Strong performance continues - Emami :: HDFC Securities

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Strong performance continues Emami’s 3QFY15 revenues witnessed a strong 18.4% YoY growth to Rs 6.9bn. Despite a poor and delayed winter, domestic volumes grew 10% YoY on the back of 20.4% volume growth in Navratna brand. Navratna oil grew by 27% YoY benefitted by market share gain (from Himgange) and an extended summer. Furthermore, international business witnessed 21% growth in revenues. Despite significant investment on brands and new launches (A&P up 220bps), EBITDA margin expanded 32bps YoY to 30.6%, led by softer RMs (COGS down 224bps). APAT grew 22.9% YoY to Rs 1,857mn aided by higher other income (+176.7% YoY). Emami’s foray into under penetrated high growth categories (backed by high A&P) along with a strong product pipe will keep the company in good stead. Its strong focus on a niche product portfolio ensures lower competitive intensity from MNCs, and hence very high gross margins (~65%). However, current valuations do not offer reasonable risk-reward. Retain NEUTRAL with a TP of Rs 910. Resilient revenue growth continues  Emami’s 3QFY15 revenues grew a strong 18.4% YoY to Rs 6.9bn. Despite delayed winter, domestic revenues (82% of consol revenues) grew by 18% (volume: 10%). All categories reported resilient growth (Boroplus antiseptic cream +19%, Navratna cooling oil +27%, cool talc +16%, balm +15%, F&H +21%, Zandu OTC range +18%). Also, market share witnessed a gradual up-tick across categories. International business sales grew by 21% led by robust growth in SAARC and GCC. EBITDA margins continues to expand  EBITDA margin expanded 32bps YoY to 30.6% led by softer RM cost (COGS down 224bps) and lower other expenses (down 59bps). This was partially offset by higher A&P (up 220bps) and staff costs (up 31bps).  Despite menthol trending upwards in the past one month, RM basket remains under control. Management expects 100bps YoY gross margin expansion in 4QFY15. However, sustainability of EBITDA margins (full year) at the current level (~25%) would need to be monitored. Valuations & view  Emami is trading at 36.5/30.8x our FY16/FY17E EPS. Retain NEUTRAL with a TP of Rs 910 (30x FY17E).

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