Buy Emmbi Industries; target of Rs 85: ICICI Direct

ICICI Direct,s research report on Emmbi Industries

Despite a significant fall in polypropylene prices and thereby realisations, the company managed to post almost flat topline during the quarter, largely on account of better volume growth. Emmbi reported revenue of Rs 74.7 crore (-1% YoY). Gross margins for the quarter improved 155 bps YoY to 36% due to a change in the product mix, which negated the impact of negative operating leverage to certain extent. EBITDA fell 19% YoY to Rs 8.57 crore, impacted by higher employee (+25% YoY) and other cost (+16% YoY). OPM remained at 11.5% (-250 bps YoY). Poor operational performance led to a subdued bottomline at Rs 3.75 crore (-22% YoY).

Outlook

This should likely improve FCF for the company and can also expand return ratios for the company. In turn, this is likely to aid valuations for the overall group. We value the company at 7x PER FY22E and arrive a target price of Rs 85. We have a BUY rating on the stock.

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