Reduce Emami; target of Rs 450: HDFC Securities

HDFC Securities' research report on Emami

Emami delivered 1% YoY revenue growth, with organic domestic revenue declining by ~2%. Growth pressure was witnessed across the brands, with Boroplus/Navratana/Kesh King/Healthcare/F&H clocking YoY growth of -3/-6/- 1/+2/-1%. International business too witnessed growth deceleration, registering 7% growth (20% in 9M). GM remained under pressure, contracting by 150/70bps YoY/QoQ to 66%. Emami has accelerated upfront expenses (employee hiring, distribution, etc.); thus, the EBITDA margin contracted by >500bps YoY to 30%. EBITDA declined by 14% YoY (HSIE -15%). Emami is trying to add new growth levers (acquired Dermicool and Helios Lifestyle) along with expanding team width. However, we remain cautious about the core business growth, given the limited scope to add new consumers in niche categories.

Outlook

Further, we believe that Emami has already peaked at its current margin level, sustaining which would be difficult (also seen in the last 3-4 quarters). We value the stock at 25x P/E on Dec-24E EPS to derive a TP of INR 450. Maintain REDUCE.