Emami - impressive volumes; Buy:Edelweiss

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Emami - impressive volumes; higher other income boosts profit; Buy





􀂃 Strong revenue and PAT growth; volumes jump ~23%
Emami’s Q2FY11 revenues rose 26% to INR 2.72 bn (our estimate INR 2.6 bn)
and volumes jumped ~23%. Price hikes effected in earlier quarters contributed
~3% Y-o-Y growth. PAT increased 45% to INR 534 mn, ahead of our estimate.
Other income stood at INR 59 mn vis-à-vis INR 6 mn Q2FY10. The company’s
tax rate dipped 30bps to 14.6% Y-o-Y but increased 500bps Q-o-Q.



􀂃 EBITDA margin dips with higher COGS
The company’s EBITDA increased 9.8% to INR 575 mn. However, EBITDA
margin declined 317bps following higher COGS of 554bps. LLP and menthol costs
inflation resulted in the COGS surge. Staff costs, advertising & sales promotions
(A&P), and other expenditure dipped 52bps, 17bps, and 169bps, respectively.


􀂃 Robust performance of blockbuster products
Volumes of Boroplus antiseptic cream increased 20%, those of prickly heat
powder increased 13%, CSD increased 67%, Zandu Balm 26%, Menthoplus Balm
18%, and Fair and Handsome (F&H) 15%. Increased focus on rural distribution
led to such phenomenal volume growth. Navratna Oil’s sales increased 19%;
growth of this product has been good with little competition risk. Emami’s
products have been well received in SAARC and Africa countries. The company
posted sales growth of 22% Y-o-Y in Q2FY11 (47.7% in Q1FY11) led by
Bangladesh and Africa. However, CIS and GCC markets have seen some
slowdown.


􀂃 New launches on the cards
Emami is test marketing the hair color segment at low price levels and continues
to evaluate baby products, and a 5-in-1 shampoo. Also, the company is
extending moisturising soap into cream variant under the Malai Kesar brand,


􀂃 Outlook and valuations: Positive; ‘BUY’
The company is focused on the mass-market product portfolio, is a leader in
several categories, faces limited competition from MNCs and regional players,
enjoys pricing power, and has high growth potential. New product launches,
combined with rejuvenation of Zandu brands should drive growth, going forward.
We are bullish on this domestic FMCG consumption story and maintain ‘BUY’ on
the stock. On relative return basis, we rate it ‘Sector Outperformer’.