A Shishir Bajaj group company, Bajaj Corp, one of the India`s leading producers of hair oils is entering the capital market on Aug. 2, 2010 with a fresh issue of 4.5 million equity shares of Rs 5 each, in a price band of Rs 630-Rs 660 a share. The company will raise Rs 2.84 billion to 2.97 billion, depending on the price discovered via the public issue, which closes on Aug. 4, 2010 for QIB bidders and on Aug. 5, 2010 for retail and HNI category. Through the issue, the company is looking to dilute 15.3% equity.

Out of the net proceeds of the issue, company intends to use Rs 2.20 billion for promotion of future products in the personal care segment and Rs 50 million for acquisitions and other strategic initiatives and balance amount for general corporate purposes.

We at myiris, have collated views from leading brokers and analysts on its initial public offering (IPO). The same is as under:

> Way2Wealth Securities - Subscribe for listing gains

Broking firm Way2Wealth said one can `Subscribe` the issue for listing gains. Rationale is:

``At the lower and upper end of the price band, the issue is quoting at P/E of 22.1-23.2x its FY10 earnings. Its peers in the FMCG space are trading at trailing P/E in the range of 31-39x. The IPO is priced cheaply as compared to its peers, very well discounting the above concerns. The Company intends to diversify into other products and also inorganically, this seems to be too futuristic as the product portfolio has been more or less the same since its inception in 1953. Though the financials and the pricing of this issue provide some comfort, much depends on how the Company is able to effectively diversify into new product lines and segments and is able to bring down its heavy dependence on one product. However, one can `Subscribe` for listing gains.

> Hem Securities - Subscribe

Hem Securities has recommended `Subscribe` on its IPO. The investment rationale is as under:

``The company is bringing the issue at price band of Rs 630 - 660 a share which will turn up into P/E multiple of 22-23 at post issue earnings on FY10 basis of Rs 28.44. It has posted strong growth in its financial in last couple of years. Also, `Almond Drops` being company`s leading product brand has achieved an Indian light hair oil market share of 50.30% for the fiscal year ended Mar. 31, 2010. Therefore looking at the zero debt status, strong promoter base, with portfolio of well recognized brands and leadership position in light hair oil market, the brokerage house feels that company is well poised to cater future business opportunities available in the sector.``

> SMC Global: Ranking - 3/5

Brokerage house, SMC Global has provided ranking of 3/5 to IPO of Bajaj Corp, indicating `Fair ` view. The investment rationale provided by the brokerage firm is as under:

Having  been  driven  from  one  of  the  strongest  business  house,  BCL would  definitely leverage the brand heritage image of Bajaj group. The company has strong management team with  requisite domain expertise who are well aware of business opportunities, threats and weakness. The issue is priced at a significant discount as compared to peer FMCG players. But one has  to keep  in mind  that  the major chunk of  its  revenues  is  sourced from a single product. Company is yet to establish its presence in the different product verticals within FMCG domain as per  the  its  strategy  in an environment where  some of  the prominent players are already competing  to  retain and enhance  their market  share. Investors with  long  term horizon can  subscribe  to  the  issue.

Valuations: Considering the P/E valuation, the company is trading at pre issue P/E of 18.77x on the lower side of the band and 19.66x on the higher side of the band of  its FY10 EPS of Rs 33.56. Looking at the post issue valuation, the company trades at   P/E of 22.15 on the lower side and 23.20x on the higher side of its post issue FY10 EPS of Rs 28.44.At its P/B ratio it trades at 61.50 and 64.43 multiples of the lower and higher band of its pre issue book value of Rs 10.24 and 6.76x and 6.04x on the lower and higher side of its post issue book value of Rs 109.36  respectively.

SP Tulsian: You will not lose hair!

An independent analyst, SP Tulsian said the valuation seems to be fair. However, taking a fundamental call leads to a neutral view on the issue. The rationale is as under:

With a limited product portfolio and heavy dependence on a single brand, the company`s prospects are vulnerable to the success of its 4 products to be launched in the near future. Moreover, the company is yet to identify the products or companies to be acquired, for which Rs 500 million has been earmarked from the issue proceeds. Compared to peers, the company enjoys healthy net profit margin due to limited scale and depth of operations. Going forward, as new product launches are undertaken, margins are likely to come under pressure.

Valuations: At the lower and upper end of the price band, the company is issuing shares at PE multiples of 18.8 and 19.7 times, respectively. This works out to valuation of Rs 18.50 billion to Rs 19.50 billion,  mainly for 1 hair oil brand - Bajaj Almond Drops. The issue price factors in the growth of future products to be launched by the company. Listed peers, both Indian and MNCs, much larger in size, are presently ruling at PE multiples of 25 and above on the bourses. On a relative basis, the valuation seems to be fair. However, taking a fundamental call leads to a neutral view on the issue. The company being an FMCG player, considered a defensive sector, may give safe returns to investors in the longer term, as it continues to grow through new product launches and strategic acquisitions to taps its distribution reach further.

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