Project Aarohan And Product Diversification Will Drive Future Success

Key Takeaways

• Strategic distribution expansion with Project Aarohan targets high-potential towns, aiming to drive future revenue growth.
  
• Focus on digital marketing and product diversification, including international sales and new product ranges, suggests potential revenue and earnings expansion.
  
• Sluggish urban demand and competition in key segments could restrict growth despite expansion efforts and new product introductions.

Catalysts

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

• Bajaj Consumer Care's strategic emphasis on expanding distribution networks, especially through Project Aarohan, aims to enhance their presence in high-potential towns and improve sales, which could drive future revenue growth.
  
• The company's focus on digital marketing and channel engagement in Bangladesh, coupled with robust international sales growth, hints at potential international revenue expansion.
  
• Initiatives in modernizing retail and enhancing direct distribution efforts through geotagging and geofencing may optimize operational costs and improve net margins.
  
• The scale-up of new products, particularly in the Almond Drops Hair and Skin range and Coconut oil products, is poised to contribute significantly to overall revenue growth.
  
• Strategic efforts towards portfolio diversification and the introduction of value-added products, such as Almond Drop shampoos and conditioners, are expected to positively influence earnings in the mid to long term.

Bajaj Consumer Care Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Bajaj Consumer Care's revenue will grow by 7.2% annually over the next 3 years.
• Analysts assume that profit margins will increase from 14.7% today to 17.1% in 3 years time.
• Analysts expect earnings to reach ₹2.0 billion (and earnings per share of ₹13.16) by about January 2028, up from ₹1.4 billion today. However, there is some disagreement amongst the analysts with the more bearish ones expecting earnings as low as ₹1.7 billion.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 29.5x on those 2028 earnings, up from 18.4x today. This future PE is lower than the current PE for the IN Personal Products industry at 51.9x.
• Analysts expect the number of shares outstanding to grow by 2.42% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 13.41%, as per the Simply Wall St company report.

Bajaj Consumer Care Future Earnings Per Share Growth

Risks

• Sluggish urban demand and declining sales in key business segments like General Trade could hamper revenue growth if not addressed effectively.
  
• The gross margin decline, primarily due to adverse product mix and rising raw material costs, implies potential pressure on net margins unless mitigated.
  
• The company's EBITDA and PAT have seen a drop, showing a strain on operational efficiency and earnings, which could be a red flag for investors.
  
• Despite investments in loyalty programs and geographical expansion, if market conditions, particularly urban demand, do not improve, revenue growth may remain constrained.
  
• High reliance on new product lines and expansions in newer markets might not offset the longstanding concentration and competitive challenges in the Almond Drops segment, impacting both revenue and profitability.

Valuation

• The analysts have a consensus price target of ₹267.22 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 ₹325.0, and the most bearish reporting a price target of just ₹220.0.
  
• 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 29.5x, assuming you use a discount rate of 13.4%.
  
• Given the current share price of ₹181.3, the analyst's price target of ₹267.22 is 32.2% 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.