Maintain REDUCE on Emami - Encouraging recovery in domestic, beat on margin - HDFC Securities

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

Emami delivered a strong set of numbers with revenue/EBITDA growth of 11/33% YoY (HSIE 8/15%). The encouraging industry-wide pick-up for discretionary categories, Emami's market share gain, and sharp demand for healthcare products drove the growth. The Health & Hygiene portfolio clocked 44% YoY growth (similar to Dabur). Kesh King clocked its highest- ever quarterly growth at 45% YoY. Winter portfolio was weak (-39% YoY) but channel filling is expected in 3Q. The international business performed well, led by SAARC and MENAP markets. Gross margin expansion along cost control surprised us on margin. We expect margin expansion to sustain in the ensuing quarters. We increase EPS estimate by 20/17/17% for FY21/FY22/FY23 owing to (1) quicker recovery in discretionary categories, (2) sustained demand for health products in the medium term, (3) suitable new launches for MT/ecomm, (4) strong demand for winter products and (5) gross margin expansion with cost control. We roll forward our target price to Sep-22E EPS and value Emami at 20x (18x earlier) P/E to derive a target price of Rs 306. Maintain REDUCE.

Healthcare drives growth: Revenue grew by 11% YoY (+5% in 2QFY20 and - 26% in 1QFY21). Healthcare/Pain management/Navratna/7Oils saw 53/31/14/9% YoY growth. Boroplus/Male Grooming declined by 25/24% YoY. However, Boroplus witnessed a strong recovery over the past few weeks. Domestic/International growth stood at 13/11% YoY (SAARC- 22%, MENAP- 12%). New launches revenue salience was 4%.

12 quarter high EBITDA margin: GM expanded by 55bps YoY (+111bps in 2QFY20 and +231bps in 1QFY21). Employee/ASP expenses grew by 4/3% YoY while other expenses declined by 16% YoY. EBITDA margin expanded by 575bps YoY to 35% (-57bps in 2QFY20 and +487bps in 1QFY21) vs the expectation of 208bps YoY expansion. EBITDA grew by 33% YoY (HSIE +15%). PBT grew by 25% YoY while PAT grew by 23% YoY.

Call takeaways: (1) Urban growth was 8% YoY while rural was 20% YoY; (2) secondary growth was similar to primary during the quarter; (3) Emami launched its own e-comm portal and a brand store for Zandu; (4) dividend payout ratio will sustain at 40-50%; (5) promoter pledge was reduced to 40%, and management is focused on taking it to zero.

Shares of EMAMI LTD. was last trading in BSE at Rs.370.65 as compared to the previous close of Rs. 374.75. The total number of shares traded during the day was 13750 in over 893 trades.

The stock hit an intraday high of Rs. 378 and intraday low of 362.65. The net turnover during the day was Rs. 5086317.

Source : Equity Bulls

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