Emami - Volumes Robust; Margins Upsurge; Result Update Q3FY15 :: Edelweiss

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Emami’s Q3FY15 revenue came in line, while PAT marginally exceeded our expectation aided by higher other income. Domestic volume growth at 11% YoY (11% YoY in Q2FY15, 13% YoY in Q1FY15) remained strong supported by higher ads and delayed winter (helped cooling products). Gross margin (GM) expanded 224bps YoY, driven by benign mentha prices and price hikes. GM expansion was partially ploughed in A&P, which increased 220bps YoY. New launches contributed 5% to revenues (6% in Q2FY15 and 4% in Q1FY15). We like Emami’s market share gain across most categories, strong international growth and robust pipleline of new launches.

Cooling oil market share jumps 1,270bps YoY to 70.4%

Boroplus antiseptic cream grew 19% YoY; maintained market share at 80.5%. Navratna cool oil and cool talc grew 27% and 16% YoY, respectively, led by delayed winter. Cooling oil wrested market share largely from Himgange; share increased by 1,270bs YoY. Chyawanprash and body lotion grew by 5% each. New products contributed 5% to revenues. International sales grew 21% YoY; growth is likely to be better in Q4FY15.

Q3FY15 conference call: Key takeaways

In FY16, new launches will contribute 5% to sales. An array of new launches, especially in Zandu ethicals, are likely in FY16. SHE needs 3-4 months of internal work to firm up strategy. Raw material prices witnessing declining trend; GM is likely to expand by 100bps YoY in Q4FY15. Other income had a one-time component of key-man insurance maturity of INR90mn. Emami is targeting to expand direct reach to 0.8mn by FY16 from 0.65mn currently; total reach is ~4mn. Fravin acquisition is for its strong R&D and manufacturing technology in organic and natural personal care segment. The ultimate objective is to bring these organic products to India. In FY16, Emami expects to log 16-17% sales growth with ad spend at 18-19%.

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https://www.edelweiss.in/research/Emami--Volumes-Robust;-Margins-Upsurge;-Result-Update-Q3FY15/28146.html