Buy Emami; target of Rs 1355: Sharekhan

Sharekhan's research report on Emami

Strong recovery-led performance in Q2FY2018: In Q2FY2018, Emami witnessed 14% growth in its consolidated revenue (on comparable basis), driven by 10% volume growth. The domestic business (83% of consolidated revenue) grew by 14% on account of 10% volume growth (strong recovery from 18% volume decline in Q1FY2018).  Further, the international business (14% of the consolidated revenue) grew by 22% on YoY basis during the quarter. On reported basis, revenue grew by ~8% YoY during the quarter.  Gross margin on comparable basis improved by 82BPS YoY to 67.3% and OPM improved by 200BPS to 32.0% on account of lower other expenses. Operating profit grew by 14.9% YoY to Rs.201.3 crore. This along with lower interest cost and lower incidence of tax resulted in 22.0% YoY growth in adjusted PAT to Rs.146.9 crore (ahead of our expectation of Rs.102.2 crore).

Outlook
In addition, the stock is trading at discounted valuations of 34x its FY2019E earnings to some of the mid and large- size FMCG companies. Hence, we maintain our Buy rating on the stock with a revised price target of Rs.1,355 (valuing the stock at 38x its  FY2019E earnings).

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