Weak rural demand weighs on Bajaj Corp

Slowdown hits the September-quarter performance

Weakening rural demand hit Bajaj Corp's September quarter results, with sales growing 10.7 per cent year-on-year to Rs 208 crore, lower than Bloomberg consensus estimates of Rs 213 crore. This is the third straight quarter of decelerating volume growth. This metric climbed down from 23 per cent in the March quarter to 8.34 per cent in the September quarter, mainly due to weak demand in rural India. There is a credit crunch in rural areas. Lower advertisement spending helped margins, but it could have pulled down Bajaj Corp's volumes, say analysts.

The saving grace was the margin expansion. Advertising spending fell 85 basis points to 17 per cent of sales. Input costs were down 343 basis points to 35 per cent of sales. These largely fuelled Ebitda (earnings before interest, taxes, depreciation, and amortisation) margins, which jumped 339 basis points to 31.7 per cent. As a result, the net profit growth was 24.9 per cent, ahead of sales growth. But, the net profit of Rs 47 crore was lower than the Bloomberg consensus estimate of Rs 53 crore.

The stock fell 4.5 per cent on Wednesday to Rs 443, versus a 0.4 per cent rise in the Sensex.

But it still trades at 21 times FY17 estimated earnings, higher than its historical average one-year forward price-earnings ratio of 16.

Its biggest hair oil brand, Bajaj Almond Drops, managed to keep its volume market share — 58.9 per cent in the light hair oils segment, for FY16's five months ending August. In contrast, smallers peers saw a decline in volumes.

After the earnings miss, analysts may tone down their FY16 and FY17 earnings estimates. This could put downward stress on the stock, said an analyst awaiting more details and management commentary from an investor call on Thursday.