Bajaj Corp tanks nearly 20% in three days on disappointing Q2 earnings

The stock has underperformed the market post Q2 results by falling 19% compared to 0.11% rise in benchmark index.

Bajaj Corp has dipped over 9% to Rs 215, extending its past two day’s fall, after reporting a lower-than-expected net profit at Rs 36 crore for the second quarter ended September 30, 2013 (Q2) due to lower sales and higher spend on advertising and sales promotions. The company had profit of Rs 38 crore in a year ago quarter.

Net sales grew at 16.5% yoy to Rs 158 crore during the recently concluded quarter as against Rs 136 crore in the corresponding quarter of previous fiscal. However, the company’s revenue growth has been the lowest in the last 13 quarters.

Analyst on an average had expected profit of Rs 44 crore and net sales of Rs 165 crore from the personal care products maker.

More-than-expected ad-spend and other expenditure pulled the operating margin to six quarter low. The company’s EBIDTA margins declined nearly 200bp to 27.09% from 28.76% during the recently concluded quarter.

Meanwhile, analyst at Anand Rathi Research recommends BUY on the stock with a target price of Rs 335.

We believe the success of Kailash Parbat and the NOMARKS acquisition will reduce dependence on Bajaj Almond Drops and help erase the ‘single-product-company’ tag. Also, the company will reduce interest cost in 1-2 quarters, resulting in improved profitability, says analyst in research report dated October 15, 2013.

The stock has underperformed the market post Q2 results by falling 19% in past three trading sessions on BSE compared to 0.11% rise in benchmark index and 1.1% gain in fast moving consumer goods (FMCG) sector index.