INSUBCONTINENT EXCLUSIVE:
HDFC Securities has a buy call on Emami with a target price of Rs 634.
The current market price of Emami is Rs 571.95.
Time period given by
the analyst is one year when Emami price can reach the defined target.
View of HDFC Securities on the company:Emami reported an in-line
quarter marked with partial recovery, supported by an extremely favourable base (-18 per cent in 1QFY18).
Consolidated revenue grew by 19
17 per cent) driven by 16 per cent volume growth (in-line)
EBITDA/APAT grew by 54/42 per cent (exp
Domestic business grew by 21 per cent driven by growth in Navratna/Pain Mgt./Male Grooming/Healthcare/Kesh King of 19/39/8/28/10 per cent
Emami gained market share in Navratna (160bps) and Fair Handsome (270bps) and maintained leadership in its overall portfolio
Kesh King recovery was slower than anticipated despite a soft base (-28 per cent in 1QFY18)
Management guides for gradual recovery in Kesh King, supported by product re-launch during 1QFY19, normalized wholesale channel (nearly 70
per cent dependence) and lower competitive intensity
Majority of Emami’s peers have reported mid-high single digit 2 year volume CAGR (normalizing base effect) during 1QFY19, while Emami
reported flattish volume growth
We are yet to see a recovery for Emami’s niche and discretionary portfolio
We continue to remain positive (despite a higher base in next few quarters) as (1) Trade channels (wholesale and CSD) are recovering and
growing, (2) Rural is gaining steam (50 per cent revenue mix) and (3) Emami is back on track for product launches (healthcare range and
men’s grooming, relaunches of Kesh King and Fair Handsome)
Management expects to maintain margins during the year (Mentha and crude inflation) with a 4 per cent price hike coupled with cost savings
Our structural thesis on Emami is (1) Leadership in nearly 70 per cent domestic portfolio and gaining market share gain, (2) Focus on low
penetration and high-margin categories, (3) Consistent new launches, and (4) Distribution expansion (direct reach is now 0.85mn vs
We value Emami based on P/E of 36x on Jun-20 EPS to arrive at a TP of Rs 634 (earlier Rs 627)
