Emami 3QFY11 – Revenue growth buoyant; retain Buy: Anand Rathi

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Emami
3QFY11 – Revenue growth buoyant; retain Buy
Emami reported 3QFY11 revenue and PAT growth of 16% and
9% respectively. The company maintained healthy volume
growth despite inflationary pressures. Though 3QFY11 margin is
lower, we remain positive on Emami’s growth prospects and
expect earnings CAGR of 27% over FY10-13e; reiterate Buy

 Healthy revenue growth. Emami reported steady revenue
growth of 16% yoy, with volume growing 13% and price hikes the
remaining 3%. Major brands – Navratna Oil, Fair & Handsome
and Zandu Balm – reported revenue growth of +20%. Revenue
growth in Boroplus was lower due to a delayed winter.
 Margin lower due to higher raw material prices. EBITDA
margin dropped 496bps on account of higher raw material prices.
Though raw material cost was higher, ad spend as a percentage of
sales was lower 90bps yoy. All major raw materials such as
menthol, liquid paraffin and HDPE are up ~20% yoy. With lower
interest cost and higher other income, net profit is up 9% yoy.
 Outlook. Emami continues to launch new products as well as
brand extensions. With strong investments behind innovations
such as `2 SKU of Zandu Balm, Emami is growing its market size
as well as gaining market share. Its recent price hike of 3-5% will
result in passing on the additional raw material costs..
 Valuation and risks. We retain our target price of `502 at PE of
25x on FY12e earnings. Our target PE is at 50% premium to 12-
month forward Nifty PE. Risks: Higher raw material costs.