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Bajaj Consumer’s Q1FY25 print was below our estimates; Revenue/EBITDA/PAT declined by 9.0%/25.3%/19.7% YoY. Management attributed weak performance to, (1) planned cut in trade schemes and wholesale discounts, (2) stable performance in urban led by large packs, and (3) 17% growth in non-ADHO portfolio (~18% of sales). ADHO volume cut by 6.7%, yet large packs drove sales (4-year CAGR 9.4%) led by 26% contribution from organized trade (MT: +9%, E-com: +13%, CSD +15%). GT channel declined HSD on account adjustments in trade schemes, though on a high base international business grew 1%. Led by strong performances in Nepal (+76%) followed by Middle-East & ROW. Gross margins inched up to 55.3% (+62bp), yet EBITDA margins cut to 13.4% (-292bp) due to higher employee expenses (9.9%). Management guided for mid to high single-digit sales growth and deliver ~16-18% operating margin on the back of, (1) Project Aarohan – revamping route-to-market, (2) increase saliency of internal business, and (4) focus on high margin NPDs. With weaker performance we cut earnings and introduce FY27. We maintain ADD with a revised DCF-based TP Rs285 (implying 17.7x on avg. of FY26/27E EPS).

One-time channel hygiene impacted topline- ADHO volume decline 6%

BajajCon’s Q1FY25 consol. revenue at Rs2.4bn declined by 9.0% YoY. Management attributed weak performance to, (1) planned cut in trade schemes and wholesale discounts, (2) stable performance in urban led by large packs, and (3) 17% growth in non-ADHO portfolio (~18% of sales). ADHO volume cut by 6.7%, yet large packs drove sales (4-year CAGR 9.4%) led by 26% contribution from organized trade (MT: +9%, E-com: +13%, CSD +15%). GT channel declined high-single-digit on account of adjustments in trade schemes. With high base international business grew 1% led by strong performances in Nepal (+76%), Middle-East (+45%), and ROW (+55%), though own distribution set up is now competed in Bangladesh. The company launched Project-Aarohan to revamp route-to-market with (1) geo tagging and fencing urban focus (+50k population towns) by enhancing market service to lift per capita sales to increase penetration by 40%, and cover >25k population town with direct coverage, improve van coverage in rural towns (<25k population) to achieve +10% additional coverage in villages. Company said, continued focus on portfolio diversification to deliver MSD revenue growth.

With flat LLP prices gross margins inched up at 55.3%; yet EBITDA margin cut to 13.4%

Gross margin inched up to 55.3% (+62bp YoY), driven by lower prices of key raw materials such as LLP and packing material while prices for RMO inched up in Q1. EBITDA declined by 25.3% to Rs324mn, due to higher employee costs (+9.9%), yet other expenses lowered (-4.2%) saw EBITDA margin cut to 13.4% (-292bp). Management aspires to spend ~18% of sales on ad-spend to support ADHO and NPDs yet expects to maintain EBITDA margin ~16%-18%. We expect with rising commodity inflation company may execute few price increases in 2HY25

Valuation and risks – Maintain ADD, with a revised DCF-based target price of Rs285

We note with subdued revenue momentum, most leading companies focused on improving system hygiene in Q1. BajajCon took measure by cutting trade discounts in wholesale channel to improve GT throughput. Moreover Project-Aarohan targeted to improve depth in urban and width in rural markets could prove right strategy in the medium terms. With stable monsoon and govt. impetus on improving rural incomes, HSM market could show up demand recovery in medium term. We reckon focus on penetration led growth in HSM, and building Non-ADHO portfolio may lift sales. With weak Q1, we cut FY25E/26E earnings by 6.8%/7.2% and introduce FY27E. We retain ADD with a revised DCF based TP of Rs285 (implying 17.7x on avg. of FY26/27E EPS PS). Risks: failure of NPD and over-dependence on ADHO

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