Maintain REDUCE on Emami - Miss on all fronts - HDFC Securities

Mr. Varun Lohchab, Head Institutional Research & Mr. Naveen Trivedi, Institutional Research Analyst, HDFC Securities.

Emami (Q4FY20 Results Review): Miss on all fronts. Maintain REDUCE
(TP Rs 207, CMP Rs 206, MCap Rs 93bn)

Emami's 4QFY20 performance was disappointing as the co registered a 17% yoy decline in consolidated revenues. Boroplus, Male Grooming and Kesh King saw sharp revenue decline of 77/42/26% yoy. 4Q performance was impacted by weak category growth (even prior to Covid-19) and lockdown. Emami continued to gain market share in most of its portfolio. Co could not react fast enough to cut costs, resulting in EBITDA contraction of 36% yoy with EBITDAM declining by 569bps yoy. Co is now focusing on strategic launches and relaunches in hygiene and healthcare to drive revenue growth. Benign commodity inflation and expected savings of Rs 500-600mn from cost saving initiatives in FY21 could see margins expand for the co. However, Emami's portfolio is discretionary in nature and we expect recovery will take slightly longer than other FMCG cos. Hence, we cut EPS estimate by 6% for FY21E/FY22E. We value Emami at 17x on FY22E EPS and arrive at a TP of Rs 207. Maintain REDUCE.

Revenue pressure across the board: Domestic revenue declined by 19% yoy (+3% in 4QFY19 and -2% in 3QFY20) yoy vs. HSIE est decline of 10% yoy. Kesh King/Boroplus/Navratna/Male Grooming/Healthcare/Pain Mgt saw revenues decline by 26/77/12/42/9/5% yoy while 7 Oils in one clocked a growth of 5% yoy. However, co saw market share gains across most of its portfolio with the exception of Male Grooming. Domestic vol decline was at 19% yoy (flat in 4QFY19 and -2% in 3QFY20) vs est of 8% dip. International biz declined by 4% yoy (+19% in 4QFY19 and +18% in 3QFY20).

Healthy GM expansion, EBITDA dip by 36%: GM expanded by 436bps yoy to 65.2% owing to benign commodity inflation (-438bps in 4QFY19 and +124bps in 3QFY20). Employee/Other expenses grew by 6/16% yoy while ASP remained flat yoy. As a result, EBITDAM declined by 569bps yoy to 18.5% (-389bps in 4QFY19 and flat in 3QFY20) vs est decline of 152bps yoy. EBITDA declined by 36% yoy (exp -15%) to Rs 985mn (est of Rs 1,320mn). Dip in other income (-16% yoy) and higher depreciation (+37% yoy) negated the benefit of lower tax and led to a decline of 34% yoy in APAT to Rs 702mn vs exp. of Rs 994mn.

Call & other takeaways: (1) Co has now returned to normal operational levels, (2) MT and Ecomm saw strong growth and co has targeted doubling the revenue share of Ecomm in FY21, (3) New launches in the hygiene space are expected to drive revenue growth in FY21 and co expects revenue mix of new launches to be ~4%, (4) Receivable days increased to 42 days vs. 29 days in FY19. NWC days increased to 36 days vs. 9 days in FY19, (5) Emami Group is expected to receive money from the stake of sale of cement company over the next 7-10 days.

Shares of EMAMI LTD. was last trading in BSE at Rs.228.2 as compared to the previous close of Rs. 221.05. The total number of shares traded during the day was 106343 in over 3999 trades.

The stock hit an intraday high of Rs. 230.75 and intraday low of 215.15. The net turnover during the day was Rs. 23875251.

Source : Equity Bulls

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