15x FY2013E earnings
Valuation table
Particulars FY2009 FY2010 FY2011 FY2012E FY2013E
Net sales (Rs cr) 244.4 294.9 359.4 464.2 550.4
Operating profit (Rs cr) 51.3 97.7 108.9 126.2 153.5
Adjusted PAT (Rs cr) 46.8 83.9 103.1 115.5 139.7
EPS (Rs.) 3.2 5.7 7.0 7.8 9.5
OPM (%) 21.0 33.1 30.3 27.2 27.9
PE (x) 33.0 18.4 15.0 13.4 11.1
Market Cap / sales (x) 2.1 4.4 4.3 3.3 2.8
EV/EBIDTA (x) 9.2 13.2 13.3 8.8 6.5
RoE(%) 181.4 211.0 49.2 26.8 26.6
RoCE(%) 204.9 256.2 59.2 33.7 33.5
Bajaj Corp Ugly Duckling
Stock Update
Price target revised to Rs142 Buy; CMP: Rs104
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investor’s eye stock updateinvestor’s eye stock update
as against 16x earlier due to the not so judicious use of
free cash on the books).
Aiming for an acquisition: The company is looking to
carry out an acquisition in the personal care segment in
either the domestic market or the international market.
The acquisition could be of a brand or of an entity with a
decent portfolio of brands that suits BCL’s existing product
portfolio. After paying for the acquisition of Uptown, the
company would have cash of around Rs325 crore in
balance. This combined with debt (if required) can be
utilised for a strategic buy-out.
Q2FY2012 to be another good quarter: The company
has yet to feel the heat of the current inflationary
situation and expect its strong volume growth to sustain
in the coming quarters. For Q2FY2012, we expect the
company’s top line to grow by 29% year on year (YoY) to
Rs105.0 crore with a sales volume growth of around 18%
YoY. The prices of the key raw materials such as liquid
paraffin and glass bottles remained firm during the
quarter. Hence, we expect the gross profit margin to
decline by 334 basis points YoY and the operating profit
margin (OPM) to decline by 192 basis points YoY in
Q2FY2012. However, with a higher other income YoY, we
expect the bottom line to grow by 29% YoY to Rs25.7 crore
during the quarter.
Outlook and valuation: To factor in the deal, we have
downgraded our earnings by 1.6% and 2.4% for FY2012
and FY2013 respectively. The BCL stock has already
reacted negatively to the announcement of the property
deal and factors in the negative implication of the same
at the current market price. Going forward, any
initiative on the company’s part to expand its portfolio
or strengthen its core business would be the key upside
trigger for the stock.
At the current market price the stock trades at 13.4x its
FY2012E EPS of Rs7.8 and 11.1x its FY2013E EPS of Rs9.5.
We maintain our Buy recommendation on the stock with
the price target of Rs142 (15x FY2013E earnings as against
16x earlier due to the not so judicious use of free cash on
the books).
The author doesn’t hold any investment in any of the companies mentioned in the article.
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September 30, 2011
Rupa & Co
Viewpoint
Good brands + strong distribution reach < Valuation CMP: Rs152
We attended the analyst meet of Rupa & Co (Rupa). We
present below the key takeaways from the meet. Amongst
the listed innerwear players we continue to like Page
Industries.
Present in fast growing underpenetrated men’s inner-
wear segment
India’s domestic branded innerwear market is currently
valued at Rs13,000 crore (CRISIL estimate) of which men’s
innerwear segment is worth close to Rs5500 crore. The
men’s segment has grown at a compounded annual growth
rate (CAGR) of 12.7% over the last four years and is
expected to grow at 17.3% for the next three years.
Further, the penetration of brands is abysmally low in
India, providing huge opportunity for branded players to
encash on the strong consumer wave.
Largest men’s innerwear company with bouquet of brands
Rupa is the largest men’s innerwear player by volume (in
FY2011, it sold 168 million pieces). It has presence across
the value chain with products in categories ranging from
basic to mid premium, premium and super premium
(entered into the last category recently). Its flagship
investor’s eye viewpoint
brands Rupa, Frontline, Jon and Air are in the basic and
mid premium categories while brands like Euro, Macro
Man and Macro Man M Series target the premium and
super premium categories.
Strong distribution reach—deep and wide
The company sells its products through multi-brand
outlets, hosiery stores and national chain stores. It does
not have any exclusive outlets at present. It has an
enviable distribution network, serving one lakh retail
outlets through a strong network of 950 distributors.
All set to focus on high-end premium and super
premium category
Amongst the three listed innerwear players, Rupa earns
relatively lower operating profit margin (OPM) in the band
of 10-11% vs 18-19% enjoyed by the peers Page Industries
and Lovable Lingerie. This is largely due to the fact that
the company is present in mainly mass and basic segments
because of which it has to compete with unbranded/
regional players. Its margins are therefore low. In an effort
to enhance its margins, productivity and move up the
value chain the company is now focusing on the premium
Business comparison
Particulars Page Industries Lovable Lingerie Rupa & Co
Brands Jockey Daisy Dee, Lovable Rupa: Frontline, Thermocot, Rupa
Macro Man, Macro Man M Series,
Euro and Bumchums
Brand status Exclusive licencee; pays royalty Owned Owned
@ 5% sales
Positioning Premium to mid premium Premium Largely basic and mid premium
(80%)
Category Largely men’s (85% share), ventured Women Largely men’s; >98%, entered the
into women's in 2005 women's segment recently
Market share 25% 30% -
Competitors Hanes, Chromosome, Fruit of the loom Triumph, Enamour, VIP, Amul, Lux and regional players
Amante in basic; Jockey in premium
Channel mix MBOs, EBOs, Hosiery, and national MBOs, EBOs, national MBO’s, hosiery,
chain stores chain stores national chain stores
Distributors 400 100 950
Retail reach 20,000 8,500 100,000
EBOs 72 - -
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investor’s eye viewpoint
and super-premium brands like Macro Man, Macro Man M
Series and Euro.
Raw material sensitivity high: Its basic products constitute
around 40% of its overall top line. Thus Rupa’s margins
and volumes are most sensitive to the vagaries of the
raw material prices (cotton yarn), as the brands/products
compete with the regional/unbranded players. Thus any
sharp movement leads to a constant revision in the price
of the final product and in the margin.
We prefer Page Industries: Amongst the listed innerwear
players, we continue to be bullish on Page Industries,
given its superior growth levels, brand equity strength
(which is creating strong entry barrier for new players),
enviable margins, return ratios (best in the industry,
averaging 45-48%), and proactive management approach
(it has now entered the swimwear and sportswear
categories by bagging the exclusive Speedo licence for
Indian operations).
Financial comparison
Particulars Page Lovable Rupa
Top line FY11 492 104 639
Sales CAGR (FY08-11) (%) 36.7 20.1 22.2
Operating profit (FY11) 93.0 19.5 66.8
Operating profit CAGR (FY08-11) (%) 36.1 38 31.2
Operating profit margin (%) 19.1 18.70 10.5
Net profit (Rs cr) 58.6 14.1 32
Net profit CAGR (FY08-11) (%) 34.9 53.1 40.0
Debt equity 0.9 - 1.1
RoCE (%) 47 22 22
RoE (%) 52.7 17 22
Market cap 2,827.0 749 1264
PER (x) 48.3 53.1 39.5
EV (x) 2,942.2 749 1282
EV/EBITDA (x) 31.6 38.4 19.2
No of pieces sold (mn pcs) 62.7 8.7 168
Realisation per piece 78.4 119.6 38.0
Profit per piece 9.3 16.2 1.9
The author doesn’t hold any investment in any of the companies mentioned in the article.
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September 30, 2011
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