Maintain REDUCE on Emami - Healthcare momentum sustains; beat in margins - HDFC Securities

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

Emami delivered a strong set of numbers with revenue/EBITDA growth of 15/29% YoY (HSIE 12/23%). The growth was driven by a broad-based pick-up in discretionary demand and strong performance of the winter portfolio. Healthcare and Boroplus led the revenue growth and the winter portfolio benefited from channel filling, following the weak performance in 2QFY21 (- 39% YoY). Kesh King sustained its momentum with 16% YoY growth (base +18%). Strong performance in MT and e-comm also supported growth. International business performed well, led by SAARC and MENAP markets. EBITDA margin expansion was robust (400bps YoY) despite high RM inflation, as the company was able to execute its cost control initiatives. We expect Emami to sustain its growth, led by continued recovery in discretionary demand. While restoration of normal operations and RM inflation will bear down on margins, we expect EBITDA margin to remain healthy (but expansion may be muted in FY22). We increase EPS FY22/FY23 by ~4%. We value Emami at 25x P/E on Mar-23E EPS to derive a TP of Rs 425. Maintain REDUCE.

Healthcare momentum sustains: Revenue grew by 15% YoY (flat in 3QFY20 and +11% in 2QFY21) vs an expectation of 12% YoY growth. Domestic/International saw 16/26% YoY growth while CSD declined by 27% YoY. Domestic business saw 13% YoY volume growth. Healthcare/ Boroplus/F&H/Pain Mgt/7 Oils grew by 38/21/5/12/32% YoY while Navratna declined by 12% YoY. Rural growth remained strong while urban markets saw an improvement. Growth was visible across channels as MT grew 51% YoY and e-comm grew 3.5x YoY. In 3QFY21, the company entered the home hygiene category with 'Emasol', which received an encouraging response. Emami continued to drive innovation with 60+ SKUs launched during the quarter, and new launches salience stood at 4% of domestic revenue.

11-year high EBITDA margin: GM expanded by 214bps YoY (+124bps on 3QFY20 and +55bps on 2QFY21). Employee/Advertising/Other expenses grew by 2/12/10% YoY. EBITDA margin expanded by 395bps YoY (flat in 3QFY20 and +575bps in 2QFY21). EBITDA grew by 29% YoY (HSIE 23%). We expect the possibility of margin pressure in FY22, led by a sharp margin expansion in FY21 and many costs will be restored in FY22. However, EBITDA margin is expected to sustain around 30%. PBT grew by 36% YoY.

Call takeaways: (1) Penetration improved across brands by 2-4%; (2) Chyawanprash grew by 24% YoY while Honey grew >2x YoY; (3) E- comm/MT revenue contribution rose to 3.1/9%; (4) Emami does not intend to enter any new category where gross margin is <50%; (5) promoter pledge stands at 36%, out of which 8% is with Novoco.

Shares of EMAMI LTD. was last trading in BSE at Rs.474.9 as compared to the previous close of Rs. 482.55. The total number of shares traded during the day was 75662 in over 1899 trades.

The stock hit an intraday high of Rs. 497.1 and intraday low of 467. The net turnover during the day was Rs. 36280112.

Source : Equity Bulls

Keywords