Maintain REDUCE on Emami - Sustaining expectation; margin base to impact FY22 - HDFC Securities

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

Emami's Q1FY22 result was largely in line with revenue/EBITDA, registering 37/38% YoY growth (HSIE 37/35%). The two-year CAGR was at 1%. Domestic revenue/volume growth was at 42/38% YoY, clocking a two-year CAGR of 2.5/2% vs. Britannia 12/13%, Nestle 8/6%, Marico 7/2%, Colgate 4/0%, HUL 2/0%. Healthcare, pain management and Boroplus remained the growth drivers and posted 95/95/32% growth on Q1FY20. The Navratna range and male grooming portfolio remained weak, down by 29% and 47% on Q1FY20. Recovery in June/July is strong across brands/states. The company continued to focus on increase of footprint in rural areas, product innovation, and higher spend on digital marketing. With a heavy base of EBITDA margin, we built slow EBITDA growth for the remaining FY22 and expect low probability of surprises. We maintain our EPS estimates for FY22/23/24. We value Emami at 25x P/E on Jun-23E EPS to derive a TP of INR 475. Maintain REDUCE.

In-line revenue, growth drivers remains the same: Net revenue grew by 37% YoY (-26% in 1QFY21, +37% in 4QFY21) vs. HSIE 37%. Domestic/international/CSD saw 42/17/34% YoY growth. After a disappointing performance during FY17-FY20, Emami could recover in FY21, led by spur in demand for healthcare, pain management, Boroplus and Kesh King. Growth drivers remained the same in Q1 also as the company missed out seasonal demand for Navratna. As compared to Q1FY20, the healthcare range, pain management, Boroplus and 7 Oils in One clocked 95/95/32/17% growth in Q1FY22. Navratna and male grooming range contracted by 29/47% on Q1FY20. The international business also recovered and posted 17% YoY revenue growth while it was down by 9% on Q1FY20.

Marginal beat in margin; margin base to impact remaining FY22: GM dipped by 47bps YoY (+231bps in 1QFY21, -249ps in 4QFY21) to 66%. Employee/advertising/other expenses grew by 8/84/22% YoY. EBITDA margin expanded by 13bps YoY (+487bps in 1QFY21, +378bps in 4QFY21). EBITDA grew by 38% YoY (HSIE 35%). We expect margin to be under pressure in the remaining FY22 due to the sharp margin expansion in FY21 and restoration of several operating costs. We model EBITDA margin close to 30% for FY22-24 (27/26% in FY19/20).

Con call takeaways: (1) June/July recovery is stronger than expected. (2) Kesh King has sustained a healthy pick-up. (3) Recovery is healthy across brands/markets. (4) The Zandu portal is seeing encouraging response, with close to 10mn consumers visiting and buying (with many repeat consumers). (5) Rural impact is more in the second wave, but the company expects to recover from it. (6) The Kesh King amortisation period has been reduced to 7 years vs. 10 earlier.

Shares of Emami Ltd was last trading in BSE at Rs. 562.25 as compared to the previous close of Rs. 563.2. The total number of shares traded during the day was 16865 in over 1116 trades.

The stock hit an intraday high of Rs. 568 and intraday low of 557.35. The net turnover during the day was Rs. 9475509.

Source : Equity Bulls

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