Emami --In-line 4Q; early signs of costs ease .:Macquarie Research

Please Share:: India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��


Emami
In-line 4Q; early signs of costs ease
Event
 Emami reported in-line 4Q’FY11 results; sales grew by 26%YoY and PAT grew
by 17%YoY. While net profit was almost in-line with our expectation, sales were
4% ahead of our estimates. The company reported 19% domestic volume
growth with strong growth across all key products. Export growth was a robust
34% YoY, backed by South Asia and Africa. We reiterate our Outperform.
Impact
 Robust 26% sales growth, assisted by 19% volume growth. Emami’s 4Q
FY11 sales grew by 26%YoY to Rs3.5bn, led by 19% domestic volume and
the impact of a ~4% weighted price hike in India. Sales growth was supported
by strong growth in key brands: Navratna Hair Oil (↑19%), Zandu Balm (↑
20%) and Navratna Cool Talc (↑ 90%), Mentho Plus Balm (↑ 21%),
International sales (↑34%) and Boroplus Prickly Heat Powder (↑ 11%).
 Early signs of ease in raw material (RM) prices. Emami’s EBITDA margin
declined 489bp due to a 273bp drop in gross margin on higher RM costs, and
an increase in employee costs due to the addition of a 300 sales force to grow
international sales and increase rural penetration. Prices of key raw materials
like menthol (↑75% YoY) and LLP (↑25% YoY) has impacted gross margins.
Early signs of a cool-off in raw material costs are visible as menthol prices
have come down ~13% since their April peak ahead of fresh crop in June. We
see low probability of downside risks to margins from 2Q’FY12E.
 Net profit grew by 17% YoY to Rs550mn. PAT growth was aided by strong
26% top-line growth, interest income (compared to expense in the previous year)
and higher other income. We believe stabilisation in raw material prices along with
a fast growing product portfolio with a low near-term competitive threat will help
the company post a ~20% earnings CAGR over the next three years.
 New product initiatives continue. Emami has been aggressive in new product
launches with significant successes over the last 4-5 years. Emami is planning
to enter underpenetrated skincare categories with technology from Mibelle
Biochemistry and it intends to roll out these products from 2H’FY12. The
company also plans to roll out coconut-based Ayurvedic hair oil nationally.
Earnings and target price revision
 We have cut our FY12E EPS by ~4% and maintain our TP to Rs550.
Price catalyst
 12-month price target: Rs550.00 based on a DCF methodology.
 Catalyst: Decline in raw material prices
Action and recommendation
 Outperform maintained. We maintain our positive view on Emami, given its
strong growth momentum, healthy product pipeline and new initiatives, which
should add growth and maintain leadership in key products. We expect
Emami to record a 20% earnings CAGR over the next three years.