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    Bajaj Consumer

    BAJAJCON
    Fast Moving Consumer Goods·21 Feb 2025
    Management Summary

    Bajaj Consumer Care reported a challenging Q3 FY25 with consolidated sales declining 2.4% YoY and gross margins contracting by 150 bps, primarily due to lower coconut oil portfolio margins and cost inflation. EBITDA margins were impacted at 13% for the quarter. However, the company announced the acquisition of Banjara's to strengthen its natural products portfolio and southern distribution, while organized trade, e-commerce, and international businesses showed robust growth. Strategic initiatives like Project Aarohan are progressing to improve distribution and efficiency.

    Highlights

    5

    • Acquisition of Banjara's for ₹120 crores, providing entry into natural products and southern market distribution.

    • Organized trade business grew 22% YoY in Q3 and 14% for 9M FY25.

    • E-commerce channel grew 39% YoY in Q3 and 28% in 9M FY25, with quick commerce up 72% YoY.

    • International business grew 23% in Q3 and 19% for 9M FY25, with Bangladesh doubling its top line.

    • Project Aarohan made significant progress, expanding direct reach in UP (from 42.4K to 58.6K outlets) and MP (from 15K to 24K outlets).

    Concerns

    5

    • Consolidated sales declined by 2.4% in Q3 and 4.2% for 9M FY25.

    • Gross margin for Q3 FY25 stood at 51.8%, lower by 150 basis points YoY.

    • EBITDA margins for Q3 FY25 were 13%, impacted by gross margin dilution and investments.

    • GT channel registered a single-digit decline in Q3 and 9M FY25.

    • Temporary disruption in business due to VAN rationalization.

    What Changed1

    vs Q4 FY25

    Guidance items5 → 3 (-2)

    Key financials

    Single quarter

    05 metrics
    1. 01Consolidated Sales₹230.7 Cr-2.4%YoY
    2. 02Gross Margin51.8%
    3. 03EBITDA₹29.3 Cr
    4. 04EBITDA Margin13%
    5. 05PAT₹27.5 Cr

    Capital allocation

    3
    high confidence
    CategoryHeadline
    Debt

    Debt disclosed

    M&A

    Vishal Personal Care Private Limited (Banjara's)

    acquisition · signed · Consideration ₹NaN (cash)

    Liquidity

    Liquidity disclosed

    Banjara's has a debt free balance sheet with positive cash flow.

    Guidance & targets

    3
    CategoryTargetPriority
    Profitability
    EBITDA Margin
    15-17%
    		Medium
    Sales
    Banjara's Annual Revenue
    scaled up substantially from ₹50-55 crores
    		High
    International Business
    Contribution to total business
    low-teens, high-teens, even to 20%
    		Medium

    EBITDA Margin Recovery

    next quarter or two
    Current13% in Q3 FY25
    Target15%+

    Why it matters

    Management expects EBITDA margins to recover to 15-17% due to structural corrections and investments, crucial for profitability.

    So, the 15% to 17% margin, just an aberration in this quarter... You will see this coming back quickly. So that should

    How to verify

    key_financials.metrics[label='EBITDA Margin']

    Risks & concerns

    4
    RiskSeverity

    Gross margin contraction

    Gross margin for Q3 FY25 was 51.8%, lower by 150 bps YoY, due to lower margins in the coconut oil portfolio and cheaper copra price inflation. Price increases have been taken and more are planned. — Management acknowledged

    high

    Temporary business disruption from VAN rationalization

    VAN rationalization, part of Project Aarohan, has resulted in some temporary disruption in business, but rural sub-stockage business is expected to streamline and deliver strong performance. — Management acknowledged

    medium

    Single-digit decline in GT channel

    GT channel registered a single-digit decline in Q3 and 9M FY25, with wholesale slowly coming back after corrections. — Management acknowledged

    high

    Headwinds in value-added hair oil category

    The value-added hair oil segment, particularly Almond Drops, has faced headwinds, though demand cycles are slowly turning. — Management acknowledged

    high

    Q&A highlights

    8

    “So as far as the sales growth is concerned, very clearly as you have seen the hair oil industry, especially the value-added hair oil segment, if you read the commentaries of other companies as well, while the only product that has been growing in the hair oil category is the coconut category. All other hair oils if you see commentaries from other companies also have been under stress. Almond Drops is a premium hair oil in the value-added hair oil category. So obviously has faced headwinds. We have taken enough corrective measures. We are further taking corrective measures in terms of increasing our advertising spends on the brand etc. While we will also take some price increases and rationalize the cost to ensure that our EBITDA margins are protected. So, this is a step that we are taking. The other thing that we have already done, as you would hearing in terms of Project Aarohan, we have been continuously working to ensure that our entire RTM for general trade because all the pressure that is there, is only on general trade. We had corrected the wholesale. Now wholesale is slowly coming back. We had seen now these are changes that take some time to adopt. It cannot happen overnight. So, we wanted to ensure that the large wholesalers are controlled. I think a lot of good hygiene work has happened. Now we are seeing both in terms of number of wholesalers as well as in terms of wholesale itself coming back. It does take time but now it is already on track. Similarly, in terms of retail presence we had already had aimed that we wanted to take it. Now we are structurally partnered with a consultant which will be doing for the next four quarters as well. And there is already some positive signs we are seeing in UP and MP and now we are going to extend it to other states. Coming to your cost structures; yes, you're absolutely right. Certain costs have gone up. Especially, if you break it up in certain areas the cost will look the same. One is in terms of employee cost because there has been no increase in terms of employees etc. It's just that there is a bit of higher percentage fill as far as employees are concerned which is making a little bit of a difference. But the bigger difference is obviously a deleverage thing where the sales has not grown and the employee cost has had an annual increment. That is what has taken a blip at this current moment. This will get corrected as the sales naturalize and come back in the next few quarters. The other area you will see is in the other expenses, admin expenses especially so as I had mentioned, so two things are going on. One is a continuous thing where Project Aarohan is going on. So, there are some additional investments as far as Project Aarohan is concerned. So, this will continue for somewhat two-three quarters more. Specifically, a one-time investment had been made in IT. Certain things like e-invoicing and e-way bill, Cloud application protection, geofencing, central managed and detection response and higher DMS support. All of this we have done this way. We had to do these corrections. We have done it in this quarter. We could have split it across quarters. So, we are taken this, this has also resulted. This will normalize in the next quarter and you see this coming back. Thank you.”

    Analyst questioned the company's inability to achieve sales growth targets and rising expenses, prompting management to explain challenges in the value-added hair oil segment, RTM changes, and one-time IT investments.

    asked by Rachna

    2 min read7 chapters

    Detailed Narrative

    01

    Q3 FY25 Performance Overview

    Bajaj Consumer Care reported consolidated sales of ₹230.7 crores for Q3 FY25, marking a decline of 2.4% YoY. For the nine months ended December 31, 2024, consolidated sales stood at ₹703 crores, a 4.2% YoY decline. Standalone EBITDA for the quarter was ₹29.3 crores with a margin of 13%, while PAT was ₹27.5 crores.

    02

    Gross Margin & EBITDA Impact

    Gross margin for Q3 FY25 on a standalone basis was 51.8%, a reduction of 150 basis points YoY. This contraction was primarily attributed to lower margins in the coconut oil portfolio and increased copra prices. EBITDA margins were impacted by this gross margin dilution, as well as investments in Project Aarohan, one-time📎 IT infrastructure, and increased ISRs for retail coverage.

    03

    Strategic Acquisition: Banjara's

    The company announced the acquisition of a 100% stake in Vishal Personal Care Private Limited (Banjara's) for an estimated purchase consideration of ₹120 crores. This acquisition is strategic for entering the rapidly expanding natural products market, gaining significant distribution reach in Southern states (expected to increase BCCL's reach 3-fold), and leveraging BCCL's expertise in organized trade and international markets for Banjara's products. Banjara's has demonstrated a 14% revenue CAGR over the past 4 years with ~60% gross margins and a debt-free balance sheet.

    04

    Distribution & RTM Revamp (Project Aarohan)

    Project Aarohan, aimed at improving route-to-market (RTM) and GT channel efficiency, has made significant progress, with 90% of identified changes actioned in UP and MP. Direct reach has expanded substantially, with UP coverage increasing from 42.4K to 58.6K outlets (1.4x) and MP from 15K to 24K outlets (1.6x). The company plans to extend Project Aarohan to eight more states over the next four quarters, expecting significant sales increases in the near to medium term.

    05

    Channel Performance (Organized Trade, E-commerce, International)

    While the GT channel experienced a single-digit decline, organized trade registered a robust growth of 22% YoY in Q3 and 14% for 9M FY25. E-commerce grew 39% YoY in Q3 and 28% in 9M FY25, with quick commerce growing 72% YoY and contributing 10% to business. International business also showed strong growth of 23% in Q3 and 19% for 9M FY25, with Bangladesh doubling its top line.

    06

    Input Cost & Pricing Actions

    Input costs, particularly copra prices, increased substantially over the past two quarters, impacting gross margins. The company implemented a 5% price increase in the coconut oil portfolio in Q3 and another high single-digit increase in January 2025 to mitigate cost inflation. Further price increases are planned, along with rationalization of trade inputs and incentive structures, to improve overall profitability.

    07

    Value-Added Hair Oil Segment Challenges

    The value-added hair oil segment, including Almond Drops, faced headwinds over the last five years, contributing to the overall sales decline. Management acknowledged the stress but noted signs of demand cycle recovery and anticipated benefits for Almond Drops from increased discretionary spending following the recent budget.

    This is an AI-generated summary of a publicly available earnings call transcript. It is for informational purposes only and does not constitute investment advice, a recommendation, or an endorsement. inve.money is not a SEBI-registered investment advisor. Please consult a qualified financial advisor before making any investment decisions.