Emami Ltd. share price target

Emami Limited's (Emami's) Q4FY2020 performance was below our as well as street expectation with revenue and PAT declining by ~17% and ~25%, respectively, during the quarter. Lockdown at the end of the quarter affected pre-season sales of the summer portfolio, resulting in a sharp decline of 19% in domestic revenue (international business decreased by just 4%). Post acquiring required approvals, the company started manufacturing essential products from April 10, 2020, and gradually scaled up its operations to 100% in some of its plants. Trade and supply chain have normalised in few...

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 38.5% (FY2010-20)....

HMN recorded sales decline in most of the categories in YoY), Healthcare (-9% YoY), Male Grooming (-42% YoY), and BoroPlus (- 77%). Sales / EBITDA / Adj. PAT has witnessed a ~5% CAGR or lower for five years now, which is particularly disappointing given HMNs smaller size v/s highest domestic sales proportion among peers at around 50%), b) the announcement on the call that the group cement business sale would be concluded within the next fortnight, thereby sharply removing the pledge, and c) inexpensive valuations of 16x FY22 EPS. The company maintained leadership with volume market share at 66.4% as of MAT Dec19 The Male Grooming range declined 42% in 4QFY20 and 29% in FY20. Sales / EBITDA / Adj. PAT reported a ~5% CAGR or lower for five years now, which is particularly disappointing given HMNs smaller size v/s.

Emami's Q4FY20 results were below our estimate. Domestic business declined 19%, while IB posted 4% revenue de-growth. Weak rural demand coupled with liquidity concerns prior to lockdown; and supply...

28 February 2020 Demand is yet to pick up after weakening in the December quarter for both the company and the sector. Sales growth in many of HMNs key categories has been impacted in recent years due to rural slowdown (52% rural dependency), liquidity crunch (~40% wholesale contribution) and category growth issue (majorly problem-solving portfolio and not everyday use products with the former getting affected more in a weak demand situation). Demand environment remains bleak, similar to the December quarter when things had worsened sequentially and YoY for both Management appeared hopeful in the third-quarter post results call that up-stocking will happen in products like Navratna oil ahead of the summer season (usually begins in mid- Feb). However, even toward end-February, sales have not picked up owing to extended winter in several parts of the country. The problem solving nature of HMNs products and not everyday use has also affected offtake in a weak demand environment.

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 (9-10% mix now vs. 4% earlier) and direct reach (0.95mn stores vs. 0.63mn earlier). Besides, stake sale in Emami cement, will reduce the promoter pledge in Emami to ~25% vs. 72%. It will ease the pressure on promoters and will result in renewed strategy to revive domestic business. We remain bullish on Emami, given favorable risk-reward and potential rebound in domestic business. Emamis 3Q was muted across the board, with flashes of outperformance. Domestic business was impacted by delayed winter and persistent weakness in male grooming. However, 60% of domestic business (ex-winter portfolio and male grooming) posted 13/10% val/vol growth. Emami Group also sealed the sale of its stake in the Cement biz in Feb-20, which will significantly reduce promoter pledge. As a result, increased focus by the promoters on the domestic biz can fill the required gaps in domestic business in FY21. We value Emami at 30x on Dec-21E EPS, arriving at a TP of Rs 445. Maintain BUY.

Domestic volumes and revenue declined 2% YoY, while the international HMN recorded higher sales in Kesh King (+ 18% YoY), Navratna (+11% YoY), 7 Oils in One (+66% YoY), Pain Management (+13% YoY) and Healthcare (+4% YoY), but a decline in Male Grooming (-39% YoY) Rural segment is still under stress. However, the sharp reduction of pledge earlier this week after the sale of the group cement business and inexpensive valuations of 21.2x/18.6x FY21/22E EPS lead us to maintain Buy with a TP of INR355 (18% upside). BoroPlus Ayurvedic Antiseptic cream volume market share expanded by 120bp Pain management range grew by 13% in 3QFY20 and 5% in 9MFY20. Kesh King sales range grew by 18% in 3QFY20 and by 12% in 9MFY20. However, the sharp reduction of pledge earlier this week after the sale of the group cement business and inexpensive valuations of 21.2x/18.6x FY21/22E EPS.

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.