| Bajaj Consumer Care Limited | ||
| Rating Reaffirmed | ||
| Rating Action | ||
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| Note: None of the Directors on CRISIL Ratings Limited’s Board are members of rating committee and thus do not participate in discussion or assignment of any ratings. The Board of Directors also does not discuss any ratings at its meetings. | ||
| 1 crore = 10 million | ||
| Refer to Annexure for Details of Instruments & Bank Facilities |
Detailed Rationale CRISIL Ratings has reaffirmed its ‘CRISIL A1+’ rating on the commercial paper programme of Bajaj Consumer Care Limited (BCCL; formerly Bajaj Corp Ltd).
The rating continues to reflect the leading market position of the company in the niche light hair oil (LHO) segment, moderate operating efficiency and healthy financial risk profile, driven by nil debt. These strengths are partially offset by product concentration risk, with high dependence on Bajaj Almond Drops Hair Oil (ADHO), inflationary pressures and exposure to intense competition in the fast-moving consumer goods (FMCG) industry.
Revenue grew ~9% in fiscal 2023, driven by recovery in demand along with increased contribution of new product development to the overall revenue. The operating margin, however, declined to 14.8% in fiscal 2023 from 19.8% in fiscal 2022, led by input cost inflation, impacting gross margin, as well as higher advertising and promotional spends for investment in new products. BCCL completed its share buy-back in April 2023, resulting in increase in promoter holding to 39.35% (from 38.04% as of September 2022).
Cash-generating ability of the company led to strong cash accrual, negative working capital and nil debt. Financial risk profile will remain strong over the medium term. Liquid surplus was around Rs 600 crore as on March 31, 2023. |
Analytical Approach CRISIL Ratings has combined the business and financial risk profiles of BCCL and its wholly owned subsidiaries, Bajaj Bangladesh Ltd, Bajaj Corp International FZE and Uptown Properties & Leasing Pvt Ltd.
Please refer Annexure - List of Entities Consolidated, which captures the list of entities considered and their analytical treatment of consolidation. |
Key Rating Drivers & Detailed Description Strengths: Leading market position in the niche LHO segment BCCL is a market leader with ADHO, commanding over 60% market share as on March 31, 2023. The brand positioning of ADHO is strengthened by high entry barriers given the strong brand loyalty among customers. The company has a wide geographical presence and a distribution network covering more than 43 lakh retail outlets.The company launched Almond extensions in hair and skin care through launch of Bajaj Almond Drops Moisturising Soap, Bajaj Almond Drops Argan non-sticky hair oil and Bajaj Almond Drops hair serum with oil. It spends vigorously on advertising to increase its reach and has undertaken various initiatives to improve direct reach to consumers. Strong brand recall of Bajaj further aids in retaining market dominance. Expansion of the product portfolio (through Bajaj Almond extensions and Bajaj Ethnic range), strong distribution reach with focus on modern trade and e-commerce should support revenue growth over the medium term.
Operating efficiency impacted by high input costs, however, remains at moderate levels Efficient distribution, working capital management and premium product portfolio led to comfortable operating efficiency. The operating margin declined to 14.8% in fiscal 2023 from 19.8% in fiscal 2022 and 25-30% levels seen in the past owing to significant increase in raw material cost and high advertising expenses; the margin is projected at 16-17% in fiscal 2024. Advertising expenses (as a percentage of sales) were around 18% in fiscal 2023 and would continue to be in the range of 16-18%, on account of higher media presence and investment in new products. The company owns three manufacturing facilities and has access to third-party manufacturing units. Also, the working capital cycle should remain healthy with immediate payments from distributors.
Healthy financial risk profile Financial risk profile should remain supported by nil debt, strong networth and low capital expenditure (capex). Liquid surplus of around Rs 600 crore as on March 31, 2023, provides comfort to the financial risk profile. The company has healthy cash balance and scales up through internal cash accrual. Furthermore, the pledge of promoter stake reduced to zero in December 2019 and may remain nil over the medium term. The company did not have any exposure to group companies and is likely to maintain strong credit metrics over the medium term.
Weaknesses: High product concentration with high dependence on ADHO ADHO, the flagship product of the company, contributes to around 80% of revenue. The company is present in 80% of the hair oil segment with presence in Amla, Coconut, etc. However, all the products excluding ADHO cumulatively had moderate impact on revenue. Revenue growth was high single digit in fiscal 2023. However, the company is focusing on diversifying its product portfolio and reducing dependence on ADHO.
Exposure to intense competition The FMCG industry remains susceptible to the risk of downtrading (shift from branded to unbranded) by consumers, especially in the rural markets. Bulk of the expenses are therefore directed towards advertising and promotion for BCCL to improve its competitive position. Intense competition in the FMCG sector will continue to constrain scalability, pricing power and profitability. |
Liquidity: Strong Liquidity will remain supported by the cash generating ability of the company, substantial cash and marketable securities and no large capex, though most of the profit is paid out as dividends. BCCL undertook its share buy-back from December 2022 and completed it in April 2023 wherein it ended up buying shares worth Rs ~81 crore. Thus, promoter shareholding increased to 39.35% as of June 2023. Despite this, liquid surplus stood around Rs 600 crore as on March 31, 2023, and is expected to be maintained around similar levels over the medium term. The company has nil debt and does not utilise its bank lines. |
Rating Sensitivity Factors Downward Factors
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About the Company Incorporated in 2006, BCCL is a part of the Shishir Bajaj group. The company is a leading manufacturer of LHO under the brand, ADHO. The company has presence in other hair oil categories through the brands Bajaj Brahmi Amla, Bajaj Coco Jasmine, and Bajaj Kailash Parbat. It purchased the brand Nomarks in fiscal 2014 to enter the skin care category. Its manufacturing facilities are in Himachal Pradesh, Uttarakhand, and Assam.
BCCL is listed on the Bombay Stock Exchange and the National Stock Exchange. It completed its share buy-back in April 2023. Promoter shareholding increased to 39.35% as on June 30, 2023. Of the total promoter holding, nothing is pledged.
Profit after tax (PAT) stood at Rs 46 crore on operating income of Rs 270 crore as on June 30, 2023, against Rs 34 crore and Rs 249 crore, respectively, a year earlier. |
Key Financial Indicators*
*CRISIL Ratings adjusted numbers |
Any other information: Not applicable |
Note on complexity levels of the rated instrument: |
Annexure - Details of Instrument(s)
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Annexure - List of Entities Consolidated
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| Annexure - Rating History for last 3 Years | |||||||||||||||||||||||||||||||||||||||
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| All amounts are in Rs.Cr. | |||||||||||||||||||||||||||||||||||||||
Criteria Details
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