Why Buy?
Emami
n Demand expected to revive for key
brands
Emami Poised For
Double-Digit Growth
n Direct reach expanded to 0.83 million
outlets
n Rural demand recovery likely in FY19
Watch Out For
New launches and recovery in rural demand has
put the firm in a sweet spot, says Malini Bhupta
n High mentha prices may hurt margins
n Higher ad sales to boost demand
may hurt profitability
n Deficit rainfall in FY19 could dent
rural demand
Financials
Emami
BSE Sensex
Net sales (` crore)
3000
2,301
FY17
33006.27
28261.08
2000
2,391
FY16
FY15
2,030
`1056.85
0
FY16
FY15
20 Mar 2015
C
Sensex values in points and M&M stock price in `
onsumer staples have
outperformed the
broader indices in FY18,
just as it has in seven out
of the last ten years. Analysts expect
the new fiscal to see some recovery
in sales as the impact of GST wears
off and rural demand picks up. The
Street feels that, among all consumer
companies, Emami could deliver
double-digit sales and profit growth
over the next two years, thanks to
innovative launches, direct reach
expansion and recovery in rural
demand.
According to the company’s
management, the fourth quarter
has seen recovery in demand for
Kesh King. However, the demand
for Pancharishta has remained
stagnant. While a prolonged winter
has impacted sales of some of
the company’s summer products,
analysts believe a pick-up is expected
22 Mar 2018
Graphics: Praveen Kumar .G
in FY19 first quarter. The brand was
relaunched last year but is yet to see
a significant increase in demand.
According to Antique Stock Broking,
“Emami witnessed recovery in
performance of Kesh King during
the fourth quarter of FY18. This was
driven by upfront trade discounts
as against deferred trade discounts
earlier. However, Pancharishta is yet
to witness any meaningful recovery
in performance post the change
in the packaging and marketing
campaign. The management expects
its initiatives to revive Pancharishta
by the second quarter of FY19.”
Trade channels have stabilised
after the launch of GST and Emami
plans to expand its direct reach,
which increased to 0.83 million
outlets compared to 0.73 million
in March 2017. Also, a demand
recovery is seen in rural India,
which accounts for 50 per cent of
346
FY16 328
472
EPS (`)
739
FY17
`1006.7
FY17
FY15
OP (` crore)
1000
PAT (` crore)
655
510
FY17 15.26
FY16 14.44
FY15
20.78
OP: Operating profit; PAT: Profit after tax;
EPS: Earnings per share; Source: Ace Equity
sales. Jefferies, a foreign brokerage,
said normal monsoon should lift
sentiments and rural cash flows,
thereby, aiding rural recovery.
HDFC Securities believes that
Emami is well-placed because of its
leadership position in 70 per cent of
its portfolio and its focus on high-
margin categories. It also has new
launches planned.
On the downside, gross margins
will come under pressure due to
rising prices of mentha oil. Emami’s
low-cost inventory of mentha has
been exhausted in the third quarter.
Hgher advertising spends during
the fourth quarter of FY18 will also
impact the company’s margins.
Despite the short-term pressure,
Antique Stock Broking expects
the company to report sales and
post-tax profit CAGR of 20 per cent
and 26 per cent, respectively, over
FY18-20.
www.outlookmoney.com April 2018 Outlook Money
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