Emami Ltd Management Discussions.

Global economic overview

The global economy grew 3.6% in 2018 compared with 3.8% in 2017, largely on account of the failure of Brexit negotiations, tightened financial conditions, geopolitical tension and higher crude oil costs. Global growth is estimated at 3.3% in 2019. (Source: World Economic Outlook).

Global economic growth

Year 2015 2016 2017(E) 2018(E) 2019 (P) 2020 (P)
Real GDP growth (%) 3.2 3.1 3.8 3.6 3.3 3.6

[Source: World Economic Outlook, January 2019] E: Estimated; P: Projected

Indian economic overview

After growing at 7.2% in 2017-18, the Indian economy grew 6.6% in 2018-19 (as per the second estimate by CSO, released in February 2019). The principal developments during the year comprised 8.6% increased per capita income, decline in the national inflation, steady interest rates, and weaker consumer sentiment in the second half of the financial year following a large non-banking financial company announcing its inability to meet dues. India is now the sixth largest economy (eleventh largest in 2013-14).


Indias markets are expected to perform better due to projected earnings revival across the foreseeable future. (Source: CSO, Fitch, Economic Times, Business Standard, IBEF, Business Today, India Today).

Indian FMCG sector overview

The FMCG sector grew from US$ 31.6 billion in 2011 to US$ 52.75 billion in 2017-18. The growth was led by favourable demographics and rise in income levels. With 66.7% of the Indian population residing in rural areas, its influence on the FMCG sector is significant. The rural market was valued at US$ 23.63 billion in FY2018, clocking a growth of 9.7%, buoyed by recent governmental measures like farm loan waivers and increased minimum support prices. E-commerce contributed to the increased penetration of FMCG companies in rural areas. Growing awareness, easier access, and changing lifestyles are the key drivers of the consumer market. The focus on agriculture, MSMEs, education, healthcare, infrastructure and employment by the Government is expected to impact the FMCG sector. These initiatives are expected to increase disposable incomes, especially in rural areas, which could be beneficial for the sector.

(Source: IBEF, Statistics Times, Trading Economics, Live Mint, Nielsen, Equity Master)

Indian beauty and personal care segment overview

The beauty and the personal care segment comprises oral care, hair care, skin care, cosmetics, deodorants, perfumes, feminine hygiene and paper products, among others. Due to the rising number of working women and growing awareness across age groups, the demand for personal care products has increased rapidly. The Indian cosmeceutical and cosmetics industry is currently valued at US$ 6.5 billion and expected to grow to US$ 20 billion by 2025 at a CAGR of 25%. The attractiveness of this segment is encouraging innovative packaging and marketing, increasing competition.

(Source: IBEF, The Economic Times)

Indian ayurveda sector overview

The ayurveda sector in the country reached US$ 4.4 billion by end-2018 and is projected to record a robust CAGR of 16 % until 2025. ~75% of the Indian ayurveda market is accounted for by products and only a quarter of the market size is contributed by services. The domestic market comprises ethical, classical, over-the-counter, personal care and beauty products. It also includes services like medical, well-being or medical tourism services. (Source: CII, The Economic Times)

Growth drivers

Demographic dividend: High population and rising affluence level are key factors contributing to the growth of the FMCG sector. India is reporting an annual population growth of 1.1% and is expected to emerge as the most populous country by 2024. Around 50% of Indias population is less than 25 and 66% is less than 35 years. India is expected to have the worlds largest workforce by 2027, with a billion people aged between 15 and 64. This indicates that the growth in non-discretionary consumer demand such as food, healthcare, household and personal care products is likely to sustain. In addition, India witnessed growth in per capita income, increasing from H1,14,958 in FY18 to an estimated H1,26,699 in FY19.

GST game-changer: Before the implementation of GST, the rates on FMCG products were between 22% and 24%. With the onset of GST this rate declined to between 5% and 18%. GST has also had a major impact on distribution costs - reducing to 1.5% from 2-7% of overall costs (Source: IBEF, Alnkitgst report).

Low consumption and penetration levels: Despite a high population base, India suffers a significantly lower per capita FMCG consumption at US$ 29, while emerging countries like Indonesia, China and the Philippines have >2x, ~4x and ~5x per capita FMCG consumption than that of India, respectively. While India achieved high penetration levels in some of the FMCG categories, consumption levels in those categories are still low. For example, the penetration level for shampoo in India is >90%, even as the per capita shampoo consumption is just 150 ml, ~33% of what it is in most emerging markets like Philippines, indicating ample room for growth.

(Source: IBEF, CII Bain Report, Sakshi business report, HDFC report)

Demand for premium products:

The rapid growth in the demand for premium products caused a large number of FMCG companies to continuously research, develop and launch innovative products. (Source: IBEF)

The ‘new target segment: Until recently, the beauty industry revolved around women. That is no longer the case with the emergence of different grooming products meant especially for men. Growth in the category is driven by a growing consumer confidence and career competitiveness levels. Heres proof: the use of face cleansing products among men surged 60x between 2009 and 2016. (Source: Nielsen)

Flanking strategy: This strategy is gaining increasing currency among FMCG companies. To cater to all segments, the same product is sold in different volumes and packages. For example ketchups, washing powders and shampoos are sold in bottles and sachets.

Innovative beauty care solutions:

More investments are being made in the realms of R&D to come up with innovative personal care products free of chemicals like paraben and sulphur.

E-commerce-driven sales:

E-commerce outpaces general trade when it comes to the sale of FMCG products. A growing internet user base and rise in smartphone penetration accelerated the growth of e-commerce. E-commerce contributed 0.4% to FMCG sales in 2016 and in 2018 it stood at ~1.3% of branded packaged FMCG sales. It is expected that e-commerces contribution to the total FMCG sales could reach 11% by 2030. (Source: Nielsen, Economic Times)


The Indian FMCG sector grew steadily despite several groundbreaking events during the past two years. Accounting for a revenue share of ~4%, the rural segment is a key contributor to the overall revenue generated by the FMCG sector in India. Urban India accounted for a 55% share of the overall revenues recorded by the FMCG sector. Revenues earned by the FMCG sector reached H3.4 trillion (US$ 52.8 billion) in FY18 and are estimated to reach US$ 103.7 billion in 2020 on the back of the following influences:

Smartphone adoption: India is the second largest smartphone market in the world with y-o-y shipments increasing by 23% in Q3FY2017 to reach >40 million units. Smartphone penetration in the country was pegged at 45% in 2017 and is estimated to grow to 74% by 2025

E-commerce popularity:

E-commerces contribution to FMCG sales is expected to rise to 11% by 2030 from the current 1.3%. (Source :

Economic Times)

Advancement of distribution channels: With GST implementation, the Indian distribution system is undergoing a structural shift. The Indian retail market, currently estimated at US$490 billion, is projected to grow at a CAGR of 6% to US$865 billion by 2023. The total number of retail distribution outlets in the country was estimated at >12 million. (Source: Canalys, GSMA, The Economic Times, India retailing, Nordeatrade, Business Standard)

Business drivers

Sales & Distribution

Number of outlets: 4.5 mn

Number of direct outlets: 9.4 lac


Emami sells ~8,000 products every minute across the globe and this has been made possible by a sales and distribution channel that works relentlessly in making products available across the country and beyond. Emami has created a strong network of retailers and its products are now available in around 4.5 million outlets across the country.

Key developments, FY2018-19

• Reported a turnaround in the Kesh King and Healthcare portfolio

• Sales were impacted due to a delayed and prolonged winter, affecting the sales of winter products in Q3 and summer products in Q4

• Rolled out sales force automation for the entire urban sales team, ensuring effective coverage and increased direct distribution

• Reported a significant growth of 43% from the modern trade channel, driven by improvements in field rates, strategic incentivising and packaging revamps

• Reported 112 % growth in e-commerce earnings by making all products available on major e-commerce platforms

• Added ~7,300 towns to its pan- India footprint and expanded van operation coverage to 20,500 towns

• Increased occupancy from 92% to 97%, reducing vacant spots

• Replaced distributor management system with CDMS, an online platform ensuring better visibility and real-time availability

• Rolled out a promotional initiative for Fair & Handsome, celebrating 15 years of the brands launch

• Conducted a targeted loyalty programme named ‘Privilege Clerk, engaging leading wholesalers

• Rationalised margins (distributor and retailer costs) in rural areas

• Enhanced supply chain efficiency Introduced zonal managers for better ground-level execution Announced a plan to roll out SAP BI


• Moving ahead, the Company will look to extend into untapped locations and grow business volumes through the modern retail format.


Over the past few years, Emami laid a strong emphasis on the upgradation of people skills and shifting from manual to digital interventions. This has brought about a cultural shift. Earlier, people were reluctant to raise challenging issues but are now eager to solve them.

Key developments, FY2018-19

• Completed the first full year of operations at Pacharia plant and achieved the desired quality; ensured First Time Right for all the products, eliminating batch rejection

• Operationalised the Dongari unit to cater to exports

• Established a Chyawanprash manufacturing and filling facility in Pacharia

• Tied up with a third party manufacturing facility for oils and creams in Sri Lanka

• Enhanced creme hair colour capacity from 0.5 lac to 1 lac dozens per month

• Enhanced BPAC spout pack capacity to 10 lac dozens per month

• Enhanced Zandu Balm and Mentho Plus Balm dibbi capacity to 4 lac dozens per month

• Established a new facility for Fast Relief in Pacharia

• Won 25 manufacturing awards across units at CCQC, NCQC and other competitions

• Established an SAP-linked OEE portal

• Commissioned a briquette-fired boiler to save energy


The Company will continue consolidating operations and invest in automation to enhance operational efficiencies.


Over the past few years, Emami has made its presence felt in more than 60 countries. The Company offers products created and packaged, addressing target markets. Emamis key international markets comprise the MENAP countries, CIS countries, Bangladesh, Sri Lanka and Nepal, among others. In 2012, Emami set up its first international manufacturing unit in Bangladesh and in 2018, the Company entered into an agreement with a third-party manufacturer to expand operations in Sri Lanka.

Key developments, FY2018-19

Registered 12% growth in revenue owing to a recovery in key MENAP markets Kickstarted subsidiary operations in Sri Lanka, registering strong growth Acquired Creme 21, a German personal care brand with a strong presence in the Middle East Added distributors in key markets to hasten growth and invested in brand-building exercises to enhance visibility


Going ahead, the Company will continue to reinforce its presence in key global markets.

Quality management

No. of consumer complaints received and resolved – 248 (100%)


To excel in the FMCG business, attention has to be paid to qualitative consistency. Quality control starts from raw material sourcing and continues till the finished product is made, ensuring a seamless supply chain. Emamis Quality Control teams rigorous attention to detail has ensured almost zero rejection of its finished products. To supplement the efforts of the Quality Control team, Emami equipped the personnel with state-of-the-art equipment to analyse and arrive at accurate conclusions.

Emami has a well-established customer response management/ complaint-handling cell to receive, log and investigate complaints and undertake improvements on the basis of product quality and efficacy feedback. Complaints and grievances of consumers and the internal customers (distributors and retailers) are entertained. Prompt closure of complaints to ensure overall customer satisfaction is of the utmost priority.

Key developments, FY2018-19

• Registered 19% reduction in consumer complaints due to quality interventions

• Vendor improvements, resulting in a reduction in the number of packing material rejections

• Associated with packaging material vendors to commission units close to manufacturing sites to eliminate transit damages and reduce rejection

• Received ISO 9001:2015 certifications for all factories

• Established business-critical manufacturing sites with ‘first time right quality


Laboratory accreditation is considered an important indicator of technical competence. One of Emamis factory laboratories embarked on being certified for ISO 17025:2017 in FY2019-20. Emami is taking initiatives in automating quality interventions and digitising quality processes to improve reliability. The Company is also undertaking a structured approach in evaluating on-shelf product quality.

The Company aims at reducing gaps between design quality and delivered quality by eliminating potential defects in transit and distribution.


As Indian consumers become more globalised in their aspirations, as they travel abroad and are exposed to global products, their appetites to consume quality products in their home market will only increase. To address this phenomenon, Emami has chosen to focus on R&D and innovation. The Companys R&D activities revolve around making small changes in existing products and services via improvements in technology (incremental innovation) as well as significant changes to either technologies or business models of a product or service (radical innovation). The Company has set up state-of-the-art R&D facilities in Kolkata and Mumbai, equipped with sophisticated research equipment for developing, analysing, evaluating products and input materials. The Kolkata lab was accredited by NABL and the AYUSH Ministry. Emamis performance assessment and product evaluation centre is equipped with the most advanced instruments to test product performance from sensorial, functional and emotional perspectives.

Key developments, FY2018-19

• Relaunched Kesh King Shampoo with an innovative user friendly pack

• Won the Golden Peacock Innovative Product/Service Award in 2019 for Kesh King oil Comb Applicator

• Introduced the ‘Dynamite & Force variants of Navratna Smart Cool

• Tweaked the formulation for pain balms without compromising efficacy, saving costs

• Initiated joint research projects with various national institutes for healthcare products


Moving ahead, the Company will be focusing on formulating next-generation ayurvedic products and creating a portfolio of organic products.


Todays consumers seek fast order fulfilment through multiple channels. To make this happen, Emami focuses on greater visibility and control across its supply chain. By deploying integrated supply chain management solutions, Emami has bridged the gap between sales planning and operational processes, improving forecasting, streamlining inventory and accelerating delivery, ensuring the elimination of stock outs. The result: Emamis logistics management ensures products availability across SKUs, spanning the country to minimise product unavailability.

Key developments, FY2018-19

Implemented an IT-based seasonal framework tool to ensure availability and timely delivery of products within seasonal windows, reducing operational downtime and maximising productivity Saved ~H3 crore through effective transport management initiatives and planning

• Followed the reverse auction system for freight negotiation, minimising transportation costs

• Reduced unwanted product movement with the implementation of an improved replenishment model that ensured that no depot had surplus stocks

• Implemented root-cause analysis to take instant decisions, increasing efficiency


• The logistics department would look to reduce loss of sale and inventory.

The Company continued to invest in Information Technology to improve productivity, enhance customer experience and generate better data-driven insights. It is important for an organisation like Emami to stay on top of technology changes and retain leadership among FMCG companies. Technology absorption and effective utilisation are critical. The Company is executing a transformational IT plan by leveraging digital technologies

In this transformational journey to support business growth and offer uninterrupted service, core business IT Infrastructure was successfully migrated to a secure infrastructure

The Company remained committed to ensure an effective internal IT controls environment that, inter alia, provides assurance of orderly and efficient conduct of operations, security of assets, prevention and detection of frauds / errors, accuracy and completeness of accounting records, as well as the timely preparation of reliable financial information

The Company continued to substantially invest in IT platforms to enhance sales force productivity and distribution. A first of its kind centralised sales force automation solution facilitated the right information at the right time for the sales team to enable them to execute effectively on the ground. The Company is developing an intelligent engine to produce algorithm-based inputs to help the sales force. The Company successfully conducted a pilot using geotagging and analytics for route optimisation, covering more outlets with lower manpower. This efficiency in sales beats helped improve productivity

The Company understands the importance of high performance analytics. To this end, basic infrastructure of activating a wide choices of reporting, analytics and dash-boarding were established. The Company implemented the next level of predictive analytics

The Company understands the power of the digital. It is focusing on building a digital platform for all work streams. This includes AI (Artificial Intelligence), ML (Machine Learning) and IOT (Internet of Things) across quality development, product innovation and consumer engagement

IT security

With increased threat to information assets across the world, the Company placed an even greater emphasis on IT security.

• Deployed multiple tools and technologies to improve the security of information in storage, access, processing and transmission

• Implemented a 24x7 Securities Operations Centre

• Recorded no downtime due to a security lapse in FY 2018-19

Attractive packaging is a key offtake driver at Emami. Over the years, the Company strategically invested in packaging innovation to differentiate products. The Company delivered innovation in packaging with customer convenience and shelf-winning propositions in mind. The Company received several awards for its packaging innovation. Emami cares about the environment and took initiatives related to packaging material optimisation.

Key developments, FY2018-19

Took various initiatives to ensure suppliers of packaging materials follow sustainable practices The Company optimised packaging material consumption. It partnered with 30+ FMCG companies to form a consortium that worked with Central and State Ministries to create an action plan under the Extended Producers Responsibility for multilayer films Identified Government-authorised organisations and signed MoUs for waste collection and disposal Launched Kesh King Oil with a differentiated special comb applicator to drive equity and consumer convenience. The product received the coveted ‘Golden Peacock Innovative Product/Service Award Relaunched Fair & Handsome in innovative packaging Launched HE Magic Duo with a packaging innovation, combining two different fragrances in one bottle


Going ahead, our focus will be on procuring packaging materials from sustainable sources and reducing environment impact.

Emamis longstanding success flows from its superior human resources. The Company carefully nurtures human capital to achieve its desired productivity levels. Over the years, Emami focused on organisational development, employee capability building, employee lifecycle management, HR process efficacy improvement and the use of technology to enable employee interface.

The Company is guided by the values of honesty, transparency and self-governance. The Company carefully picks industry veterans to build an effective top management team to drive growth.

Key developments, FY2018-19

Various team building programs and outbound exercises were practised during the year under review. The Company sent employees to attend seminars to provide them exposure to industry development on the global front. It invested in developing infrastructure to facilitate training, organising regular meets for the employees of the Company and create an integrated framework

The Company took strides to reduce the skill gap in the leadership team through multi-module classroom action learning- based programs. The programs revolved around personality grooming, decision making ability, orientation to manage stakeholders and forming priorities

The Company tied up with a B-school to get certification for sales and marketing leaders – both mid and upper level – in the latest analytic skills. The Company conducted a base-line capability test for employees before enrolling into the course to measure their proficiency before and after the certification course

The Company conducted an Execution Excellence Program for the entire sales team for knowledge, process, people and stakeholder understanding. This resulted in effective communication, dissemination of information and plans, as well as significant improvement in the planning process and overall review mechanism

The Company focused on creating an overall score card under which each SBUs score card followed by the departments score card and then the individual members score card. This exercise helped in creating a linkage between an individuals accountability vis--vis the Companys goals and led to an alignment of individuals KPIs to the Companys vision. This also created a realisation for all employees that their work was acknowledged and had a significant effect on the Companys business

The Company has taken initiatives to establish an effective recruitment process where the right person at the right position at the most competitive salary gets recruited

Emami also participated in a global study "Great Place to Work" along with other 1600 companies from India. The Companys score was benchmarked with the FMCG industrys score. The Company created a base- line on that basis to identify areas of improvement.

It put together an action plan and implemented it

The Company rewards employees for their exemplary performance to motivate them

The Company emphasises job rotation, job enriching, in-house and external trainings, performance review interviews as some of the steps for improving the competence of its employees

Over the last 4-5 years there was a change in the Companys demographic mix in the workplace.

Emami now has a higher percentage of women in the organisation than five years back


In the coming years, the HR team of Emami will focus on revamping the HR policies to make them more employee-friendly. The Company will also work on strengthening the leadership team to create future leaders.

Key performance metrics

Parameters 2018-19 2017-18 Growth Reasons for variance
Net Sales 2,658.9 2,500.0 6.4% Comparable revenues grew by 7% during the year.
Revenue from Operations 2,692.9 2,540.8 6.0% Delayed winter in Q3FY19 affected the sale of winter products and an extended winter in Q4FY19 affected the sale of summer products.
EBIDTA 725.5 719.4 0.8% Impacted due to a significant increase in the Cost of Goods sold, which increased by 200 bps thereby impacting margins.
EBIDTA margins 26.9% 28.3% (140) bps
PBT before exceptionals 415.4 393.7 5.5%
PBT 405.6 393.7 3.0%
PAT 303.2 307.1 (1.3)% In addition to higher raw material costs, exceptional cost of H9.8 cr, pertaining to VRS paid at one of the manufacturing units, impacted profitability.
Cash Profit* 628.5 618.0 1.7%
Cash profit margins 23.3% 24.3% (100) bps

* PAT + Depreciation & Amortisation

Key ratios

Parameters 2018-19 2017-18
ROE (on cash profit) 30.3% 30.7%
ROCE (on cash profit) 28.5% 26.2%
Debt-equity ratio(x)* 0.05 0.16
Interest cover (x)* 19.9 12.4
Current Ratio (x)** 1.1 1.6

* Due to reduction in debt by H216 crore during the year

** Due to an increase in other financial liabilities and provisions

Working capital

Parameters (days) 2018-19 2017-18
Trade Receivables Turnover ^ 29 22
Inventory Turnover 30 28
Trade Payables Turnover 40 35
Other Receivables Turnover ^^ 27 21
Net working capital 46 36

^ Due to an increase in export and institutional debtors

^^ Due to an increase in GST refund and GST input credit

The Company has in place, an adequate system of internal controls commensurate with its size, requirements and the nature of operations. These systems are designed keeping in view the nature of activities carried out at each location and various business operations. The Companys in-house internal audit department carries out internal audits at all manufacturing locations, offices and sales depots across the country.

The objective is to assess the existence, adequacy and operation of financial and operating controls set up by the Company and to ensure compliance with the Companies Act, 2013, SEBI (Listing Obligations & Disclosure Requirements) Regulations, 2015 and corporate policies. The Companys internal audit department and risk management system have been accredited with ISO 9001:2015 and ISO 31000:2009 certifications, respectively. A summary of all significant findings by the audit department along with the follow-up actions undertaken thereafter is placed before the Audit Committee for review. The Audit Committee reviews the comprehensiveness and effectiveness of the report and provides valuable suggestions and keeps the Board of Directors informed about its major observations, from time to time.