Emami Ltd. share price target

Sector: FMCG /Mid-Cap | Earnings Update 4QFY19 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 has not been caused by competitive intensity rather its own challenges like high dependence on wholesale distribution and volatility in seasons (summer and winter). The company has made healthy progress in the last 2 years in diversifying its distribution from wholesale (38% mix now vs. 52% earlier) to modern trade (8% mix now vs. 4% earlier) and direct reach (0.94mn stores vs. 0.63mn earlier). 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 4Q performance was weaker than expected. FY19 is the second consecutive year of muted EBITDA growth led by erratic seasons, disruption in trade and weak demand for its niche categories. Most negatives are priced-in and we expect performance to improve in FY20 led by (a) Healthy growth for summer portfolio, (b) Softening of RM costs and (c) Benefits from distribution expansion. We value the co. at 32x on Mar-21 EPS, arriving at a TP of Rs 506. Maintain BUY

We maintain our BUY rating and expect a re-rating in the stock. Emamis stock was under pressure due to consistent weak operating performance and rising promoter share pledge. Although recovery in operating performance is delayed, the pressure on the stock w.r.t. share pledging is now behind after promoter divested 10% stake for Rs 16bn @Rs 355/share. With this, the promoter share pledge will decline from 48% as of now.

We value Emami at 32x on Dec-20 EPS, with TP of Rs 543 (earlier Rs 561). Maintain BUY. Emamis 3Q performance was weaker than expected owing to underperformance in winter portfolio (45% revenue mix) and gross margin pressure. Net revenues grew by 7% (exp. 11%) with 3.5% volume growth (exp. 8%). EBITDA/APAT grew by 1/-2% (exp 8/8%).

We cut our EPS estimate of FY19-21 by 4.7-5.7% on the back of only 3.5% volume growth in the biggest quarter due to delayed winters (45% of sales from winter portfolio). Emami has witnessed some uptick in January sales, however, we believe that any extension of winter is likely to hamper the summer portfolio sales which usually goes in trade from mid-Feb. Emami has given cautiously optimistic outlook for coming quarters led by 1) uptick in rural economy in the run up to elections 2) recovery in wholesale channel 3) good traction in Kesh King post its re-launch in 2Q 4) Strong market share...

31 January 2019 business grew 7% (3.5% volume growth) while International business grew 18% YoY. EBITDA was flattish at INR2.67b (our est. for exceptional item relating to VRS compensation of INR98m) was down 0.8% YoY to INR2.1b (our est. Sales, EBITDA and PAT before amortization growth stood at 7.

Incorporated in 1974, Emami Limited is one of the leading and fastest growing personal and healthcare companies in India, with an enviable portfolio of over 300 household products.

Emami Ltd Q2FY19 results Comment Revenue increased by 2.22% to Rs. 628.02 Cr in Q2FY19 when compared to the previous quarter. Also, it grew by 0.01% when compared with Q2FY18.