Detailed Rationale

CRISIL Ratings has reaffirmed its ‘CRISIL A1+’ rating on the commercial paper programme of Bajaj Consumer Care Ltd (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 because of nil debt. These strengths are partially offset by product concentration risk with high dependence on Bajaj Almond Drops Hair Oil (ADHO), exposure to intense competition in the fast-moving consumer goods (FMCG) industry and susceptibility to volatility in raw material prices.

 

With subdued rural performance, revenue saw a modest ~2% growth in fiscal 2024 but was driven by high single-digit volume growth. Operating margin, meanwhile, improved to 15.8% in fiscal 2024 from 14.8% in fiscal 2023, led by decline in input cost inflation, improving gross margin and continuous investment in new products. In the first quarter of fiscal 2025, revenue declined ~9% on-year due to a onetime correction in the wholesale discount and rationalisation of schemes undertaken to reduce dependence on top-end wholesalers, which increased the wholesaler base by 13%. As a result, fiscal 2025 may see mid-single digit revenue growth. Meanwhile, margin is expected to remain at 16-18% with range-bound inflation and raw material prices coupled with a premiumisation push across certain product verticals. The company completed its share buyback in July 2024, resulting in a cash outflow of Rs ~166 crore (excluding buy back tax & costs); promoter holding increased from 39.30% to 40.95% post the buyback.

 

Cash-generating ability led to net cash accrual of Rs 51 crore in fiscal 2024, negative working capital and nil debt as of March 2024. Financial risk profile will remain strong over the medium term. Liquid surplus was around Rs 630 crore, including investments in marketable securities.

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 63% market share in the light hair oil segment as of March 2024. The brand positioning of ADHO is strengthened by high entry barrier 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. Additionally, it is focused on increasing its share from non-ADHO products and has already launched almond drop extensions for haircare and skincare through launch of serums, shampoos, conditioners, soaps and body lotions. 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 improved to 15.8% in fiscal 2024 from 14.8% in fiscal 2023 due to decline in input cost inflation. The prices of light liquid paraffin and high-density polyethylene decreased in line with fall in crude oil prices. That said, margin is expected to be below 25-30% seen in the past owing to increase in raw material cost and high advertising expenses; the margin is projected at 16-18% over the medium term. Advertising expenses (as a percentage of sales) were around 17% in fiscal 2024 and would continue to be 16-18% due to 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 in general trade channel.

 

• Healthy financial risk profile: Financial risk profile should remain supported by nil debt, strong networth and small capital expenditure (capex). Liquid surplus of around Rs 630 crore as of March 2024 provides comfort to the financial risk profile. Despite the buyback of equity shares worth Rs 166 crore undertaken in July 2024, there is sufficient cushion available for its minimal investments. Additionally, net cash accrual is expected to be Rs 60-80 crore 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 greater dependence on ADHO: ADHO, the flagship product of the company, contributes to around 83% of revenue. The company is present in 80% of the hair oil segment with presence in amla and coconut. However, all the products, excluding ADHO, cumulatively had moderate impact on revenue. Revenue growth was modest in fiscal 2024. However, the company is focusing on diversifying its product portfolio and reducing dependence on ADHO, with the target of increasing the non-ADHO category to 40% of revenue by fiscal 2029.

 

• 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 is 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 completed its share buyback in July 2024 wherein it ended up buying shares worth Rs ~166 crore. Promoter shareholding, meanwhile, increased from 39.30% to 40.95% after the conclusion of buyback in July 2024. With this, liquid surplus, which stood at around Rs 630 crore as on March 31, 2024, is expected to decline in fiscal 2025 but is likely to be over Rs 500 crore over the medium term. The company has nil debt and does not utilise its bank limit.

 

ESG Profile

The environment, social, and governance (ESG) profile of BCCL supports its already strong credit risk profile. The FMCG sector has a moderate environmental and social impact, driven by its raw material sourcing strategies, waste intensive processes, and direct impact on the health and well-being of customers.

 

Key ESG highlights:

• BCCL targets to achieve a 25% reduction in its greenhouse gas (GHG) emission intensity by fiscal 2027 (compared to its fiscal 2022 baseline) and net-zero emissions in operations by fiscal 2030. In fiscal 2024, the company’s GHG emission intensity was 18% lower than its fiscal 2022 baseline.
• The company also aims to use 100% recyclable, reusable, or re-compostable packaging material by fiscal 2027.
• Share of women in its workforce (at ~11% amongst employees and ~35% amongst workers) improved in fiscal 2024 compared to the previous fiscal (~9% amongst employees and ~34% amongst workers). The attrition rate for permanent employees fell to ~29% in fiscal 2024 from ~34% in fiscal 2023.
• Its governance structure is characterized by 50% of its board comprising independent directors, one woman board director, dedicated investor grievance redressal system and extensive financial disclosures.

 

ESG is gaining importance among investors and lenders. The commitment of BCCL to ESG will play a key role in enhancing stakeholder confidence, given shareholding by financial institutions and access to both domestic and foreign capital markets.

Rating Sensitivity Factors

Downward factors

• Significant erosion in the market share of BCCL, thereby reducing the scale of operations
• Decline in operating profitability below 14% on a sustained basis
• Large, debt-funded acquisition weakening the key credit metrics
• Higher-than-expected dividend outflow impacting liquidity

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 stood at 39.30% as on June 30, 2024. Of the total promoter holding, nothing is pledged.

 

Profit after tax (PAT) stood at Rs 37 crore on operating income of Rs 246 crore as on June 30, 2024, against Rs 46 crore and Rs 270 crore, respectively, previous fiscal.

Key Financial Indicators*

Particulars	Unit	2024	2023
Operating income	Rs.Crore	984	961
Adjusted PAT	Rs.Crore	155	139
Adjusted PAT margin	%	15.8	14.8
Adjusted debt/adjusted networth	Times	NA	NA
Interest coverage	Times	196.4	185.5

*CRISIL Ratings adjusted numbers

Any other information: Not Applicable