Emami - Outperformance driven by good execution - ICICI Securities

The Emami story continues to play inline with the thesis - see "Value trap or trapped value?" - Part I, Part II. Q2 volumes grew 10% with strong performance across the brands (+28% overall growth (ex-winter portfolio) despite issues in one the factories for ~20 days). Highlights - (1) strong performance in healthcare portfolio (+53% YoY) supported by new launches and demand tailwinds, (2) Kesh King grew 45% (likely share gains), and (3) secondary sales were similar to primary sales. We like it's plans of (1) higher ad-spends to support new launches, (2) increasing investments in modern trade and e-commerce channel and (3) entering larger categories like Home Care (expected to launch post Diwali). ADD.

- Broad-based performance: Consolidated revenue / EBITDA / recurring PAT grew 11% / 33% / 31%. Domestic revenue and volume grew 13% (+28% ex-winter portfolio) and 10% while international business revenue grew 11%. This strong performance in India was driven by 44% YoY growth in health & hygiene portfolio (~47% salience). However, delay in trade loading of winter portfolio (12% contribution) resulted in a 39% decline. Rest of the portfolio (Kesh King, 7 Oils in One, Fair and Handsome) grew by 14%. Rural grew 20% well ahead of 8% growth in urban. Further, Modern Trade also grew despite facing headwinds driven by exclusive SKUs launched for the channel, ramp up with a large retailer etc.

- Margin expansion driven by benign input prices, cost savings: Gross margin expanded 60bps YoY to 70.3% driven by benign input costs and favorable mix. EBITDA margin also expanded 570bps YoY to 35% driven by lower ad-spends (-120bps), staff costs (-80bps) and other opex (-330bps). Management expects margin expansion to continue driven by benign input prices and cost saving initiatives.

- Other highlights: (1) Launched 20 and 13 new products in domestic and international markets during 1HFY21, NPD now contributes ~4%, (2) Chyawanprash grew ~3x, (3) highest ever quarterly sales for Kesh King and Pain Management range, (4) Channel inventory declined to ~15 days from 20-25 days earlier, (5) Net cash of Rs2.5bn and (6) Promoter pledged declined to 47% from 90%.

- Valuation and risks: We increase our FY22 earnings estimates by 12%; modelling revenue / EBITDA / PAT CAGR of 7 / 11 / 18 (%) over FY20-22E. Maintain ADD with a DCF-based revised target price of Rs420 (was Rs400). At our target price, the stock will trade at 24x P/E multiple Sept-22E. Key downside risk is prolonged slowdown in rural demand.

Shares of EMAMI LTD. was last trading in BSE at Rs.379.75 as compared to the previous close of Rs. 378.5. The total number of shares traded during the day was 2163 in over 106 trades.

The stock hit an intraday high of Rs. 385 and intraday low of 379.05. The net turnover during the day was Rs. 827398.

Source : Equity Bulls

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