Q3FY24 Review: Emami: Delayed winter affects top-line

12 Feb 2024 , 03:51 PM

Emami reported a top-line growth of 1.4% (in line with IIFLe) with domestic business reporting a flat growth (~1% volume decline). The poor top-line performance was due to weak demand trends especially in the rural markets and delayed onset of winters. The domestic winter product portfolio reported a 9% decline whereas the non-winter domestic portfolio reported 5% growth. The gross margin expanded by ~290bps on account of benign commodity environment. This quarter marked the launch of 5 digital first launches on its D2C portal Zanducare and the company has entered into the natural’s toothpaste segment. Analysts of IIFL Capital Services build in gradual recovery in volumes with rural demand sentiment likely to improve as well as scale up of D2C brands. On the back of a subdued top-line performance, analysts of IIFL Capital Services cut their sales estimate for FY24/25/26 by ~3-5% and EPS estimate by ~1%/4%/4% respectively. Maintain BUY, TP ₹560 (16% upside). 

Sales in line, beat on margins: 

The sales grew by 1.4% (in line with IIFLe) with domestic business reporting a flat growth (~1% volume decline) and international business reporting a growth of 8% (11% in CC terms) mainly driven by MENAP region. The healthcare/BoroPlus portfolio reported a 0%/9% decline on the back of delayed onset as well as lower intensity of winters. The gross margin expanded by ~290bps on account of softening of commodity prices. The Ebitda grew by 7% and Adj. PAT grew by ~11%. 

Expect volumes to recover: 

With moderation in inflation and increased government spending on infrastructure, analysts of IIFL Capital Services expect the rural markets to recover and a gradual recovery in volumes. While seasonality has been an issue for Emami, the launch of new products is likely to reduce the sensitivity of the overall portfolio to seasonality. This quarter marked the launch of 5 digital first launches on its D2C portal Zanducare. It has also entered into the naturals toothpaste segment (high GM product). Though the launch of these products have been only in select channels (MT and e-com), the company is looking for launching them in GT as well. 

EPS for FY24/25/26 downgrade by ~1%/4%/4%: 

On the back of a subdued top-line performance, analysts of IIFL Capital Services downgrade their sales estimate for FY24/25/26 by 3-5% and EPS estimate for FY24/25/26 by ~1%/4%/4%. Maintain BUY, TP ₹560.