Q1FY24 Review: Emami: Margins may surprise

8 Aug 2023 , 10:30 AM

Emami reported a topline growth of 7% dragged by summer portfolio which declined by 5% due to unseasonal rains. Gross margin expanded 240bps with moderation in commodity prices. The mgmt expects a top-line growth of 8-10% with an Ebitda margin expansion of ~200-250bps in FY24 driven by double digit growths in International business, male grooming and healthcare ranges. The hospital business sale is expected to be completed by end-Aug’23 leading to decrease in promoter pledge to 18-20% levels (33% currently). Analysts of IIFL Capital Services upgrade their Ebitda estimates by 4%/6%/7% for FY24/FY25/FY26 and Maintain BUY with a TP of Rs550. 

Significant margin expansion: 

Emami reported a 7% sales growth and Ebitda growth of 9.6%, despite 11% growth in Ad-spends during the quarter, driven by gross margin expansion of 240bps YoY. Pain management/ Health care range grew at 13%/11% respectively while Navratna range declined by 8% due to unseasonal rains. NPD (products launched in the last 24 months) contribution stood at 2.5% of revenue. With input prices easing, management sounded confident of 200-250bps Ebitda margin expansion in FY24. 

New age channels growth impressive: 

The new age channels of MT and E-com continue to grow well for the company with 45%/47% growth in Q1 contributing ~19.4% of domestic sales (+510ps YoY). The company has narrowed down the gap between the new age and GT channel margins significantly in FY23-24. In GT, the direct reach stood at 1mn outlets and the company intends to focus on increasing throughput of these outlets through trade inputs and data analytics to drive future growth. 

Changes to estimates:

With a higher salience of rural and mass end discretionary products, Emami has been impacted disproportionately in the high inflationary times. Moderation in overall price index should therefore bode well for demand recovery for Emami. Analysts of IIFL Capital Services upgrade their Ebitda estimates for FY24/FY25/FY26 by 4%/6%/7% to factor in the strong margin recovery and consequently their EPS estimates get upgraded by 5%/ 20%/22% with FY25-26 seeing higher EPS upgrades due to decrease in effective tax rate guidance. Maintain BUY with a TP of Rs550.