Emami Ltd. share price target

Emami's outlook remain muted given 1) tepid consumer demand 2) structural issues in Male grooming and Pancharishta 3) untimely inventory push for non-winter products. A lot depends upon the timely onset of summer and trade inventory buildup for Navratna in 4Q. We remain cautious on Emami on 1) low growth in key categories like premium hair oil, male skin creams and Pancharishtha 2) slowdown in rural demand given high dependence (54-55%) and 3) limited success in categories beyond traditional strongholds. Benign input costs are likely to support...

Background: Emami is a FMCG company with niche focus on relatively under penetrated segments such as antiseptic cream, fairness cream, talcum powder, cooling oil, pain balm and pain reliever. Emami's power brands such as Navratna Oil, Boroplus Cream, Zandu & MenthoPlus Balm, Fair & Handsome, Boroplus Powder, Navratna Cool Talc, Fast Relief, SonaChandi & Zandu accounts for 75% of company's sales. Emami sales have grown at a CAGR of 8.1% (FY14-19). Geographical breakup of sales:...

Emami's underperformance over the last 3 years has not been caused by competitive intensity rather its own challenges like (1) High wholesale dependence, (2) Core brands' dependence on seasonality, (3) Limited portfolio for premiumisation and (4) Pledge related disturbance. The company has made some progress in the last 2 years in diversifying its distribution from wholesale (~38% mix now vs. 52% earlier) to modern trade (9% mix now vs. 4% earlier) and direct reach (0.95mn stores vs. 0.63mn earlier). Benefits are coming at a gradual pace. Recovery in macros (rural) coupled with a favorable season can lead to a rebound in Emami's performance. We remain believers, given favorable risk-reward and high probability for a consumer business to rebound. Emamis 2Q was in-line with no negative surprises. Domestic business performance continues to be muted and own initiatives are still a WIP. Strong winter, recovery in macros and asset sales (drive lower pledged shares) are the key triggers for re-rating in the stock. Benign RM and favorable base will support 2HFY20 profit growth. We cut EPS estimates by 2% and value Emami at 30x on Sep-21E EPS, arriving at a TP of Rs 463. Maintain BUY.

Emami's consolidated revenue grew by ~5% y-o-y in Q2FY2020, as international business grew by a strong ~20% (organic growth was 7%). Domestic business grew by just 3.4% with volumes remaining flat. Healthcare and male grooming range continued to underperform and Kesh King saw a dip in revenue due to weak demand. The Boroplus range and 7 oils in one saw strong double-digit growth in revenue led by company initiatives undertaken in the past 3-4 quarters. Sequential improvement in rural sales and higher winter sales might result in lowdouble-digit revenue growth in H2FY2020 (management expects it...

Given limited upside, we assign HOLD rating to the stock with a target price of Rs. 312 based on 28x FY21E adj. EPS. Domestic growth sluggish while Crme 21 grew double digits Revenue contribution was mainly from Domestic (83%), while International contributed 14% and others made up the rest (3%). Domestic sales grew moderately by 2.0% YoY due to liquidity crisis and slow momentum in the Indian market whereas International business grew by 34.0% YoY primarily driven by Crme 21 (10% YoY excluding crme 21). By geography, SAARC (Bangaladesh, Nepal, Srilanka) and MENAP...

Background: Emami is a FMCG company with niche focus on relatively under penetrated segments such as antiseptic cream, fairness cream, talcum powder, cooling oil, pain balm and pain reliever. Emami's power brands such as Navratna Oil, Boroplus Cream, Zandu & MenthoPlus Balm, Fair & Handsome, Boroplus Powder, Navratna Cool Talc, Fast Relief, SonaChandi & Zandu accounts for 75% of company's sales. Emami sales and cash PAT have grown at a CAGR of 11.4% and 11.3% respectively (FY1217). Geographical breakup of sales: North (29%), West (27%), South (23%) and East (21%). Export contributes ~10.4% of total revenue. Company has 3,000+ distributors,...

Emami's underperformance over the last 3 years has not been caused by competitive intensity rather its own challenges like (1) High wholesale dependence, (2) Core brands' dependence on seasonality, (3) Limited portfolio for premiumisation and (4) Pledge related disturbance. The company has made some progress in the last 2 years in diversifying its distribution from wholesale (~35% mix now vs. 52% earlier) to modern trade (9% mix now vs. 4% earlier) and direct reach (0.95mn stores vs. 0.63mn earlier). Benefits are coming at a gradual pace. Recovery in macros (rural) coupled with a favorable season can lead to a rebound in Emami's performance. We remain believers, given favorable risk-reward and high probability for a consumer business to rebound. Emamis 1Q performance was mixed with in-line revenues but beat on EBITDA margins. Co is yet to find a way to revive its domestic business. Core categories are struggling for growth and market share gains are becoming meaningless to track. Growth is coming in bits & pieces and has failed to revive overall domestic performance. Cost control (10% cut in A&P;) expanded the EBITDA margin in 1Q. We are hopeful for acceleration in domestic revenues in 2HFY20 (driven by improving macros and favorable base) but cut EPS by ~4% for FY19-21E. We also cut our target P/E to 30x (32x earlier) on Jun-21 EPS to factor weak management execution. Our TP is Rs 464 (Rs 500 earlier). Maintain faith, reiterate BUY.

Emami's consolidated revenue grew by ~6% in Q1FY2020, as international business grew by a strong ~34% (organic growth was 10%), while the domestic business grew by just 2%. Healthcare and male grooming categories continued to underperform and Boroplus saw a non-seasonal dip in revenue. Kesh King and 7-in-one oils saw strong double-digit growth in revenue led by company initiatives undertaken in the past 3-4 quarters. Recovery in monsoon might help Emami recover its performance in H2FY2020. Promoter pledged shares amounting to...

3) improved performance in 7 oils in one hair oil. Growth in International business was mainly led by acquisition of Crme 21. We believe margins to expand from the current level as Mentha prices have corrected by 22.3% since...

We cut Emami's EPS estimate by 8.8% and 11% for FY20 and FY21 due to 1) Change in Estimates | Target | Reco muted demand environment in rural India (~50% of sales) 2) adverse impact of seasonality 3) structural growth issues in F&H; and Boroplus and 4) margin...