Emami - Healthy performance; Buy - Anand Rathi

All brands doing well. Emami reported 13.2% yoy revenue growth. It had hiked prices 5%. All its brands reported healthy growth. Navratna oil reported 9% revenue growth and Cool Talc grew 32%. The early monsoon has slightly impacted revenue growth of summer products. Fair & Handsome reported 16% yoy revenue growth. Zandu Balm revenues grew 8% whereas those of Mentho-plus Balm were flat. Fast Relief reported a strong, 55% yoy, growth. The Zandu Ethical range revenue was up 27% yoy. The international business reported 25% revenue growth whereas revenue from the Canteen Stores Department was up 24% yoy.

EBITDA margin improves. The fall in menthol prices led to the gross margin expanding 370bps yoy. Because of the stronger sales and marketing teams, staff costs went up 110bps yoy. The EBITDA margin widened 232bps yoy. The effective income tax rate increased 737bps yoy. Adjusted net profit was up 24.4% yoy.

CSD, international business to show healthy growth. On the ceasing of the annualized impact of the inventory correction, offtake from the Canteen Stores Department is expected to be healthy for the rest of the year. On ramping up operations in Bangladesh and on commencement of a factory in Egypt, the International business is expected to be healthy in FY14.

Our take. All Emami's power brands (Navratna, Boroplus, Zandu, Fair and Handsome) continue to do well; we expect them to report a 15%+ revenue CAGR over FY13-15. The power-brand extensions are also faring well; we expect them to emerge as strong brands in the next 2-3 years. Emami has booked menthol till 3QFY14 and with the drop in menthol prices we can expect a healthy margin expansion in the next 2-3 quarters because of lower raw-material prices. We retain our Buy rating with a price target of Rs. 490, at a target PE of 26x Sep'14e earnings. Risks. Higher raw-material prices.

Source : Equity Bulls

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