Emami - Navratna, Boroplus Continue to Rule - ENAM Direct

Revenue grew 18% YoY to Rs 3.6 bn and adj. PAT grew 17% YoY to Rs 592 mn (both in line). EBITDA margin contracted 60 bps to 17.8% (vs. our estimate of 19%) on higher A&P spends and staff costs (senior recruitments in R&D and international business).

Domestic business (83% of revenue excluding CSD*) grew 22% led by 53% YoY growth in Boroplus antiseptic cream, 28% YoY growth in OTC portfolio and 26% YoY growth in Fair & Handsome.

Navratna oil extended its leadership in cooling hair oil category with ~400 bps gain in market share to 57.7% in 6 months. We forecast 16% revenue growth for FY13.

Signs of stability in International and CSD businesses (17% of revenue): International business (13% of revenue) and CSD (4% of revenue) stabilized with 3% growth in international business led by change in packaging (vs. 30% decline in Q1) and flat CSD sales (vs. 10% decline in CSD in Q1).

Expect sharp gross margin surge in Q4 on lower menthe oil prices: Emami has taken 6-7% YoY price increase, which coupled with lower menthe oil prices (~20% of RMC; high base in Q4FY12) is expected to drive gross margin expansion in H2. We expect 100 bps improvement in gross margin to 57.9% in FY13.

Maintain HOLD with revised TP of Rs 568 (23x FY14E): Consistent growth in key brands (Navratna, Boroplus etc) along with market share gains and upside potential from lower mentha oil prices has led us to raise our target multiple to 23x from 21x. Expect 17% earnings CAGR over FY12-14E driven by 80 bps expansion in EBITDA margin. Emami has delivered 30% return over last six months and trades at 28x FY13E EPS of Rs 20.8 and 23x FY14E EPS of Rs 24.6 (close to its 5-year upper quartile PE of 23x).

Source : Equity Bulls

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