Maintain REDUCE on Emami - Weak 1QFY21 though recovery is in sight - HDFC Securities

Ms. Varun Lohchab, Head Institutional Research & Mr. Naveen Trivedi, Institutional Research Analyst, HDFC Securities.

Emami posted a weak 1QFY21 as revenue/EBITDA declined by 26/8% YoY (HSIE -19/-9%). The domestic revenue decline of 26% YoY (volume decline of 28%) was due to the Navratna range, Male Grooming and Kesh King declining by 41/70/33% YoY. However, Boroplus, Healthcare, and Pain management clocked a strong growth of 28/23/15% YoY. The company saw sequential improvement in revenue growth (+8% YoY in June and double-digit growth in July), led by healthcare and pain management. The pick-up is driven by (1) healthy growth in rural markets, (2) new launches (5% contribution), and (3) channel filling. At the same time, sharp cost control (A&P down by 54% YoY) led to 487bps YoY expansion in EBITDA margin. Despite strong growth in June/July, we expect core categories to improve gradually. However, we increase our EPS estimate by 5/3/3% for FY21/FY22/FY23 on account of the strong traction in healthcare and pain management along with benign raw material prices. We value Emami at 18x P/E on Jun-22E EPS and derive a target price of Rs 232. Maintain REDUCE.

Weak revenue: Consolidated revenue declined by 26% YoY (+6% in 1QFY20 and -17% in 4QFY20) vs the HSIE estimate of 19% YoY dip. Domestic volume declined by 28% YoY. Domestic/International/CSD declined by 26/18/38% YoY. The Health & Hygiene portfolio (43% mix) saw a 29% YoY growth while other brands (57% mix) saw a 44% YoY decline. Brand extension in Boroplus (soap, sanitizer, and face wash) and Zandu (hand sanitizer and healthcare products) saw excellent traction.

Strong margin expansion: GM expanded by 231bps YoY to 66.5%, driven by benign raw material prices. Employee expenses grew by 1% YoY while ASP/other expenses declined by 54/22% YoY. EBITDAM expanded by 487bps YoY (+58bps in 1QFY20 and -578bps in 4QFY20). EBITDA declined by 8% YoY. Lower tax rate led to APAT growth of 2% YoY.

Call takeaways: (1) E-commerce revenue mix doubled in 1QFY21; (2) decline in secondary sales (15%) was lower than primary; (3) distributor inventory fell to 19 days in July vs. 29 days in March; (4) the company will launch a new home hygiene brand in the near term; (5) promoter pledge was reduced to 55%, and would further go down to 50% in the next few days.

Shares of EMAMI LTD. was last trading in BSE at Rs.334.3 as compared to the previous close of Rs. 307.35. The total number of shares traded during the day was 270986 in over 8114 trades.

The stock hit an intraday high of Rs. 338 and intraday low of 310. The net turnover during the day was Rs. 88183228.

Source : Equity Bulls

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