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Re‐rating to continue with improved growth trends

Result Highlights

* Revenue growth – 37% growth in consolidated sales with 44% value and 39% volume growth in domestic business, 28% growth in international business and 3% decline in institutional business with fastest growth in healthcare (67%), Kesh King (45%) and pain management (38%).

* Margins – Gross margins down 250bps to 62.7% due to commodity inflation especially in edible oils but EBITDA margins up 380bps to 22.3% given strong cost controls drove PAT growth of 276% yoy from a low base.

* Innovation/other highlights – 3 new launches in 4Q taking total launches to 40 in FY21 which contributed 3% to 4Q and 4% to FY21 revenue; strong response to Zanducare portal, MT grew 46%, eCom grew 3x.

* Outlook – Confident of maintaining double‐digit growth with stable gross margins around 67% and EBITDA margins above 30% in FY22.

Valuation and view ‐

Emami had a strong end to FY21 on the growth front led by its healthcare and pain management segments although input costs impacted margins. We believe the recovery in growth rates for the company should resume once the pandemic subsides led by continued aggression on new launches and distribution expansion. The core business seems to be picking up well with the company’s initiatives like formulation and packaging changes coupled with differentiated launches. It is well placed to benefit from structural tailwinds in the healthcare/ayurveda space and a higher rural salience in addition to expectations of a gradual pick‐up in discretionary FMCG categories.  

Margins should also sustain around current levels with a 4% price hike this year coupled with continued cost savings initiatives. Reduction of promoter pledge to 30%, improvement in dividend payout ratio, digitization initiatives and professionalization of senior management are further positives.

We expect the re‐rating story for Emami to continue as the promoter issues seem to be behind us, valuation remains undemanding and growth momentum looks like sustaining for the next few quarters. We build in revenue/EBITDA/PAT growth of 11%/11%/12% respectively over FY21‐23E for the company. We assume coverage on the stock with a BUY rating and a PT of Rs603 based on 32x FY23E earnings, which is a 20‐25% discount to peers like Marico, Dabur and GCPL. Key risks to our call would be a prolonged COVID disruption, erratic season and unexpected group level issues.  

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