ICICI Securities has recommended a “Buy” rating for Bajaj Consumer with a target price of ₹320, as per their report dated August 14, 2024.
Bajaj Consumer (BaCo) saw a 9% drop in revenue compared to last year, with a 7% decline in sales volume. This was mainly due to a one-time inventory adjustment in the wholesale channel. Despite this, the company is making progress with its diversification strategy, showing a 17% growth in non-Almond Drops Hair Oil (ADHO) products, which now make up 18% of total sales. The growth was driven by strong performance in coconut hair oil and a 72% increase in ADHO extensions.
BaCo plans to expand its distribution network, aiming for a 40% increase in urban areas and a 10% increase in rural areas, which could help revive growth in its core ADHO products if executed well. Management expects moderate revenue growth in FY25 and stronger growth in the medium term. However, the company’s operating margin has been under pressure, and it is expected to be between 16-18%.
The company is also working on Project Aarohan, which focuses on improving distribution in high-potential towns. This project is expected to play a key role in the growth of ADHO and its extensions.
ICICI Securities has slightly lowered its earnings estimates for FY25 and FY26 but still maintains a positive outlook. They recommend buying the stock, with a revised target price of ₹320, valuing the stock at 22 times its expected earnings by March 2026. However, there are risks, including the company’s heavy reliance on the ADHO brand and potential increases in commodity prices.
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