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Published on 26/03/2020 3:29:50 PM | Source: ICICI Securities Ltd

Buy Bajaj Consumer Care Ltd For Target Rs. 200 - ICICI Securities

Posted in Broking Firm Views - Long Term Report| #FMCG #Broking Firm Views Report #ICICI Securities #Bajaj Consumer Car Ltd

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1x1 with Jaideep Nandi, new CEO

In our two hour conversation with Jaideep Nandi, new CEO we did not discuss hair oils. We focused on his career at Asian Paints (29 years) and his initial thoughts on the difference between leadership roles in a paints company versus FMCG. His experience both in India sales (10 years) and in a general management (mostly CEO) role (18 years across three geographies) appears a perfect fit for BaCo which now has a strong second-line senior management (built by Sumit Malhotra, the outgoing MD). We like his clear focus on execution (emphasis on implementation, looking at proof of concept and course correction requirement) given the demand slowdown and Bajaj Consumer’s (BaCo) ongoing cluster-based approach (Bain-advised). Retain BUY though we expect this to be a long-gestation turnaround.

The transition, according to Jaideep has two facets – (1) simpler supply chain, manufacturing and lesser brands (in Paints), but (2) higher complexity in go-to-market and indirect distribution in FMCG.

 

Jaideep’s view on the differences between paints and FMCG:

* Manufacturing and supply chain: Paints is a more technical product in terms of manufacturing. The companies also largely manufacture themselves creating greater capex requirements versus an FMCG business which has higher asset turns (BaCo had 13x FY19 fixed asset turn versus 3x for Asian Paints).

* Brands: Paint companies usually have various brands which increase the complexity both in terms of demand planning as well as marketing and sales activities. On the other hand, BaCo has fewer brands and the complexity is more in terms of the number of SKUs rather than brands.

* Go-to-market strategy: Direct distribution at paints (Akzo Nobel India is an exception) versus indirect distribution for FMCG companies is another major difference between the two sectors. The different routes to market for an FMCG brand, along with the rising salience of Modern Trade, e-commerce and Cash & Carry (which the companies supply directly) creates incremental complexities.

 

We highlight Jaideep's career at Asian Paints (see Table 1 for details):

* Joined as an Executive Trainee in 1990 (MBA from IIM B, 1990), reaching the level of Divisional Manager (East region) in ~10 years.

* Led the SAP implementation project, launching it across c.100 locations in India.

* CEO roles across three geographies and four companies – Asian Paints Middle East (1 year), Berger Paints Singapore (7 years), Regional Head for Singapore & South Pacific (4 years) and Asian Paints PPG JV (5 years). Valuation and risks: We model revenue / EBITDA / PAT CAGR of 6% / 3% / 5% over FY2020-22E. Maintain BUY with DCF-based target price unchanged at Rs200. At our target price, the stock will trade at 12x P/E Mar’22E. Key downside risk is over-reliance on a single brand – ADHO.

 

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