Its competitors have a PE between 22.80-42.90, while Bajaj’s PE works out to 22-23 on a post-issue EPS basis
Hair-oil producer Bajaj Corp Ltd is entering the capital markets with its initial public offering (IPO) to raise Rs283.50 crore-Rs297 crore through a 100% book-building issue. Bajaj Corp Ltd is a part of the Shishir Bajaj Group of companies with operations in consumer goods, sugar, power generation and infrastructure development.
The issue opens today and closes on 4 August 2010 for qualified institutional buyers (QIBs). The bidding for retail and non-institutional investors (NIIs) closes on 5 August 2010. The price band has been fixed at Rs630-Rs660 per share. The company is issuing 45 lakh equity shares of Rs5 each. Retail investors will be allotted 13.50 lakh shares.
The earnings per share (EPS) of Bajaj Corp for the year ended 31 March 2010 stood at Rs33.57. The company will use Rs220 crore over the next three years to fund its future projects and will use Rs50 crore for acquisitions and other strategic initiatives. It plans to launch four products in the personal care segment.
The average price-earnings (PE) ratio of the fast-moving consumer goods (FMCG) industry is 32.85. Bajaj's competitors like Marico, Dabur India, Emami and Godrej Consumer have PEs between 29.90- 42.90.
"The company is bringing the issue at a price band of Rs 630-Rs660 per share which will turn into a PE multiple of 22-23 at post-issue EPS on FY10 basis of Rs28.44. The company has posted strong growth in its financials over the past couple of years," said a research report from Hem Securities.
Bajaj Corp recorded net sales of Rs330 crore for the year ended 31 March 2010 with a net profit of Rs83.90 crore, which translates into a net profit margin (NPM) of 25%. It has spent Rs17.90 crore in FY09 and Rs27 crore in FY10 for its advertising and brand-building activities. Its 'Almond Drops' hair oil contributed 92.4% and 93% of its total sales and gross profit respectively for the year ended 31 March 2010.
Bajaj's competitor Marico reported a net profit of Rs74.70 crore on net sales of Rs790.15 crore, posting NPM of just 9% in the first quarter of the current financial year. Godrej Consumer Products (GCPL) posted a net profit of Rs116.39 crore with net sales of Rs645.28 crore with NPM of 18% in its June quarter results. Dabur, another competitor in the hair-oil space, reported a net profit of Rs107.39 crore with net sales of Rs925 crore, recording NPM of 12%. Emami Limited, which has over 30 brands under its umbrella, had net sales of Rs1,037 crore with a net profit of Rs169.73 crore, (NPM of 16%) for the year ended March 2010. Clearly, Bajaj Corp's net profit margin is among the best in the industry.
According to the Nielsen Retail Audit Report, the 'Almond Drops' brand has increased its market share in the Indian light hair-oil market to 50.3% in FY10, from 46.5% in FY09. Bajaj Corp sells 'Bajaj Almond Drops', 'Amla Shikakai', 'Brahmi Amla' and 'Jasmine Hair Oil' brands. 'Almond Drops' is the flagship product of the company. It also produces oral-care products under the brand name 'Bajaj Black Tooth Powder'.
Kotak Mahindra Capital is the sole lead book running manager to the issue. Rating agency CRISIL has assigned an 'IPO Grade 4' to the issue indicating 'Above Average' fundamentals.
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