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Operationally in line; volume trend to improve in FY25

* Emami reported 7% YoY sales growth in 4QFY24 (est. 4%). Domestic business grew 8%, led by volume growth of 6%. Signs of recovery were seen in the rural market, with rural growth in the mid-single digits and urban growth in the low-single digits in GT during the quarter.

* Most of the brands, such as BoroPlus (+33% YoY), Pain Management (+9% YoY), Healthcare (+10% YoY), 7 Oils in One and D2C portfolio (+86% YoY), have performed well. However, the extended winter season has affected the Navratna and Dermicool range (+1% YoY) in 4QFY24. Summer products to improve performance in 1QFY25. Kesh king and male grooming ranges declined 9% and 2% YoY, respectively.

* GM expanded 270bp YoY to 65.8% (est. 65.5%). However, EBITDA margin contracted 20bp YoY to 23.7% (est. 23.7%) on higher ad spends (+39% YoY). MT grew 17% and E-commerce grew 37% in 4QFY24 and both contributed 22% in revenue in FY24.

* With the improving volume trajectory, rural recovery, and Emami’s own initiatives around distribution, new launches, and marketing spends, revenue growth is expected to accelerate in FY25. We value Emami at 28x P/E on FY26 EPS to arrive at our TP of INR600. Reiterate BUY.

Sales and EBITDA in line; domestic volumes up 6% YoY

* Strong domestic sales growth: Consolidated net sales grew 7% YoY to INR8,912m (est. INR8,663m). The domestic business grew 8% YoY, led by volume growth of 6%. Major brands such as BoroPlus, the Pain Management range, the Healthcare range, 7 Oils in One, The Man Company, and Brillare have registered strong performance during the quarter.

* Brand performance: Navratna/Pain Management/Healthcare/Boroplus/ Kesh King/Male Grooming segments were +1%/+9%/+10%/-3%/-9%/-2% YoY in 4QFY24, and +1%/+6%/+5%/-3%/-6%/-3% in FY24.

* EBITDA up 6% YoY: Gross margin expanded 270bp YoY to 65.8% (est. 65.5%). EBITDA margin declined 20bp YoY to 23.7%. Other expenses dipped 100bp YoY, employee costs decreased 90bp, while ad spending rose 470bp YoY. Ad spending grew 39% to INR1,802m. EBITDA grew 6% YoY to INR2,110m (est. INR2,055m). PBT rose 15% YoY to INR1,708m (est. INR1,743m). Reported PAT increased 4% YoY to INR1,468m (est. INR1,623m).

* Healthy international performance: The international market delivered 8% YoY growth (9% in CC terms), led by the MENAP region, despite currency fluctuations and geopolitical disturbances in key geographies.

* FY24, Emami’s sales/EBITDA/PAT grew 5%/10%/15% YoY

Highlights from the management commentary

* The company is optimistic about future growth, supported by a favorable economic landscape, a forecast of a normal monsoon, anticipated rural market recovery, and government initiatives.

* The company has witnessed signs of market recovery with the rural segment gradually bouncing back. The company anticipates a moderate price increase for FY25, limiting it to a range of 2-2.5%

* The company has launched Nature First healthy radiance range under the Fair and Handsome brand. The company launched four Digital-first portfolio on Zanducare D2C platform, i.e., Zandu Digestive Care Juice, Zandu DiaBTS Care Juice, Zandu Hair Vitalizer Juice, and Zandu Seniorz Prostate Care Juice.

* The D2C portfolio contributes ~INR2b in revenue in FY24. The Man company EBITDA margin turned positive and Brillare losses has come down in FY24.

* The company is aspiring double-digit revenue growth for FY25. Management expects double-digit growth in International business in FY25.

Valuation and view

* We broadly maintain our FY25/FY26 EPS estimates.

* We model an 8% revenue CAGR over FY24-26, primarily driven by volume growth. EBITDA margin is already at an elevated level (much higher than peers). We model a 27.4% EBITDA margin for FY26 vs. 26.5% for FY24.

* Emami’s core categories are niche and they have been witnessing slow user addition over the last five years. Although Emami commands a high market share in core categories, the share gain is no longer a catalyst for volume growth.

* Management has initiated several steps (e.g., team additions, new launches, hiring consultants, marketing spends, etc.) over the last three to four years to revive volume growth; however, the desired result has not yet been achieved. However, we expect volume growth acceleration in FY25, driven by rural growth improvement and seasonal tailwinds.

* We factor in these issues in our target valuation multiple (at 40-50% discount to peers). We value Emami at 28x P/E on FY26 EPS to arrive at our TP of INR600. Reiterate BUY.

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