Hold Emami; target of Rs 900: Emkay

With this acquisition, Emami has ventured into yet another niche category with high margin profile. However, given the crowded value added hair oil market, scalability of this brand would be the key. We believe this acquisition will be EPS accretive from FY18. We have a Hold rating on Emami with price target of Rs 900/share.

"This acquisition is reasonable from EV/EBITDA basis given the strong gross margin profile of the brand Kesh King. While, Emami has ventured into yet another niche category of ayurvedic hair & scalp care, but scalability of the brand would be the key, given the crowded value added hair oil market. We believe this acquisition will be EPS accretive from FY18. We have a Hold rating on Emami with revised price target of Rs 900 (29x FY17E)", says Emkay Global Financial Services research report.

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Hold Emami; target of Rs 900: Emkay

Emkay Global Financial Services has recommended hold rating on Emami with a target price of Rs 900, in its research report dated June 4, 2015.

Emkay's report on Emami

Emami Ltd has acquired hair and scalp care business under the Kesh King and allied brands for Rs 16.5b which will be funded through mix of internal accruals and debt

Kesh King is the market leader in ayurvedic hair & scalp care with 32% market share. It has clocked revenues of Rs 3bn in FY15 with 3-year revenue CAGR of 61%. The portfolio includes ayurvedic medicinal oil, herbal shampoo & conditioner and ayurvedic capsules

Deal seemed expensive on EV/Sales at 5.5x, but given the strong gross & EBITDA margin profile, deal looks reasonable on EV/EBITDA at 11.4x

With this acquisition, Emami has ventured into yet another niche category with high margin profile. However, given the crowded value added hair oil market, scalability of this brand would be the key. We believe this acquisition will be EPS accretive from FY18. We have a Hold rating on Emami with price target of Rs 900/share.

"This acquisition is reasonable from EV/EBITDA basis given the strong gross margin profile of the brand Kesh King. While, Emami has ventured into yet another niche category of ayurvedic hair & scalp care, but scalability of the brand would be the key, given the crowded value added hair oil market. We believe this acquisition will be EPS accretive from FY18. We have a Hold rating on Emami with revised price target of Rs 900 (29x FY17E)", says Emkay Global Financial Services research report.