Buy Emami Ltd. For Target Rs. emami630 - Elara Capital
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Favorable Summer to drive FY25
Extended Winter bolsters Q4 growth
Emami (HMN IN) Q4 net sales rose 6.6% YoY to INR 8.9bn, 1.6% ahead of our estimates, as the domestic business grew 8% in value and 6% in volume, dragged by muted sales growth in Navratna and Dermicool due to the extended Winter. Brands, such as the BoroPlus range, up 33%, the pain management range, up 9%, the healthcare range, up 10% and 7 Oils in One, up 20%, performed well in Q4. In FY24, domestic sales grew 4% in value and 2% in volume, led by pain management, up 6% and healthcare, up 5%. In the general trade channel, rural grew in the mid-single digits and urban in the low single digits in Q4. The alternate channel (26% of domestic business) of eCommerce and modern trade grew 37% and 17%, respectively, in Q4. The newly acquired businesses of The Man Company and Brillare crossed INR 2bn in sales in FY24 and were up 86% in Q4 and 59% in FY24. The overseas business grew 9% in constant currency in Q4, led by the MENA region.
Management anticipates strong FY25
HMN expects a robust FY25, up 10% growth, on the back of strong Summer portfolio sales in Q1 and a pickup in the rural markets. Project Khoj, which has added 20,000 towns since its launch, helped the company grow faster in rural; it has taken corrective actions in the urban general trade & chemist channels, which should bode well in the upcoming quarters.
Margin to improve in FY25
EBITDA margin declined 20bp YoY to 23.7%, in line on account of higher ad spend by 39% as gross margin expanded 270bp YoY. Management expects EBITDA margin to expand in FY25 despite higher brand investment, due to stable input prices. It expects pricing growth of ~2% in FY25.
Valuation: revise to Buy with a higher TP of INR 630
We largely retain our FY26 earnings estimate even as we slightly tweak our sales and margin estimates. We revise to Buy from Accumulate with a higher TP of INR 630 from INR 565 based on 28x (from 25x) on FY26E P/E due to an improved outlook. We raise our multiple due to a favorable season and better guidance.
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SEBI Registration number is INH000000933
