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Bajaj Consumer Care Ltd

| Q3 FY26 Earnings Conference Call

BULLISH SENTIMENT

Report Source

⬤23rd Jan 26

Summary : Bajaj Consumer Care delivered strong Q3 FY'26 results driven by core brand ADHO, improved margins, and distribution expansion, despite international business challenges.

Management Perspective positive : Management expressed happiness with strong growth and margin improvement. They are confident in sustaining higher growth, distribution expansion, and strategic execution. They also highlighted a 'fantastic team' and 'pleasant surprise' regarding performance.

Concall Report Analysis & Insights

Business Overview

  1. Bajaj Consumer Care operates primarily in the $2 billion coconut and hair oil categories.
  2. Q3 FY'26 standalone revenue grew 27% Y-o-Y to INR287 crores; consolidated revenue grew 32.7% to INR306 crores.
  3. Standalone gross margin improved by 800 basis points Y-o-Y to 59.8%.
  4. Standalone EBITDA grew 99% to INR58.4 crores, with a 20.4% margin.
  5. Almond Drop Hair Oil (ADHO) delivered strong double-digit volume and value growth.

Future Growth Prospects

  1. Company aims to sustain higher growth through strategic actions and distribution expansion.
  2. Plans to expand direct distribution by approximately 10% annually for the next 4-5 years.
  3. Focusing on core brands like ADHO and building overall portfolio range.
  4. Will launch calibrated new products in specific opportunity areas gradually.
  5. Integration of Banjara brand (from Vishal Personal Care acquisition) is progressing well.

Management Insights

  1. Macroeconomic headwinds have turned into tailwinds, with good economic growth and low inflation.
  2. Strong Q3 growth demonstrates early results of actions to improve revenue and margins.
  3. Gross margin improvement is due to strategic pricing, revenue management, and mix improvement.
  4. Rural business is seeing a strong revival after being muted in the first half.
  5. ADHO continues to maintain a strong SOV/SOM ratio with increased digital spends.

Signs of Skepticism

  1. Management was reluctant to provide granular details on price vs. volume growth for ADHO.
  2. Specific timelines for portfolio clarity beyond ADHO and coconut oil are still vague.
  3. Management did not provide specific numbers for new outlet contribution to growth.
  4. Did not have market share data for light oils category versus total oils category readily available.

Risk Factors

  1. International business continues to be challenged due to structural issues.
  2. Rural business, though reviving, is still relatively weaker compared to urban growth.
  3. Temporary volume impact from pricing corrections in coconut oil category.
  4. Input price volatility, like LLP moving upwards, could affect margins.
  5. Difficulty in precisely predicting growth rates in a high-growth trajectory.

Good To Know

  1. The hair oil category has grown with a volume CAGR of 4.5% and revenue CAGR of 8.2% over 3 years.
  2. ASP spends for the quarter were up nearly 37% compared to last year.
  3. Bajaj Gold Enriched Coconut Hair Oil, a new launch, received good response.
  4. Banjara brand registered a strong 15% Y-o-Y growth this quarter.
  5. Direct coverage is around 6 lakh outlets (urban + rural) currently.

Key Drivers

  1. Strong ADHO brand performance.
  2. Expanded direct distribution reach.
  3. Favorable macroeconomic tailwinds.
  4. Strategic pricing and mix actions.

Key Analyst Discussions

Competitive Environment

  1. Analysts noted strong performance from competitors like Marico and Dabur in hair oil.
  2. Management stated category buoyancy benefits brands that 'get their act right'.
  3. Company has gained volume market share in the overall hair oil category.
  4. Coconut oil pricing corrections led to lower revenue growth compared to market leaders.
  5. Management aims to build market share through brand-led, not price-led, strategies.

Market Trends & Consumer Behavior

  1. Macroeconomic tailwinds, low inflation, and good economic growth are favorable.
  2. Lower prices and grammage increases have positively impacted consumer demand and affordability.
  3. Maharashtra market for hair oils and coconut oil is a key focus for ADHO expansion.
  4. ADHO has historical consumer traction in Maharashtra during Diwali's Abhyang Snan ritual.

Financial Highlights

  1. Analysts questioned the sustainability of Q3's explosive growth rate.
  2. Management clarified that pent-up demand from Q2 was not a material impact on Q3.
  3. Discussed margin improvement from strategic pricing, revenue management, and mix.
  4. ADHO grew in the 20s, with double-digit volume growth.
  5. Overall advertising spend increased by 100 basis points, up 37% in ASP spend.

Product Composition

  1. ADHO and non-ADHO mix is roughly 80-20.
  2. Coconut oil is the next sizable category after ADHO.
  3. Company plans calibrated innovation, launching new products gradually.
  4. Portfolio strategy focuses on ADHO and coconut, with work ongoing for other brands.
  5. Endeavor is to grow more profitable pack sizes faster.

Strategic Considerations

  1. Aarohan direct distribution system has added 25-40% outlets in some states.
  2. International business challenges are due to partner choice and go-to-market issues.
  3. General trade is 70% of business, organized trade 30%; rural-urban split is 50-50 in general trade.
  4. Management is confident in distribution corrections made over past quarters.
  5. Integration of Banjara and Bajaj Personal Care portfolios in South states is ongoing.