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Improving trajectory; this is a case of "trapped value" and not a value trap. BUY.

Q4 volume grew by ~43% (our estimate; 2-year CAGR is flat). The improving fundamentals will likely (continue to) drive stock re-rating, in our view. Final dividend (announcement) of Rs4 (total of Rs10 for FY21; see Table 1 for dividend history) further allays consensus concerns (if any) on cash utilisation. 4Q revenue grew 40% (2-year CAGR of 1%).

We like the renewed thrust on – (1) product relaunch (upgraded formulation), (2) new SKUs (filling white spaces), (3) communication (integrated campaign, thrust on digital and improved brand visibility across retail outlets) and (4) focus on categories beyond ADHO (Amla (gooseberry) market share gains through distribution expansion, new product launches). We stay believers - see report series "Value trap vs trapped value" - link 1, link 2 and link 3. Retain BUY and top pick status.

* Revenue growth driven by continued rural demand and recovery in urban: Revenue / EBITDA / PAT grew 40% / 157% / 120% respectively. Domestic volume growth (+43% - our estimate) was driven by 1) distribution drive, 2) continuous media presence and 3) focus on overall hair oil category. Hair oil category stabilised in Jan-Feb’21 with 1% value growth (3% volume growth). However, BaCo has significantly outperformed the hair oil category despite largely having presence in premium hair oil. General trade revenue grew 40% driven by rural growth of 61% and urban growth of 23%. Revenue from alternate channels (modern trade, ecommerce etc.) grew 61% YoY driven by e-commerce growing ~4x, continued recovery in Modern Trade. International business revenue grew 84%.

* Margin decline due to higher input cost and inferior mix: Gross margin declined 700bps YoY to 61.3% due to input cost inflation (LLP and Refined Mustard Oil price increased by 21% and 25% YoY respectively) and inferior mix. However, EBITDA margin expanded by 1,120bps YoY to 24.7% largely due to low base (lower absorption of costs due to negative operating leverage).

* Other highlights: 1) OCF / FCF grew by 31% / 33% to Rs2.4bn respectively, 2) working capital days improved by 4 days to zero days, 3) declared final dividend of Rs4 (Rs10 in FY21), 4) overall reach increased from 4mn to 4.3mn (increased from 2.6mn to 3.9mn for Amla Hair Oil), and 5) launched Bajaj Amla Aloe Vera.

* Valuation and risks: We increase our earnings estimates by 6% for FY23; modelling revenue / EBITDA / PAT CAGR of 10% / 9% / 7% over FY2021-23E. Reiterate BUY with DCF-based revised target price of Rs400 (was Rs350 earlier). At our target price, the stock will trade at 23x P/E Mar’23E. Key downside risks are over-reliance on a single brand – ADHO and keyman risk (Mr. Jaideep Nandi, MD, who's driving a cultural transformation within Bajaj Consumer and the turnaround).

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