IGI Logo

Steady business momentum led by improved execution

Healthcare and Pain Management continued to aid a decent top-line performance (slightly above estimate). There was pressure in Navratna and Male Grooming, dragging the overall revenue growth to just 1% (on a 2-year CAGR basis). Besides the pandemic-led tailwind, healthcare and pain management did benefit from (1) distribution expansion (balms in north and rural markets) (2) new product launches in the healthcare segment (good momentum in existing products as well) International business faced some disruption due to operating restrictions. GM outlook seems to be stable, for now with price increases taken to mitigate the RM pressure and.

We believe Emami has become much nimbler and has seen a marked improvement in execution over the last few quarters. While some parts of the portfolio did struggle due to Covid-led challenges, several initiatives are being taken simultaneously to drive growth. We especially like the plans (1) to ramp-up healthcare business particularly through thrust on Zandu portal, (2) focus on distribution expansion including rural markets and chemist outlets and (3) thrust on new launches and e-commerce channel (including D2C offerings) to drive premiumisation. Maintain ADD.

* Strong performance across portfolio: Consolidated revenue / EBITDA / recurring PAT grew 37% / 38% / 51% with domestic volume growth of 38%. On a 2-year CAGR basis, revenue was up 1%. International business was slightly weak, up 17% (2-year CAGR was down 4.6%). The strong performance in domestic business was led by (all 2-year CAGRs) Healthcare (39.6%) and Pain Management (+39.6%) followed by BoroPlus (ex-sanitizer) (14.9%), Kesh King (1.0%) and 7 Oils in One (8.2%). Navratna (disrupted again in the summer months) and Male Grooming (discretionary category impacted by lower mobility) were down 16% and 27%, respectively on a 2-year CAGR basis. Emami has picked up momentum on new products, which contributed 3% to the domestic revenues.

* Manageable RM pressure: Gross margin contracted only 50bps YoY to 66.0% due to inflationary RM (mentha continues to be stable though). YoY EBITDA margin was still strong on the back of operating leverage benefit (despite ramp-up in ad-spends). On RM pressure, Emami has already taken price increases of 3.5% for some of the portfolio. Emami expects this price increase to mitigate the impact and is not keen to cut ad-spends to support margins.

* Valuation and risks: We increase our FY22-23 estimates by ~1%; modelling revenue / EBITDA / PAT CAGR of 11 / 9 / 11 (%) over FY21-23E. Maintain ADD with a DCF-based revised target price of Rs620. At our target price, the stock will trade at 34x P/E multiple March’23E. Key downside risk is slowdown in rural demand.

To Read Complete Report & Disclaimer Click Here

For More ICICI Securities Disclaimer https://www.icicisecurities.com/AboutUs.aspx?About=7

Above views are of the author and not of the website kindly read disclaimer