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Positive growth delivery; cost pressure persists

* Emami’s consolidated revenue grew 36% YoY to INR10.8b (24% LFL; beat) in 2QFY27, aided by the consolidation of Axiom Ayurveda and IncNut Digital. Domestic business delivered 49% revenue growth, with LFL revenue/volume growth of 32%/26%, on a weak base of -15%/-16% in 2QFY26 (GST transition). The strong recovery in underlying volumes is encouraging, although the low base aided growth. Management expects total business growth of 18-20% in 2HFY27, supported by sustained momentum across core brands and strategic investments.

* Hair Care and Skin Care delivered strong growth of 30% and 31%, respectively, while Healthcare grew 11%. The strategic investment portfolio recorded 73% LFL growth, with its contribution to domestic revenue rising to ~26% from ~18% in 1Q. International business declined 2% YoY, but management gave positive guidance for FY27. Management expects the international business recovery to strengthen over the coming quarters.

* Gross margin contracted sharply by 520bp YoY to 65.8%, with raw material inflation accounting for ~400bp of the decline and the balance attributable to the changing business mix following acquisitions. Consequently, EBITDA margin contracted 190bp YoY to 20.4%. EBITDA grew 25% YoY to INR2.2b (beat), supported by robust topline growth. Emami has implemented ~5.5% price increases to fully offset input cost inflation. The company expects elevated inventory costs to sustain margin pressure through 2HFY27, with meaningful RM cost relief expected only in FY28. We expect EBITDA growth to be 13-15% in FY27/FY28.

* Domestic demand momentum strengthened, with 26% underlying volume growth, albeit on a weak base. The strategic investment portfolio continues to scale rapidly, providing an increasingly meaningful growth lever. We believe elevated input costs and higher brand investments are likely to keep margins under pressure through 2HFY27. Emami’s calibrated pricing actions and productivity initiatives should aid gradual margin recovery going ahead. Given its reasonable valuations of 19x/16x FY28/FY29 EPS, we reiterate our BUY rating with a TP of INR475 (based on 20x on Sep’28 EPS).

Key highlights from the management commentary

* Rural demand was mixed. South, West and parts of UP lagged due to deficient rainfall, while districts with good rainfall did well. Demand should pick up postDiwali as winter, the portfolio’s peak season, sets in.

* The company has implemented price increases of ~5.5% for FY27 and has fully passed through input cost inflation.

* The company guided for total business growth is guided at 18-20% for 2HFY27, as momentum across core brands and strategic investments continues.

* Organized channels contributed 37% of domestic business (32% in 1QFY27), with MT and e-commerce maintaining strong momentum.

* Quick commerce accounted for ~15% of total digital sales.

* Emami’s effective tax rate normalized to ~25% (compared with the previous year's MAT credit utilization/entitlement).

Valuation and view

* We trim our EPS estimated by 1-2% for FY27 and FY28.

* Emami's sharp recovery in domestic volumes, sustained momentum across core brands and rapid scaling of its strategic investment portfolio strengthen its medium-term growth outlook. The increasing salience of the strategic portfolio contribution to domestic revenue reinforces confidence in its emerging growth engines. Moreover, Emami continues to strengthen its distribution reach predominantly through alternate channels (MT, e-com, and QC).

* While elevated input costs and higher brand investments are likely to defer margin recovery to FY28, we believe the improving growth trajectory is adequately captured in the stock's valuation of 19x/16x FY28/FY29 EPS. We reiterate our BUY rating with a TP of INR475 (based on 20x Sep'28E EPS).

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