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Emami - Good execution continues - ICICI Securities

Posted On: 2021-01-27 22:46:02 (Time Zone: Arizona, USA)

Q3 volumes grew 13% with broad-based performances across the brands. Highlights - (1) healthcare portfolio continued to grow well (+38% YoY) supported by new launches and demand tailwinds, (2) strong performance of winter portfolio leading to 21% growth in BoroPlus range (5% if we combine 2Q and 3Q - to remove the timing mismatch impact), and (3) Fair & Handsome returned to growth trajectory driven by the brand relaunch with fresh packaging, communication and strategy (on a lower base though). We especially like the plans (and ability) of higher ad-spends to support new launches (margins are at an all-time high), comparatively better investment behind Modern Trade and e-commerce, entry into larger categories like Home Care (Emasol) and increasing rural distribution reach. Promoter pledged declined to ~39% from ~47% in Q3FY21 largely due to increase in share prices. Maintain ADD.

- Strong performance across portfolio: Consolidated revenue / EBITDA / recurring PAT grew 15% / 29% / 28%. Domestic revenue and volume grew 16% and 13% while international business revenue grew 26%. This strong performance in domestic business was broad based with 38% YoY growth in health & hygiene portfolio (~47% of business) and 21% growth in BoroPlus range (benefitting from spillover of sales from 2Q). Rest of the portfolio also witnessed strong growth - Pain management (+12%), Kesh King (+16%), 7 Oils in One (+32%), Male grooming range (+5%). Navratna range declined by 12% due to strong winter season. Rural grew ahead of urban. Further, Modern Trade grew by 51%.

- Margin expansion driven by benign input prices, cost savings: Gross margin expanded 210bps YoY to 70.4% driven by benign input costs and favorable mix. EBITDA margin also expanded 390bps YoY to 36.4% driven by lower ad-spends (- 40bps), staff costs (-100bps) and other opex (-40bps). Emami expects margin to remain in similar range driven by benign input prices and cost saving initiatives. However, it expects ad-spends to increase as it would like to invest behind some of the growing brands which could impact margins by ~100bps.

- Other highlights: (1) Launched 30+ new products and 60+ SKUs during 9MFY21, NPD now contributes ~4% in 9MFY21, (2) Launched EMASOL home hygiene range, (3) Chyawanprash and Honey grew ~24% and 2.5x, and (4) Promoter pledged declined to ~39% from ~47% in Q3FY21 largely due to increase in stock prices.

- Valuation and risks: We increase our FY22 earnings estimates by 6%; modelling revenue / EBITDA / PAT CAGR of 8 / 12 / 20 (%) over FY20-23E. Maintain ADD with a DCF-based revised target price of Rs540 (was Rs520). At our target price, the stock will trade at 27x P/E multiple March'23E. Key downside risk is prolonged slowdown in rural demand.

Shares of EMAMI LTD. was last trading in BSE at Rs.482.55 as compared to the previous close of Rs. 484.95. The total number of shares traded during the day was 64163 in over 1755 trades.

The stock hit an intraday high of Rs. 490 and intraday low of 466.2. The net turnover during the day was Rs. 30933852.

Source: Equity Bulls

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