Project Aarohan And Banjara's Acquisition Will Expand Future Opportunities

Key Takeaways

• The acquisition of Vishal Personal Care and Project Aarohan aim to boost revenue by expanding market reach and optimizing costs.
  
• Price adjustments and technological investments are expected to protect margins and improve overall profitability despite raw material cost inflation.
  
• Declines in sales and gross margins, increased expenses, and reliance on international growth amidst political challenges threaten Bajaj Consumer Care's profitability and revenue stability.

Catalysts

Manufactures and sells cosmetics, toiletries, and other personal care products in India and internationally.

• The implementation of Project Aarohan is expected to optimize costs and increase sales through enhanced distribution, particularly in underrepresented areas, which could improve revenue growth.
  
• The acquisition of Vishal Personal Care, which owns the brand Banjara’s, is anticipated to provide entry into the fast-growing natural products market and expand distribution in Southern India. This could potentially boost revenue and improve margins due to the high gross margins and healthy EBITDA margins of the acquired company.
  
• Price increases in the coconut oil and Almond Drops Hair Oil (ADHO) portfolios are planned to offset raw material cost inflation, specifically copra prices. This is expected to protect and potentially improve net margins.
  
• The company's focus on expanding its international business, which has shown significant growth in regions like Bangladesh, the Middle East, and the U.S., is expected to contribute to future revenue growth and diversification.
  
• Investments in technology and efficiency improvements, such as smart manufacturing and IT infrastructure, are aimed at reducing costs and enhancing productivity, leading to improved net margins and profitability.

Bajaj Consumer Care Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Bajaj Consumer Care's revenue will grow by 7.4% annually over the next 3 years.
• Analysts assume that profit margins will increase from 13.6% today to 16.5% in 3 years time.
• Analysts expect earnings to reach ₹2.0 billion (and earnings per share of ₹13.31) by about April 2028, up from ₹1.3 billion today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 22.7x on those 2028 earnings, up from 19.3x today. This future PE is lower than the current PE for the IN Personal Products industry at 49.4x.
• Analysts expect the number of shares outstanding to decline by 2.61% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 13.58%, as per the Simply Wall St company report.

Bajaj Consumer Care Future Earnings Per Share Growth

Risks

• Decline in consolidated sales by 2.4% in the quarter and 4.2% for the 9 months suggests potential ongoing challenges in maintaining revenue growth.
  
• Contraction in gross margins due to higher copra price inflation, despite price increases in coconut oil, indicates pressures on profitability and net margins.
  
• The high-single-digit decline in GT channel sales for Q3 and 9M FY '25 reveals potential difficulties in core market penetration and revenue generation.
  
• Increased expenses, including one-time IT investments and ongoing costs from Project Aarohan, pose a threat to net margins and could hinder earnings improvement.
  
• The company’s reliance on significant international market growth, amidst political challenges in some areas, may introduce volatility and risk to future revenue streams.

Valuation

• The analysts have a consensus price target of ₹231.0 for Bajaj Consumer Care based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of ₹315.0, and the most bearish reporting a price target of just ₹183.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be ₹11.8 billion, earnings will come to ₹2.0 billion, and it would be trading on a PE ratio of 22.7x, assuming you use a discount rate of 13.6%.
• Given the current share price of ₹175.55, the analyst price target of ₹231.0 is 24.0% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.