HDFC Securities is bullish on Emami has recommended buy rating on the stock with a target price of Rs 463 in its research report dated November 06, 2019.
HDFC Securities' research report on Emami
Domestic revenues grew by 2% (2%/flat in 1QFY20/2QFY19) with 1% volume growth (exp. flat). Co benefited from stocking winter products (Boroplus grew by 39%) prior to the upcoming season.Ex-Boroplus, domestic biz degrew owing to dent in demand for discretionary products (F&H/Kesh King grew by -32/-11%). Emami’s healthcare portfolio has underperformed vs. Dabur over the last 8 qtrs (6% growth vs. 16%). Market share gains have become irrelevant as core categories are struggling to grow. Rural grew at par with urban in 2QFY20 which was a key positive given its underperformance in 1QFY20 and sectors weak show in rural. Wholesale channel continues to contribute a high share of revenues (38-40% vs. 50-55% prior to GST). As a result, quarterly volatility in brand performance is expected to sustain. International biz growth of 20% (34/4% in 1QFY20/2QFY19) was owing to ‘Crème 21’ acquisition (acquired in Jan-19). Organic growth was at 7% driven by robust growth in Bangladesh (+30%) and partially offset by MENA (-3%) and CIS (-10%). GM expanded by 111bps to 69.7% (exp -140ps) owing to softening raw material (Menthol). We expect GM expansion to sustain over 2HFY20 (+200bps). Employee/A&P/Other expenses grew by 5/5/19% resulting in 3% EBITDA growth to Rs 1.92bn (exp Rs 1.85bn). EBITDAM expanded by -57bps to 29.2%. Lower taxes (-464bps) resulted in 15% growth in APAT to Rs 1,486mn vs. exp of Rs 1,295mn.
Emami’s 2Q was in-line with no negative surprises. Domestic business performance continues to be muted and own initiatives are still a WIP. Strong winter, recovery in macros and asset sales (drive lower pledged shares) are the key triggers for re-rating in the stock. Benign RM and favorable base will support 2HFY20 profit growth. We cut EPS estimates by 2% and value Emami at 30x on Sep-21E EPS, arriving at a TP of Rs 463. Maintain BUY.
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