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Buy Emami, target Rs 634: HDFC Securities

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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 per cent (exp.

17 per cent) driven by 16 per cent volume growth (in-line).

EBITDA/APAT grew by 54/42 per cent (exp.

54/45 per cent).

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.

0.73mn in FY17).

We value Emami based on P/E of 36x on Jun-20 EPS to arrive at a TP of Rs 634 (earlier Rs 627).

We maintain BUY.




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