Emami plans to consolidate realty firms into 1 business

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FMCG company Emami announced its first quarter results for FY12. The company's first quarter consolidated net profit rose 18% year-on-year to Rs 41.50 crore as higher other income and lower tax expense offset surged in the cost of raw materials.

Consolidated income of the company from operations in April-June was up 24% YoY to Rs 299.91 crore helped by strong sales growth in some of its brands like Navratna oil, Zandu Balm and Fair & Handsome cream.

Executive director Mohan Goenka told CNBC-TV18 that they have been planning to consolidate all their real estate companies into one company.

The company expects a growth of about 25% in their manufacturing units. "To keep the growth pace, we have increased our capacity in Pantnagar and Guwahati units," Goenka added.

Emani has no plans to reduce ad spends. He explained, "India's growth story is much intact from the consumer side. There is no reason to reduce our ad budgets. Advertising should be about 18-19% of sales."

Below is the edited transcript of the interview. Also watch the accompanying video.

Q: You saw a volume growth of about 16% this quarter. Is that sustainable for the rest of year? What is your target on that?

A: We are looking at an overall growth of about 23-24% for the year. The volumes should pick up in the next few quarters. In this quarter, the summer was not as per our expectations. The summer brands saw some kind of stagnancy. Going forward, Zandu Balm, Fair and Handsome and Boroplus should lead the growth. I am very positive of seeing a growth of about 23-24%.

Q: The margins have gone down by about 300 basis points. Despite a good sales growth, it hasn't resulted in that much of profit growth. What kind of margin trajectory are we looking at going forward?

A: We have seen margin pressures for this quarter because of the input cost which has increased by almost 6-6.5%. Though we have increased prices by about 6-7% for the quarter, the overall cost should come down in the third and fourth quarter. We should see an EBITDA margin of about 20% which is 14% now. There should be a substantial improvement in our margins in the next two quarters.

Q: Is there a reason to increase your product prices any further in the coming quarter?

A: We have increased prices this month as well. This should improve our margins. We have taken a price rise of about 4-5% from this month.

Q: Focusing on your real estate space, you are planning to merge your three real estate firms. Could you tell us your plan with respect to developing your real estate portfolio?

A: We have multiple projects in Calcutta, Coimbatore, Hyderabad and Bombay called as the Zandu Realty. E&Y has been studying to bring down our real estate into one company. The work is in progress. We should commence with the work once E&Y submits the report. It is not a part of our listed entity Emami. It's another listed entity.

Q: Emami Infra has intrigued all traders and investors in terms of its price behaviour. Real estate in general has been under pressure, but Emami Infra has been very volatile. Have you done any sort of internal valuation exercise in terms of your properties under this entity? Do you have any report on that?

A: Honestly, I won't be able to speak much on the realty business as I am not directly involved with realty. I cannot give much light on the realty business.

Q: You have been expanding your capacity at your Pantnagar unit. When will the commercial operations come under stream? How much would your capacity increase by? What incremental revenue can we expect?

A: We expect a growth of about 25% in all our manufacturing units. To keep that pace, we have increased our capacity in Pantnagar and Guwahati. Our Bangladesh unit will commence production next month. Looking at growth numbers for the next three years, we plan to double the numbers.

Q: What about ad spends? We have seen a trend over last couple of quarters where some of the leading companies have cut down on ad spends, whereas you have been quite aggressive on that front. How will that pan out going forward. How would it impact your margins?

A: India's growth story is much intact from the consumer side. There is no reason to reduce our ad budgets. Advertising should be about 18-19% of sales. We have no intensions to reduce our advertising budget going forward.

Q: Are you considering any kind of acquisitions in India or overseas? Would that be finalised in the coming two quarters?

A: We have been very active as far as acquisitions are concerned. We have been looking for acquisitions mostly outside India. It would be slightly difficult for me to define the time as acquisitions sometimes take more time than required.