Emami shares gain as Q2 earnings beat estimates: Should you buy the stock?

Emami stock has risen around 21 percent, outperforming Nifty

Emami shares opened with gains on November 7, a day after the company beat the estimates for the September quarter earnings. Although its net profit fell 3 percent on-year to Rs 178.5 crore, dented by lower other incomes, the FMCG company showed up a healthy operating performance with its consolidated revenue from operations rising 6 percent to Rs 864.5 crore.

Analysts remain largely positive on Emami, considering a gradual rural revival in sales, inexpensive valuations, improving revenue performance, rural distribution expansion, and increased ad spending.

Outlook

"Emami's Q2 FY24 numbers were an all-around beat to our estimate led by better-than-expected growth in both modern trade (MT) and e-commerce channel," said Prabhudas Lilladher in its first cut. The company's performance in the second half of FY24 will be a function of winter progress and success of new products and moderate raw material prices, it added.

Also Read | Emami Q2: Net profit falls marginally to Rs 179.99 crore, revenue rises 6.23%

Low raw material costs drove a 300-bps EBITDA margin expansion. Its domestic business grew 4 percent and international business growth came in at 12 percent for the quarter under review. According to HSBC, Emami's international business is delivering consistent results, while growth visibility remains weak in the domestic business amid muted rural demand.

Should you buy, hold or sell the stock?

While HSBC has a 'hold' call on the Emami stock with a target price of Rs 485 per share, brokerage firm Prabhudas Lilladher has put an 'accumulate' rating on the stock.

Analysts at Motilal Oswal believe that Emami's future growth will be driven by investments in new brands, double-digit CAGR in the international market, rural distribution expansion and recovery in the rural market (over 50 percent sales).

There is also margin improvement scope in the e-commerce and MT channels, it said. The domestic brokerage believes that valuations are inexpensive at 19.5x FY25 EPS; hence it reiterated its 'buy' rating on the stock with a target price of Rs 640 per share.

Also Read | Buzzing Stocks: Nykaa, HPCL, Bajaj Finance, Emami, NHPC, Gland Pharma, others in news

Emami shares ended 2.3 percent higher at Rs 520.70 on the National Stock Exchange (NSE) in the previous session. So far in 2023, the stock has risen around 21 percent, outperforming the benchmark Nifty.

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