Bajaj Corp (BCCL) IPO review reveals it to be a one trick pony trying to diversify;would give it a miss

Bajaj Corp IPO is a mid size IPO offering trying to raise approximately Rs 290 crore ( ~$60mm) diluting 15% of the equity of the company which will give it a market cap of ~Rs 2000 crore ( ~$430mm).The company is one of the many entities that were spun off when  the Bajaj Group split into automobile,finance,sugar and other companies.The company has a long operating history of over 50 years and is predominantly into the hair oil market in India.Its flagship product is Bajaj Almond Drops which accounts for over 90% of the company’s revenues making it totally dependent on this 1 product.Though BajajCorp has managed to successfully execute in this niche light hair oil segment continuously increasing its marketshare to around 50%  in the last 2-3 years,the over-dependence on this one hair oil product is the company’s Achilles heel.Here is a review of the the company’s strengths and weaknesses.

Strengths

1) Totally debt free with high margins – The company has zero debt and high operating margins of 30%.Its Net Margin of 27% is also quite high.However with introduction of new products and increasing S&M spend will decrease these margins

2) Good Brand and Management – The Bajaj brand name has a well established presence in India plus the Management has long and varied experience of Indian conditions.

3) Good sector and growth – The light hair oil segment has been growing faster than the overall oil segment plus the company has grown correspondingly though only 1 year financial statements are given.The hair oil industry is $2 billion in size with 14% growth rate

4) New products to leverage existing distribution network – BajajCorp already has a strong distribution network.If the products get traction they would benefit from the existing distribution network.

Weakness

1) The biggest weakness of the company is that it is a One Trick Pony dependent completely on one product.If the other FMCG majors target this segment then BajajCorp would be in trouble as it is a relatively small player compared to biggies like Dabur,Marico and others.

Summary

The company would have a ~26x on the trailing PE basis and 6 times sales.The FMCG industry in India is currently trading mostly in the 25-35x range so the company is pricing itself at 25x which makes sense considering that it is a small company with just 1 product.The success of its new products is still open to question and most of the money will be spent of promoting these products.At 25x,the company is not leaving much on the table for investors considering that its new product ventures are risky considering the strong competition in the Indian FMCG market.Though the stock is much better than the junk being offered in the Indian market,I would still give this IPO a miss as their are better options available in the Indian FMCG sector.