Sell Emami; target of Rs 1050: Religare

Emami posted above-expected Q1FY17 results with net sales/EBITDA/adj. PAT growth of 20%/49%/8% YoY. Organic sales grew 9.5% with volumes up 6.4%, while gross (+380bps YoY) and EBITDA margins (+440bps YoY) continued to expand. Going ahead, we believe the overall sluggish demand environment and higher A&P spends – to drive consumer demand and product launches – would keep margins range-bound. Valuations at 35x FY18E EPS look rich – we roll over to a Sep’17 TP of Rs 1,050 (from Rs 970) and maintain SELL.

We like HMN’s strategy of establishing leadership in niche categories and of pushing its Ayurveda platform. However sluggish consumer demand would curtail price hikes and inflate A&P spends in newly-entered categories, keeping margins range-bound at 25-26% in the near term. Valuations at 35x FY18E EPS look rich – we maintain SELL and roll over to a Sep’17 TP of Rs 1,050 set at 30x Sep’18E EPS (from a Mar’17 TP of Rs 970).For all recommendations, click here Disclaimer: The views and investment tips expressed by investment experts/broking houses/rating agencies on moneycontrol.com are their own, and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.