Emami:: Outlook remains buoyant – Maintain BUY:: Religare

Outlook remains buoyant – Maintain BUY
HMN’s net sales/EBITDA/adj. PAT grew 17.9%/14.3%/7.6% YoY in Q2FY13, led by a strong 22% YoY growth in the domestic business and recovery in the international business. The onset of early winter has been good for the company with H2FY13 looking strong. We maintain BUY with a Sep’13 TP of Rs 635 on: (a) double-digit volume growth in the domestic business, (b) flattening out of input costs and (c) reasonable valuations at 25.9x/21.2x FY13E/FY14E P/E.

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 Strong 22% YoY growth in domestic business: HMN’s Q2FY13 net sales grew 22% YoY (excluding CSD and exports), led by a volume growth of 16% YoY. The company has not seen any slowdown in the domestic business, with H2FY13 likely to see a continuation of growth momentum as the onset of early winter season looks promising. The CSD business reported flat sales, whereas exports grew by 3% YoY. Navratna oil reported a 14% YoY sales growth for the quarter (cool talc. growth at 85% YoY). BoroPlus cream was up 53% YoY, while balms grew 10%. Fair & Handsome reported a 26% YoY growth in the quarter after a flat growth in Q1FY13. Himani Fast relief grew by 44% post its relaunch. Zandu OTC products reported a 28% YoY growth.
 EBITDA margins decline by 50bps YoY: Emami reported an EBITDA growth of 14.3% YoY as margins declined by 50bps YoY on account of a 50bps YoY rise in A&P costs and 40bps YoY increase in employee expenses. Gross margins for the company increased by 50bps YoY on judicious price increases and mix improvement. Adj. PAT increased by 7.6% YoY to Rs 609mn, impacted by a 30% YoY decline in other income and a 350bps YoY increase in tax rate (base effect).
 Maintain BUY with a Sep’13 TP of Rs 635: We revise earnings and roll forward our valuation from Mar’14 to Sep’14 earnings, leading to a TP of Rs 635. Maintain BUY. Key risks to our call are a slowdown in volume growth and higher input costs.