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Strong recovery in International business

Our recent interaction with Emami management reiterated its confidence in driving growth across domestic and international markets. The revived strategy would focus on: (1) expanding rural distribution through Project Khoj (50k villages by Mar’23), (2) Project Serius – efficiency improvement through beat optimization in urban markets, (3) drive healthcare through medico marketing, doctor coverage, NPD, and feet on street, and (4) aim for 16%+ growth in the international business as restructuring of distributors/ partners completed. Further company would scout for M & A to strengthen its core brand offering and invest in differentiated high growth D2C companies. Moreover, the management is committed to cut its pledge further by divesting non-core assets of group companies. We retain our Buy rating with a DCF-based TP Price of Rs657 (implied 29.8x FY24E EPS).

Strong focus on sales – people, systems, processes to drive direct coverage

Management alluded in last two years, the company has invested heavily in building senior and middle management teams which should result in improved performance. Emami has charted out growth strategy by hiring external agency mapping top 13 states, helping them to drive Project Khoj expanding rural distribution covering 50K villages by Mar’23 with addition of 670 people, feet-on-street and Project Serius driving efficiency improvement through beat optimization in urban markets. These efforts should yield direct coverage of ~1.0mn and indirect coverage of ~5.0mn outlets for the company. In addition, upsell/ crosssell in GT channel through LUP has resulted in improved penetration for Balm and Fair & Handsome growing +20%. Nonetheless, management said it would continue strengthening its core brands through M & A and investing in D2C brands. Management said, its efforts on restructuring of distributors/ partners should lift international business performance resulting +16% growth in revenues with improved profitability in FY23 led by Bangladesh, Middle-East and Africa.

Higher focus on Healthcare through medico marketing, NPD and distribution

Management said, its senior management team is committed to improve healthcare performance. It has added ~300 feet-on-street to drive medico marketing, doctor coverage (35k) and aryurvedic medicine outlets (28k). Further, in addition to OTC (chyawanprash and honey), it has added many new products under ethical range such as healthcare juices, sexual wellness, haircare (hair fall control), skin care, herbal detox tea etc. It is confident in generating good traction in fast growing nutraceutical space by launching single herb tablets covering high growth sub-segments. Management said its efforts using telecallers connecting ayurvedic doctors online, helping consumers solving their problems getting good response. Further its digital initiative driving own D2C – Zanducare and leading e-com platforms gaining success resulting in ~5% of sales contribution.

Valuation and risks

We believe clear focus on improving rural coverage has resulted in continued revenue momentum. Further efficiency improvement in urban markets could lift sales. With professional management (structure) and a result-oriented strategy in place, Emami could surpass growth projections and warrant a re-rating (-1Std Dev). We have retained our earnings and maintain BUY, with a DCF-based TP of Rs657 (implying 29.8x FY24E EPS). Key risks – prolonged Covid-19 wave in rural India, erratic seasonality.

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