Maintain REDUCE on Emami - Growth momentum sustains; miss in margins - HDFC Securities

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

Emami 4QFY21 result was a mixed bag with marginal beat in revenue and miss in EBITDA margin. Revenue posted 37% YoY growth (HSIE 34.5%), clocking a two-year revenue CAGR of 7%. It was a broad-based recovery with most brands and channels seeing healthy trends. Domestic business grew by 44% (FY21 10%) with volume growth of 39% (6% 2-year CAGR). Healthcare and Pain management brands remained the outperformers and registered 67% (45% in FY21) and 38% (23% in FY21) growth in 4Q respectively. The exit rate for these brands is also showing a promising outlook for FY22. Boroplus and Kesh King recovered well, delivering 15% growth in FY21; we expect growth moderation in FY22. The Navratana range declined by 8% due to the company missing out on seasonal demand, and a similar impact is expected in FY22. Male grooming remained a drag and posted 26% decline in FY21 (29% decline in FY20). Gross margin dipped by 250bps YoY, resulting in slower-than- expected EBITDA margin expansion of 378bps to 22.3% (HSIE 24.7%). However, FY21 saw massive >450bps YoY expansion in EBITDA margin to 30.7%. Growth recovery in FY21 was inspiring and we factor in 9% revenue CAGR for FY21-24 with sustaining EBITDA margin at 30%. We increase EPS estimate by 2/3% for FY22/FY23. We value Emami at 25x P/E on Jun-23E EPS to derive a TP of INR 450. Maintain REDUCE.

Broad-based recovery, healthcare sustains momentum: Revenue grew by 37% YoY (-17% in 4QFY20 and +15% in 3QFY21) vs HSIE 34.5%. Domestic/International saw 44/28% YoY growth while CSD declined by 3% YoY. Growth recovery in FY21 was inspiring, driven by (1) spur in demand for healthcare products; (2) recovery in discretionary products; (3) management's higher focus on recovery; and (4) favorable base (domestic business down by 4% in FY20). International business also recovered and posted 12% revenue growth (also supported by the Crème 21 acquisition). Emami continued to drive innovation with 40+ SKUs launched in FY21; new launches' salience stands at 4% of domestic revenue.

Miss in 4Q margin, FY21 expansion was strong: GM dipped by 250bps YoY (+432bps in 4QFY20 and +214ps in 3QFY21). Employee/Advertising/Other expenses grew by 5/36/9% YoY. EBITDA margin expanded by 378bps YoY (-578bps in 4QFY20 and +395bps in 3QFY21). EBITDA grew by 65% YoY (HSIE 80%). We expect margin to be under pressure in FY22 due to the sharp margin expansion in FY21 and restoration of several operating costs. We model in EBITDA margin close to 30% for FY22-24 (27/26% in FY19/20).

Call and BS/CF takeaways: (1) Summer products could be impacted by lockdown (impact unlike last year); (2) company is well prepared now to handle lockdown; (3) immunity booster and sanitizers not seeing spur in demand like last year; (4) healthcare can sustain strong double-digit growth in FY22; (5) balm is seeing higher demand now vs. last year; (6) gross margin to recover considering price hike; (7) FCF at INR 9bn vs. INR 4bn in FY20.

Shares of EMAMI LTD. was last trading in BSE at Rs.499.75 as compared to the previous close of Rs. 511.5. The total number of shares traded during the day was 30912 in over 1853 trades.

The stock hit an intraday high of Rs. 520.3 and intraday low of 498.3. The net turnover during the day was Rs. 15696221.

Source : Equity Bulls

Keywords