IGI Logo

Emami’s Q1FY24 print was mixed to our estimates; consolidated revenue/EBITDA/APAT grew 6.8%/ 9.6%/23.4% YoY. Domestic value/volume grew at 7.0%/3.0%, yet international business saw 8.0% growth (~11% CC). Management alluded slower growth to, (1) despite early summer, unseasonal rains in May cut sales of summer products - declined 5%, (2) domestic non-summer portfolio grew 16%, (3) softer demand in rural impacted value-add hair oils, and (4) robust growth in MT/e-com channel at 45%/47% (19.4% sales). Gross margin at 65.4% (+240bp) aided by lower RM/PM. With higher ad-spends (+11.4%), employee exp. (+14.2%) and other expenses (+9.0%), EBIDTA at Rs1.9bn grew 9.6% settling EBIDTA margins at 23.0% (+60bp). Focus on distribution strategy (Project Khoj) focused on expanding village/chemist coverage to 55k/140k could lift sales in FY24 in our view. HMN aspires to deliver +28.0% EBITDA margin in FY24E. Management expects AMRI Hospital deal to go-through within a month’s time which would cut pledge on book to~18%. We retain earnings and maintain BUY with a DCF-based TP Rs590 (implying 27.7x FY25E EPS).

Unseasonal rains spoiled sales for summer portfolio; non summer portfolio grew ~16% Emami’s Q1FY24 revenue grew at Rs8.3bn (+6.8%) driven by domestic business value/volume growing at 7.0%/3.0%, yet international business grew healthy by 8.0% (11.0% CC) despite currency depreciations in Bangladesh/Egypt and disrupted macro conditions in Ukraine and Russia. Summer portfolio declined 5% due to unseasonal rains, whilst non-summer portfolio grew 16%. With 19.4% revenue contribution MT/e-com channels grew 45%/47%. Category results: Boroplus range (+19%), Pain management (+13%), Health-care range (+11%), Dermicool (+9%), Kesh-King/7 Oils in One (+2% each), Male grooming (flat), while Navratna range declined by 8%. Given macro recovery HMN saw some pick up in rural demand in Jun’23 and expect good offtake for discretionary portfolio (Fair & Handsome and Hair oils). Though with normalised base for healthcare/pain management segments, HMN’s focus on medico marketing and expanding doctor coverage could yield better results in Q2. NPD made up 3.5% of sales, while Helios Lifestyle (The man Co.) and Dermicool contributed ~10% to Q1 revenues.

Correction in input prices saw uptick in margins; HMN expects +27.0% EBITDA margin

In Q1, despite adverse impact of product mix (summer portfolio), correction in input prices resulted in gross margin at 65.4% (+240bp). Even though ad-spends grew by 11.4%, higher employee expenses (+14.2%) and other expenses (+9.0%) HMN saw 9.6% growth in EBIDTA at Rs1.9bn; EBIDTA margins settled at 23.0% (+60bp). Management said investments in core brands and higher NPD contribution would help revenues in medium term. HMN aspires to invest in ad-spends ~18.0% of net sales reflecting +27% EBITDA margins in FY24.

Valuation comfort, enhanced sequential performance warrant re-rating

We expect Emami’s performance to be driven by: (1) high A & P investments, (2) focus on distribution excellence through Project Khoj, driving direct coverage – now 1mn, and (3) new product interventions (D2C portfolio and healthcare). Management remains confident to deliver +15% revenue growth in international business led by recovery in SAARC markets, however expect gradual recovery in rural markets led by better MSP and govt. impetus on rural programs. Further with strong visibility on AMRI hospital divestment we expect pledge on the books to reduce by half (positive). Based on improved rural commentary, we remain positive on Emami’s growth story however raise concern high seasonality impact on the business. We retain our earnings and maintain Buy with a DCF-based TP Rs590 (implying 27.7x FY25E EPS). Key risks include prolonged rural slowdown and heightened competition.

To Read Complete Report & Disclaimer Click Here

For More Centrum Broking Disclaimer https://www.centrumbroking.com/disclaimer/

SEBI Registration No.:- INZ000205331

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