Emami - 'Brand-aid' growth; Buy - Anand Rathi

Key takeaways

Healthy revenue growth in domestic business. Emami reported healthy revenue growth across segments, except exports. Domestic revenues were up 17.4%, whereas CSD revenues were up 67.5% albeit on a low base. Exports were down 12.3% yoy. Volume growth in domestic business was 13%. The company hiked prices by 4% in Mar'13.

Brand-wise revenue growth fairly impressive. Navratna brand reported 26% revenue growth. Cool oil revenues were up 13% and Cool talc revenues were up 100%, yoy. Boroplus antiseptic cream revenues were down 9%, but Prickly heat powder and lotion grew 17% and 39% respectively. Balms grew 18% and Fair & Handsome revenues grew 15%, yoy. Zandu Ethical and OTC range had strong revenue growth of 41%, yoy. Dis-continuation of brands, correction of inventory at distributor level and lower offtake resulted in revenue drop in exports.

Cooling input prices drive margins growth. Carry-over of price hikes of ~4% and fall in prices of menthol, light liquid paraffin and packaging material led to gross margin expansion of 270bps. Despite 170bps higher ad-spend as % of net sales, EBITDA margin was up 153bps yoy. Effective income tax rate was up 72bps, yoy and net profit was up 18.7% yoy.

Our take. We value the stock at Rs. 773 (earlier Rs. 692), at PE of 26x Sep'14e earnings. Strong 23% earnings CAGR over FY13-15 would help drive valuation multiple. The company has indicated aggressive plans to launch new variants in FY14. We believe revival in CSD and international business will pep up demand. Increase in ad-spend will push demand domestically. Fall in raw material prices as well as price hike in Mar'13 will drive profitability margins, despite some increase in ad-spend. The company has announced bonus in 2:1 ratio and has also declared dividend per share of Rs. 8. Risks. Higher raw material prices and rise in competition.

Source : Equity Bulls

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