Emami: Uniquely positioned– Detailed Report

Emami

Initiating Coverage | Sector: Consumer

Emami

BSE Sensex

22,688

S&P CNX

6,783

CMP: INR463

TP: INR555

Buy

Uniquely positioned

Leader in niche categories; multiple growth drivers

Stock Info

Bloomberg

Equity Shares (m)

52-Week Range (INR)

1, 6, 12 Rel. Per (%)

M.Cap. (INR b)

M.Cap. (USD b)



HMN IN

227.0

539/393

4/-16/-4

105.2

1.7



A unique play in Personal Care and Healthcare, with strong and differentiated

positioning as a provider of natural/herbal products.

Strong focus on niche segments with low competitive intensity to help post 15.4%

revenue and PAT CAGR over FY14-16 on the base of 23% PAT CAGR over FY12-14.

Key concerns: (1) continued consumption slowdown, (2) rising competition in skin

care category, and (3) the management’s acquisition intent.

Fundamentals strong; valuations at 23.8x FY15E and 20.1x FY16E earnings. Initiate

coverage with a Buy rating and target price of INR555 (24x FY16E EPS).

Financial Snapshot (INR Billion)

Y/E March

2014E 2015E 2016E

Sales

18.8 21.6 25.0

EBITDA

EPS (INR)

EPS Gr. (%)

BV/Sh. (INR)

RoE (%)

RoCE (%)

Payout (%)

Valuations

P/E (x)

P/BV (x)

EV/EBITDA (x)

Div. Yld (%)

26.7

11.7

23.0

1.4

23.8

10.2

19.4

1.7

20.1

8.6

16.0

1.9

4.4

3.9

17.3

25.0

39.6

47.0

48.8

45.2

5.1

4.4

19.4

12.0

45.5

45.6

50.2

46.4

6.0

5.2

23.1

18.7

53.6

46.5

52.1

45.7

Unique play in Personal Care and Healthcare

Emami (HMN) has successfully entered and established leadership in niche

categories. It has created categories like Cooling Oil, Cooling Talc and Men’s

Fairness Cream, and has gained leadership in Antiseptic Cream, where it faces

limited competition from a regional player. Its strategy of using Ayurvedic

proposition, creating a portfolio of high gross margin products with low

competitive (especially MNC) intensity, driving volumes through smaller unit

packs with a mass market focus, and investing aggressively in brands has made

four of its largest brands leaders in their respective categories. ~70% of its sales

are from categories where its brands are market leaders.

Multiple growth drivers

HMN’s revenue growth in the last three years has been a function of consistent

growth in incumbent brands, success of some of its new product launches, and a

growing export portfolio. We expect the company’s power brands (Boroplus,

Navratna, Zandu Balm & Mentho Plus Balm and Fair and Handsome) to continue

posting healthy revenue growth and new launches to help drive volume growth.

Distribution expansion and focus on OTC Healthcare are key cornerstones of its

medium term growth strategy.

Shareholding pattern (%)

Dec-13 Sep-13 Dec-12

Promoters

72.7 72.7 72.7

Dom. Inst.

18.7 18.9 18.3

FII

2.2

2.7

Others

6.4

5.7

6.3

Stock Performance (1-year)

Stable RM prices to drive margin expansion; gains to be invested in

brands

Correction in menthol prices has driven significant gross margin expansion in

FY13 and 9MFY14. Menthol prices are 13% lower YoY and are now stable. This

should support gross margin expansion in FY15. We expect HMN to use the

gains to invest more in brands, as it introduces new variants/brands.

Fundamentals strong; valuations reasonable

We expect HMN to achieve 15.4% earnings CAGR over FY14-16 (on the base of

23% CAGR delivered over FY12-14). EBITDA margin should expand 100bp, driven

by higher gross margin and scale benefits. We believe HMN is a good long term

bet, with presence in categories having long runway for growth, together with

low competitive intensity. We initiate coverage with a

Buy

rating and target

price of INR555 (24x FY16E EPS). Continuation of current consumption

slowdown and potential expensive acquisitions remain the key risks.

25 April 2014

Emami

Unique play in Personal Care and Healthcare

Leadership in niche categories, limited competition



Market leading presence in niche categories, where gross margins are high and

competitive intensity low, coupled with aggressive advertising and promotion strategy

gives HMN a unique competitive advantage.

HMN derives ~70% of its sales from uniquely positioned power brands. Innovation and

category expansion form the cornerstones of its medium term strategy.

Exhibit 2: Power brands constitute ~70% of revenues

Cooling oils

25%

Navratna

Cool Talc

Fair and

Handsome

11%

Fast Relief

Zandu Balm

& Mentho

Plus Balm

24%

Boroplus

Antiseptic

20%

Exports

11%

Others

Navratna

Oil

19%

Exhibit 1: Emami’s category mix (FY13)

Others

14%

Balm &

Pain relief

26%

Skin Care

35%

Source: Company, MOSL

Leadership in niche categories, differentiated positioning imparts pricing

power

HMN has a demonstrated track record of innovation and category creation. It has

successfully entered and established leadership in niche categories that were

previously dominated by regional players. It has created categories like Cooling Oil,

Cool Talc and Men’s Fairness Cream, and has gained leadership in Antiseptic Cream,

where it faces limited competition. Its strategy of using its ayurvedic proposition,

establishing presence in categories with high gross margins, driving volumes through

smaller unit packs and investing aggressively in brands has helped four of its largest

brands –

BoroPlus Antiseptic Cream, Navratna Hair Oil, Fair and Handsome,

and

Zandu Balm

– to achieve leadership strength. In this section, we describe the

company’s positioning in its key categories – Cooling Oil, Skin Care, and Pain Relief.

Exhibit 3: Strong market presence in underpenetrated categories

95.7

92.3

Penetration(%)

88.6

74.5

72.8

60.4

51.0

18.6

1.6

1.1

Source: Company, MOSL

25 April 2014

Emami

Exhibit 4: Category Overview-Emami

Overall Market

Category

Cooling oil Market Size

Antiseptic Cream

Balm

Men's fairness cream

Prickly heat powder

Cool Talc

Pain reliever

Chyawanprash

Size (INR m) 3 yr CAGR Emami Offering

8600

3900

7000

3600

3000

4600

10000

3450

16.0%

13.1%

25.9%

38.1%

13.2%

24.3%

70.2%

17.7%

Navratna Oil

Boroplus Cream

Zandu & Mentho Plus Balm

Fair & Handsome

Boroplus Powder

Navratna Cool Talc

Fast Relief

Sona Chandi & Zandu

Emami mkt share (%)

2010

2013

Source: Industry, MOSL



Cooling Oil:

The Cooling Oil category contributes ~25% of HMN’s revenue. Its

brands in this category,

Navratna

and

Navratna Xtra Thanda

cumulatively have

over 55% market share. The company launched

Navratna

in 1989 and created

the Cooling Oil category through aggressive advertising and increased push

through smaller unit packs (~30% of

Navratna’s

sales). In the last three years,

Cooling Oil (INR8.6b market) has been the fastest growing category within Hair

Oil and now constitutes 11% of the overall Hair Oil category.

Cooling Oil

CATEGORY DETAILS



EMAMI’S PRESENCE



Category market size of INR8.6b, 11% of the total

Hair Oil segment.

The category has delivered value CAGR of 15.3%

over the last five years.

Major brands include

Navratna (55% market

share), Himgange (28.5% market share), Rahat

Rooh

and

Parachute Advansed.

Unique positioning as Therapeutic Oil rather than

Hair Oil.

Continued investment in the base

Navratna

brand.

Increasing push for

Navratna Xtra Thanda

in key

markets of Uttar Pradesh and Bihar to thwart

regional competition (primarily from

Himgange).

Category expansion via marketing and consumer

activation.

HMN enjoys the first mover advantage and is the only

pan India player in this category.

Navratna

is the market leader, with 55% share (over

90% share in the South region).

The brand has registered 18.2% revenue CAGR in the

last three years.

Brand extension,

Navratna Xtra Thanda

has garnered

4% market share within two years of launch.

EMAMI’S STRATEGY



SALES GROWTH

Sales growth (%)

-5



FY06

FY07

FY08

FY09

FY10

FY11

FY12

FY13

25 April 2014

Emami

Exhibit 5: Cooling Oil market

Cooling oil Market Size (INR mn)

8,100

6,650

5,507

3,970

8,600

Exhibit 6: Market share of Navratna (%)

Navratna Oil

2008

2009

2010

2011

2012

2013

2008

2009

2010

2011

2012

2013

Source: Company, MOSL

Exhibit 7: Price point comparison - Cooling Oil category

Brand

Bajaj Kailash Parbat Cooling Oil

Himgange Ayurvedic

Navratna Oil

Rahat Rooh

SKU

100ml

200ml

2.8ml

100ml

200ml

500ml

2.8ml

100ml

200ml

300ml

500ml

200ml

Price (in INR)

105

210

110

140

230

115

Price/100 gm (INR)

55.0

47.5

35.7

60.0

52.5

42.0

35.7

60.0

55.0

46.7

46.0

57.5

Source: Company, MOSL

Amitabh endorses Emami’s

power brands such as

Boroplus, Navratna Tel and

Fast Relief

Emami recently entered the light hair oil segment (category market size of INR12.6b,

16% of the total Hair Oil segment) with its product named 7 Oils in One. The pan-

India roll out of the product is currently under way. The launch of the product will

be supported by a 360 degree integrated communication

Exhibit 8: Emami recently launched 7 Oils in One

Offerings in Light Hair Oil category

Bajaj Hair Oil-Almond Drops

3ml

50ml

75ml

100ml

200ml

300ml

500ml

Emami 7 Oils in One

3ml

50ml

100ml

Source: Company, MOSL

102

135

200

Price (in INR)

Price/100ml (INR)

25 April 2014

Emami



Skin Care:

The INR62b Skin Care category in India is characterized by the

presence of large domestic as well as MNC players. Skin Care contributes ~35%

of HMN’s revenue and a higher share of its profits owing to superior margin

profile. HMN is the market leader in Antiseptic Cream, with its

BoroPlus

brand. It

is also the market leader in Men’s Fairness Cream, with

Fair and Handsome

(first

mover advantage, having capitalized on the need for a fairness product for men;

focus on mass market). It is increasing its market share in the Talcum Powder

category, with

Navratna Cool Talc

(niche cooling positioning; benefiting from

the market leader’s lack of aggression and focus). Presence of deep pocket

MNCs like HUVR and Garnier, which are increasingly focusing on the Men’s

Fairness market, coupled with overall slowdown in Fairness Cream may keep

growth under pressure in the near term.

Skin Care

CATEGORY DETAILS



EMAMI’S PRESENCE

HMN is the second largest player in the overall Skin Care

category. Skin Care is the largest category in HMN’s

revenue and profit mix.

Major brands in HMN’s Skin Care portfolio are:

BoroPlus Antiseptic Cream –

74% market share in

Antiseptic Cream category; revenue CAGR of 9% in

the last three years.

Fair and Handsome –

58% market share in Men’s

Fairness; CAGR of 13% in the last three years.

Navratna Cool Talc

– 18% market share; niche

cooling positioning; three-year CAGR of 60%.



Market size of the Skin Care category is INR62b.



Category growth of 21% CAGR in the last three

years has been driven by Facial Care (Moisturizers)

and Body Care.



Hindustan Unilever (HUVR) is the largest player in

Skin Care, with over 40% market share. Other

players include HMN, Beiersdorf (Nivea), Loreal,

P&G and Dabur.

HMN is present in Antiseptic Cream (INR3.9b

market), Men’s Fairness (INR3.6b market) and

Talcum Powder (INR4.3b market).

Category is witnessing flattish growth in the last

few quarters due to slowdown in discretionary

consumption.

Deepen category presence via:

Brand extensions such as

BoroPlus Lotion,

BoroPlus Face Wash.

New launches in Face Wash category –

F&H

Instant Fairness Face Wash

(launched in

4QFY14).

EMAMI’S STRATEGY



SALES GROWTH

Sales growth (%)

FY06

FY07

FY08

FY09

FY10

FY11

FY12

FY13

25 April 2014

Emami

Exhibit 9: Antiseptic Cream category growth decelerated

Antiseptic Cream Market Size (IN R m)

3,600

2,694

3,050

3,900

Exhibit 10: Market share of BoroPlus Cream (%)

Boroplus Cream

2010

2011

2012

2013

2010

2011

2012

2013

Source: Company, MOSL

Exhibit 11: Men’s Fairness market

Men's fairness cream Market Size (INR m)

3,300

2,850

3,600

Exhibit 12: Market share of Fair & Handsome (%)

Fair & Handsome

1,367

2010

2011

2012

2013

2010

2011

2012

2013

Source: Company, MOSL

Exhibit 13: Cool Talc market

Prickly heat powder Market Size (INR m)

2,750

2,070

2,200

3,000

Exhibit 14: Market share of Navratna Cool Talc (%)

Boroplus Powder

2010

2011

2012

2013

2008

2009

2010

2011

2012

2013

Source: Company, MOSL

25 April 2014

Emami



Balms & Pain

Relief: Pain Relief has been a focus segment for HMN, which has

home grown brands such as

Mentho Plus Balm

and

Himani Fast Relief.

However,

the acquisition of Zandu in 2008 significantly increased this category’s

contribution to ~26% of HMN’s consolidated sales. The company’s Ayurvedic

positioning and widening rural presence has facilitated strong growth in this

category over the last three years.

Balms & Palm Relief

CATEGORY DETAILS



EMAMI’S PRESENCE

HMN is the market leader in Balms, with

Zandu Balm

and

Mentho Plus

having a combined market share of

58% (Zandu

Balm:

43%,

Mentho Plus:

15%) in the INR7b

category.

Zandu Balm

(acquired in November 2008) has posted

22% sales CAGR for FY10-13.

Himani Fast Relief

has achieved a CAGR of 10% in the

last three years; growth has tapered off in the last two

years on slow category growth. HMN enjoys 4% share in

the INR10b category.



Overall size of the Balms & Pain Relief category is



estimated at INR17b, with Balms constituting

INR7b.

Balms and Rubs constitute 70% of the category,

and Tablets constitute the balance 30%.



Major players in Balms and Rubs include HMN

(Zandu

Balm, Mentho Plus Balm, Himani Fast



Relief),

P&G Hygiene and Healthcare (Vicks

Vaporub),

GSK Pharma (Iodex) and Paras Pharma

(Moov).

Grow the Balms category by increasing brand

investments.

Focus on increasing sales of the low unit pack SKU

Zandu Balm

to facilitate higher penetration and

increased volume growth.

Increase presence in Pain Relief through Zandu’s

untapped Ayurvedic and OTC products portfolio.

EMAMI’S STRATEGY



SALES GROWTH

Sales growth (%)

125.3



20.8

23.2

20.1

FY10

FY11

FY12

FY13

Exhibit 15: Balm market

Balm Market Size (INR m)

6,800

6,100

3,507

Exhibit 16: Market share of Zandu Balm & Mentho Plus (%)

Zandu & Mentho Plus Balm

7,000

2010

2011

2012

2013

2010

2011

2012

2013

Source: Company, MOSL

25 April 2014

Emami

Strong innovation track record; leveraging LUPs to build rural presence

HMN’s management has a good track record of innovation and has developed

several niche categories (see Annexure: HMN’s entry into Men’s Fairness – a case

study). Consequently, it enjoys first mover advantage in categories like Men’s

Fairness, Cooling Oil, Antiseptic Cream. We note that HMN’s portfolio largely caters

to the mid and mass end of the category spectrum. The company is looking at

building deeper presence in small towns. Hence, its focus on the mass end through

low unit packs (LUPs) is natural, in our view. It is also looking to leverage the equity

of its brands to drive portfolio expansion.



Innovation to extend presence in adjacent categories:

HMN’s medium term

strategy includes extension of its presence in existing categories through new

variant launches, introduction of value-added offerings and exploiting the brand

equity of its power brands to enter into new categories (entry into Face Wash

under

BoroPlus

and

Fair & Handsome).

Exhibit 17: Key Face Wash brands in India

Brand

Lakme Perfect Radiance

Ponds Facial Foam-White Beauty

Garnier Face Wash Intense Fresh

Himalaya Face Pack

Everyuth Face wash cream

Pears Fresh & Gentle

Clean & Clear

Nivea

SKU

100ml

50 gm

100 gm

50 gm

60 gm

80 gm

50 gm

Price (in INR)

165

145

110

Price/100 gm (INR)

165

150

145

110

120

117

124

178

Source: Company, MOSL

Emami launches Fair and

Handsome extension in the

Face Wash category

Exhibit 18: Emami launched Face Wash under its "Fair and Handsome" brand in 4QFY14

Offerings in the Face Wash category

Boroplus Face Wash

50gm

Fair & Handsome Instant Fairness Face Wash

20 gm

50 gm

100 gm



Price (in INR)

100

Price/100 gm (INR)

150

130

100

Source: Company, MOSL

Distribution expansion:

HMN has completed the first phase of Project Swadesh

and increased its rural reach to towns with population clusters of 10k. Its direct

reach has increased from 500k outlets in FY12 to 600k in FY13 and it is targeting

800k in FY15. It aims to cover villages with population of 8k, going forward.

Increasingly, it is relying more on technology to boost its market presence and

improve the sales productivity of its team.

25 April 2014

Emami

Exhibit 19:Project Swadesh strengthened reach of the company’s offerings (Store count-m)

Direct Reach

Indirect Reach

3.6

2.6

2.8

4.0

0.40

0.43

0.45

0.50

0.60

2009

2010

2011

2012

2013

Source: Company, MOSL



Recruiting new consumers through LUPs:

HMN is also leveraging its low unit

pack (LUP) portfolio to drive penetration of its products in rural and semi-urban

areas. ~30% of its turnover comes from SKUs priced below INR5. HMN offers (a)

INR2 SKUs of

Zandu Balm

and

Mentho Plus,

(b) INR1 sachet of

Navratna Talc,

(c)

INR1 sachet of

Navratna Oil

(40% of brand sales), (d) INR10 SKU of

Fair &

Handsome,

and (e) INR5 SKUs of

Vasocare Petroeum Jelly

and

BoroPlus,

to drive

penetration and usage in rural markets.

Exhibit 20: Emami’s LUP portfolio – helps to recruit new consumers

Products

Fair & Handsome Fairness Cream.

Boro Plus Oil Control Face Wash

Navratna Oil

Navratna Cool Talc

Fast Relief Ointment (CHEETAH)

Zandu Balm

Boroplus Adv.Winter Moist. Lotion

Boro Plus Prickly Heat Powder

Navratna Cool Talc

Emami Vasocare T.M.Lotion

Boroplus Antiseptic Cream

Sona-chandi Chyawanprash

Emami Keshar Malai Cold Cream

Emami Vasocare Petroleum Jelly.

Fast Relief Ointment (CHEETAH)

Menthoplus Balm

Navratna Oil

Zandu Balm

Navratna Oil

Navratna Extra Thanda Oil

Navratna Cool Talc

SKU size

8 gm

12 ml

20 ml

20 gm

4 ml

4.5 ml

20 ml

20 gm

12 gm

20 ml

7 ml

6 gm

8 ml

1.7 ml

1 ml

5 ml

1 ml

2.7 ml

2.5 ml

M.R.P. (Net)

Source: Company, MOSL

25 April 2014

Emami

Aggressive advertising and promotion strategy to strengthen brands

HMN has consistently maintained an aggressive advertising and promotion strategy.

It has been investing heavily in its brands. Though its A&P-to-sales has declined in

the last four years, at 16.4%, it is still one of the highest amongst its Consumer peers

that have largely maintained sub-15% A&P-to-sales. In 9MFY14, its ad spends fell

180bp to 16.6% due to low new launch momentum and conscious management

decision to withhold investments in a weak economic environment. However, we

expect ad spends to move up in FY15, as HMN drives new launches in Skin Care and

enhances presence in the OTC Healthcare segment. HMN’s advertisement

campaigns are in keeping with its mass market focus. The company has a large

number of celebrities endorsing its brands, which keeps its ad spends high.



Movie Marketing: In 1983

Bollywood film, Agar Tum

Na Hote, Emami did a brand

placement campaign with

lead actor Rajesh

Khanna playing the

managing director of Emami

Preference for celebrity endorsements:

HMN has a large number of celebrities

endorsing its brands, which is one of the key reasons for the higher ad spend

ratio. It typically signs actors/ cricketers/other sportspersons and uses locally

relevant brand ambassadors (regional actors, etc) to create a buzz around its

brands. The management believes that the celebrity appeal creates aspirational

value for its brands and enhances the target audience for its niche products. In

South India, HMN has used regional advertising and regional celebrities (Surya,

Chiranjeevi) to market its product range. Such a strategy improves brand

acceptability.

Creating mass appeal through television campaigns:

A large number of HMN’s

television campaigns are aimed at attracting the bottom of the pyramid (BOP)

consumer and creating aspirational value for its brands at the lower end of the

consumer pyramid. It also leverages local fairs, jatras and melas to drive visibility

of its brands.



Exhibit 21: Highest A&P-to-Sales among Consumer peers (%)

16.4

11.2

8.6

4.1

1.9

11.8

13.3

14.5

14.7

ITC

Nestle Britannia Marico

HUL

Dabur

GCPL

GSKCH

Colgate

Emami

Source: Company, MOSL

25 April 2014

Emami

Multiple growth drivers

Portfolio expansion + OTC Healthcare focus



HMN’s organic revenue growth has been a function of consistent growth in incumbent

brands, success of new product launches, and a growing export portfolio.

It has expanded its Skin Care portfolio through entry into adjacent categories.

It is focusing on Zandu and its OTC Healthcare portfolio for the medium term.

Hitherto known for its family-driven organizational culture, HMN has been recruiting

senior-level talent from MNCs in the last 12-18 months. We see this as an important

milestone in its growth strategy.



New product launches to drive volume growth

In a slowing urban consumption environment, HMN’s volume growth has dipped

from 13-15% in FY13 to 5% in 9MFY14. Adverse seasonality coupled with overall

slowdown in Consumer categories has impacted HMN’s performance.

HMN has been continually launching innovative products in the Personal Care space,

and has leveraged its brand strength and Ayurvedic positioning to enter new

categories. Its strategy entails indentifying niche mass market segments within

Personal Care and Healthcare, where gross margins are high and competitive

intensity is low.

New launch momentum has been relatively sedated in the last two years. HMN

typically test markets 3-5 brands every year, and then, based on the success and

consumer acceptance, scales them up nationally. We expect an increase in new

launch momentum in FY15.

HMN has recently launched

Fair & Handsome Instant Fairness Face Wash

after

entering the category in early 2012 by launching

BoroPlus Advanced Moisturizing

Face Wash.

Subsequently, it launched a niche anti-pollution variant of

BoroPlus Face

Wash

in October 2013, with endorsement by actress, Bipasha Basu. Face Wash is an

INR10b category, growing at over 20%. MNCs with deep pockets – HUVR, Beiersodrf

(Nivea), L’oreal (Garnier), etc, are present in the category.

Some of the notable new launches/relaunches from HMN’s stable in the last few

years include

Navratna Extra Thanda, Navratna Cool Talc, Vasocare Petroleum Jelly,

Malai Kesar Cold Cream, BoroPlus Lotion,

and

Himani Fast Relief.

We expect

innovations/extensions and new category entries in

Skin Care

to drive volume

growth for HMN in FY15 and FY16.

25 April 2014

Emami

Exhibit 22: Emami’s product launch/renovation calendar

Launch

Acquired Himani

Boroplus Antiseptic Cream

Boroplus Prickly heat powder

Mentho Plus Balm

Navratna Cool Oil

Sona Chandi Chyawanprash

Sona Chandi Healthy

Fair Baby Massage Oil

Fair and Handsome

Fair & Ageless Fairness Cream

Boroplus Antiseptic Light Cream and Body Lotion

Navratna Cool Talc

Mr. Black & Mrs. Black, Herbal Hair Dye Powder

Malai Kesar Cold Cream

Hair Life hair pack

Navratna Oil Lite

Navratna Cool Talc Active Deo

Keshkala

Navratna Extra Thanda Oil

Acquisition of Zandu Pharmaceuticals

Emami Pure Skin Glycerine Bar

Emami Vasocare Petroleum Jelly

Navratna Cool talc

Boroplus Winter Lotion

Emami Malai Kesar Soap

Navratna Oil (new variant)

Extra Thanda Cooling oil

Vasocare

Boroplus Facewash

Zandu Pancharishta

Boro Plus Sunscreen

Boroplus Sun Protection Lotion

Vasocare Lotion

Fair and Handsome Instant Fairness Face wash

Year

1978

1982

1987

1989

2004

2005

2006

2007

2008

2009

2010

2011

2012

2014

Skin Care

Pain Relief

Cooling Oil

Others

Cooling Oil

Skin Care

Cooling Oil

Skin Care

Cooling Oil

Pain Relief

Skin Care

Cooling Oil

Skin Care

Pain Relief

Skin Care

Source: Company, MOSL

Category

25 April 2014

Emami

Healthcare: Abundant opportunity; medium term catalyst

The management emphasizes the lucrative Healthcare opportunity, underpinned by

rising stress levels in urban centers and growing preference for a healthy lifestyle.

Ayurvedic and herbal products are popular in India. Given its rich century-old

heritage,

Zandu

has a very strong brand equity amongst both practitioners and

consumers. The OTC Healthcare market in India is growing at 25-30% a year. HMN’s

Healthcare business (including ayurvedic generics, OTC products and ethical

products) grew 34% in FY12, 27% in FY13 and 29% in 9MFY14. HMN aims to

strengthen its Healthcare portfolio of OTC and generic products under the

Zandu

umbrella.



Ayurvedic generics:

These are essentially herbal medicines manufactured as per

ancient text books of Ayurveda. HMN has a portfolio of 139 health solutions and

200 products, and uses various below-the-line activities like doctor contact

programs, health camps, etc, to promote them. It has renewed its entire

product range and looks to leverage it, going forward.

OTC products:

HMN relies on celebrity endorsements to drive growth in this

segment. For example, Indian cricket team captain, MS Dhoni promotes

Zandu

Pancharishta,

which posted a growth of 47% in FY12 and 68% in FY13.

Ethical products:

These are Ayurvedic proprietary medicines, sold through

prescriptions of registered medical practitioners. HMN has a portfolio of 15

products in this category. Its flagship brand

Rhumasyl,

a topical pain reliever for

pain associated with osteoarthritis, rheumatoid arthritis, musculoskeletal pain,

frozen shoulder, spondylitis and lumbago is the market leader in the Ayurvedic

topical pain management category.

Launch new products and close portfolio gaps.

Expand distribution in targeted (chemist) channel.

Build modern trade presence.

The management believes that

Zandu Pancharisht

and

Vigorex

have strong

potential.

Zandu Pancharisht

contributes INR450m and could grow at 25-30% in

the medium term.

Emami’s Healthcare strategy



We expect HMN to leverage

Zandu’s

brand equity and build a gradual presence in

the Healthcare space. We believe this will provide an additional catalyst for medium

term growth. We are modeling for 25% revenue CAGR over FY14-16 for HMN’s

Healthcare portfolio.

Exhibit 23: OTC market size (INR m)

OTC Category Size (INR m)

Exhibit 24: Emami consistently expanding market share (%)

OTC Market Share

9.9

5.2

5.6

6.3

9.9

10.8

11.8

12.7

13.1

2005 2006 2007 2008 2009 2010 2011 2012 2013

Source: Company, MOSL

25 April 2014

2005 2006 2007 2008 2009 2010 2011 2012 2013

Source: Company, MOSL

Emami

International Business: FY14 growth driven by lower base; expect

moderation

HMN’s International Business division contributes ~11% of its overall revenue. It has

a presence in 60 countries. While SAARC countries account for 45% of the division’s

revenue, GCC countries contribute 20%. In 9MFY14, the division’s revenue grew

30%, aided by low base. In FY13, revenue had declined 5.4%, primarily due to the

discontinuation of low margin products in Africa, inventory correction and

counterfeiting issues in Russia. Over FY14-16, we expect 12% revenue CAGR for the

International Business. HMN remains vulnerable to political and currency risks.



Local production in Bangladesh a positive:

HMN’s Bangladesh plant

commenced operations in FY13; localized production has helped save on import

duties. While revenue declined 5% in 3QFY14, impacted by political

disturbances, we expect Bangladesh to be a key catalyst for HMN’s SAARC

performance, going forward.

International presence relatively limited:

Unlike its Tier-II peers like Dabur,

Marico, and Godrej Consumer, HMN’s international footprint is limited. Godrej

Consumer, Dabur and Marico derive 25-45% of their revenues from

international operations. Footprint for these players has increased primarily

owing to inorganic initiatives over the last 4-5 years.

Exhibit 26: Rising contribution of international sales

International business as a % of total revenues

12.7

10.7

13.2

13.8

13.2

12.4

12.2

12.3

Exhibit 25: Geographic distribution of export sales

Others

13%

GCC

20%

CIS

13%

Africa

SAARC

45%

Source: Company, MOSL

FY08 FY09 FY10 FY11 FY12 FY13 FY14E FY15E FY16E

Source: Company, MOSL

Exhibit 27: Contribution of International Business to total sales

60%

45%

30%

15%

11%

FY08

13%

FY09

13%

FY10

14%

FY11

13%

FY12

12%

FY13

12%

FY14E

12%

FY15E

12%

FY16E

Dabur

GCPL

Marico

Emami

Source: Company, MOSL

25 April 2014

Emami

Professionalizing senior management: An important milestone

Hitherto known for its family-driven organization culture, HMN is recruiting senior-

level talent from MNCs over the last 12-18 months. We see this as a very important

step, as it underscores the management’s intent to professionalize the set-up as it

embarks on its medium term growth strategy.

It has recruited several CXO-level professionals from organizations like P&G and

HUVR across functions like IT, International Business, Healthcare, and Research &

Innovation. Typically, HMN has faced constraints while recruiting senior hires, as it

operates out of Kolkata. To circumvent this issue, it is allowing some senior

managers to operate from Mumbai. For example, Mr Chetan Gore, CEO,

International Marketing, as well as Ms Punita Kalra, CEO, Research & Innovation,

operate from Mumbai.

Exhibit 28: Emami has recruited CXO level talent from MNCs

Name

Chetan Gore

K S Arunkumar

Punita Kalra

C K Katiyar

Earlier assignment

Marketing director, Oral Care, at P&G, Singapore

Product Technology Group Head Skin Care-South Asia, HUL

Vice President and Head, Ayueveda Research,Dabur

New assignment with Emami

CEO, International Marketing division

CEO, Research & Innovation strategy

CEO, Healthcare (technical)

Healthcare

Source: Company

IT Director - Business Partnering & Innovation - Asia, Africa and Russia Region, HUL President, IT

Rishi Bhattacharya Consultant (ex-HUL)

In the Consumer sector, Marico has set a benchmark in terms of professionalizing

the senior management. Godrej Consumer is also following a similar strategy. Both

these organizations have professionalized senior management, significant

ownership by promoter family. HMN appears to be headed the same way.

25 April 2014

Emami

Stable RM prices to drive margin expansion

Gains to be invested in brands



Prices of menthol, ~20% of HMN’s raw material cost, have remained flat in the last six

months and declined 13% in the last 12 months. Currently, menthol prices are stable

at INR850-900/kg.



Correction in menthol prices has driven significant gross margin expansion in FY13 and

FY14. Stable menthol prices should support gross margin expansion even in FY15.

We expect HMN to use the gains to invest more in brands, as it introduces new

variants/brands in Skin Care and Healthcare.



Stable menthol prices provide margin visibility

Prices of menthol, ~20% of HMN’s raw material cost, have remained flat in the last

six months and declined 13% in the last 12 months. 9MFY14 gross margins have

expanded 490bp YoY to 62.8% due to decline in menthol prices. Currently, menthol

prices are stable at INR850-900/kg. HMN has sufficient covers till June 2014, which

provides gross margin visibility. However, other RM costs are rising. Light liquid

paraffin (LLP) prices are up 20% YoY while HDPE prices are up 24% YoY. We believe

modest pricing action coupled with steady menthol prices can support 100bp gross

margin expansion in FY15.

Ad spends to increase 200bp in FY15

In 9MFY14, ad spends have contracted 180bp, as the management consciously

curtailed brand spends in a low growth environment. However, we expect ad spends

to increase 200bp in FY15, as HMN expands its Skin Care and Healthcare portfolios.

Exhibit 29: Mentha oil prices declined 13% YoY

3,200

2,400

1,600

800

Mentha Oil prices INR / kg

Exhibit 30: However, LLP and HDPE prices remain firm

Liquid Paraffin (INR/Lt)-LHS

HDPE (INR/kg)-RHS

130

110

Source: Company, MOSL

25 April 2014

Emami

Fundamentals strong; valuations reasonable

Initiating coverage with a Buy rating



We expect 15.4% revenue CAGR over FY14-16 and 100bp EBITDA margin expansion by

FY16. Cash flows are likely to grow from INR2.7b in FY14 to INR4.6b in FY16.

With moderate capex requirements of INR750m per year and a stable working capital

profile, RoE should remain steady at 45-47%.

We initiate coverage with a Buy rating. Our target price of INR555 implies 20% upside.



Fundamentals strong

We expect HMN’s revenue to grow at a CAGR of 15.4% over FY14-16, driven by new

launches in Skin Care and Healthcare as indeed its power brands. We estimate ~10%

volume growth for HMN, higher than the 6% it has clocked so far in FY14. EBITDA

margin should expand 100bp over FY14-16 to 24.2%. Capex requirements over the

next three years are limited and HMN’s already healthy balance sheet (current net

cash of INR5b) should strengthen further, providing the company the flexibility to

scout for acquisitions or increase payout.



Expect healthy revenue CAGR of 15.4% over FY14-16:

We expect HMN to

maintain healthy 15.4% revenue CAGR over FY14-16, driven by consistent

performance by its mainline brands, and incremental growth from new product

launches and international forays.

EBITDA margin to expand by 100bp over FY14-16:

HMN’s operating margin

expanded by 100bp in FY13 and nearly 370bp in 9MFY14 owing to correction in

menthol prices and curtailment in ad spends. With steady menthol prices and

annual price hikes of 4-5%, we expect 100bp EBITDA margin expansion over

FY14-16, despite our expectation of 200bp rise in ad spends.

Exhibit 32: Margins to expand 100bp over FY14-16

Gross Margin (%)

58.5

64.3

62.8

EBITDA Margin (%)

60.9

62.0

23.6

61.5

24.2

Exhibit 31: Expect revenue CAGR of 15.4% over FY14-16

Revenue (INR m)

36.7

30.5

22.1

11.1

16.6

16.9

10.6

15.6

Revenue Gr. (%)

58.0

56.9

57.9

15.1

16.6

17.1

24.0

21.3

19.2

20.1

23.2

FY08 FY09 FY10 FY11 FY12 FY13 FY14E FY15E FY16E

Source: Company, MOSL



Source: Company, MOSL

Strengthening

balance sheet; expect net cash to double by FY16:

We expect

HMN’s net cash balance to nearly double from INR4.5b to INR8.6b in FY16.

Capex requirements over the next three years are limited (our estimate:

INR750m-800m per year). HMN’s already healthy balance sheet should

strengthen further, providing the company the flexibility to scout for more

acquisitions or increase payout.

25 April 2014

Emami

Exhibit 33: Estimate net cash of INR7.7b by FY16

Net Cash and cash equivalents (INR m)

5,379

3,640

446

-426

-4,014

FY08

FY09

FY10

FY11

FY12

FY13 FY14E FY15E FY16E

Exhibit 34: Expect operating cash flow of INR 4.6b by FY16

7,692

Operating cash flows (INR m)

4,070

3,002

1,764

1,362

2,663

3,875

4,625

1,148 1,616

-189

441

886

FY08 FY09 FY10 FY11 FY12 FY13 FY14E FY15E FY16E

ource: Company, MOSL

Source: Company, MOSL



Steady return ratios:

We expect EBITDA margin to expand by 100bp over FY14-

16, led by higher gross margin. Our expectation of 15.5% PAT CAGR coupled

with moderate capex requirements and a stable working capital profile should

result in stable RoE of 45-47%, higher than Dabur, Godrej Consumer and Marico.

HMN enjoys higher RoE than tier-II peers due to difference in depreciation

policy on fixed assets and lower salience of International Business, where

working capital requirements are higher than domestic operations.

Exhibit 35: Steady return ratios

ROCE (%)

35.8

38.8

31.1

28.9

37.1

41.8

31.2

34.6

ROE (%)

42.4

34.8

47.0

48.8

45.6

50.2

46.5

52.1

31.2

23.7

FY08

FY09

FY10

FY11

FY12

FY13

FY14E

FY15E

FY16E

Source: Company, MOSL

Exhibit 36: RoE in the upper band of the tier II consumer Exhibit 37: Comparable working capital in tier II FMCG

names

universe

100

0.36

2008

2009

2010

2011

2012

2013

0.24

0.12

0.00

2008

2009

2010

2011

2012

2013

Dabur

GCPL

Marico

Emami

0.48

Dabur

GCPL

Marico

Emami

Source: Company, MOSL

25 April 2014

Emami

Niche portfolio with solid long term prospects; Buy

We like HMN’s niche Ayurveda and herbal-based positioning, strong track record on

innovation and new category incubation with limited direct competition from MNC

players. Hiring of senior level managers in R&D, International Business, IT and

Healthcare signifies HMN’s intent at professionalizing the hitherto family-driven

organization culture. We are also excited about HMN’s focus on the Healthcare

opportunity. Scale-up of this business can be a long-term growth driver.

Other positives are lower competitive intensity in its key categories and its proven

track record of innovation and category incubation. We initiate coverage with a

Buy

rating and a 12-month forward target price of INR555, 20% upside excluding

dividend. We value the stock at 24x FY16E earnings and arrive at a target price of

INR555. Our target multiple for HMN is in line with our target multiple for our mid-

cap Consumer universe – Dabur, Godrej Consumer and Marico.

Exhibit 38: P/E Exhibit

18.1

P/E (x)

5 Yrs Avg(x)

20.6

20.9

15.1

15 Yrs Avg(x)

10 Yrs Avg(x)

Exhibit 39: HMN 1-year forward PB

16.0

12.0

8.0

4.0

0.0

8.5

6.5

9.6

4.9

P/B (x)

5 Yrs Avg(x)

15 Yrs Avg(x)

10 Yrs Avg(x)

Source: Bloomberg

Exhibit 40: Comparative Valuation

Company

Asian Paints

Britannia

Colgate

Dabur*

Godrej Consumer

GSK Consumer

Hind. Unilever

ITC

Marico*

Nestle

Pidilite Inds.

Radico Khaitan

United Spirits

Emami

Price

Reco

(INR)

517 Neutral

892 Buy

1,480 Neutral

179 Buy

801 Neutral

4,251 Neutral

579 Sell

343 Buy

203 Buy

4,775 Neutral

328 Neutral

114 Buy

2,818 Neutral

463 Buy

Target Price

EPS (INR)

P/E (x)

EV/EBITDA (x)

ROE (%)

(INR)

FY14E FY15E FY16E FY14E FY15E FY16E FY14E FY15E FY16E FY14E FY15E FY16E

465

12.7 15.5 18.6 40.6 33.3 27.8 27.3 23.0 19.1 31.3 32.4 32.8

1,090

31.2 37.0 43.9 28.5 24.1 20.3 19.3 15.9 13.2 47.8 45.7 44.2

1,300

35.5 43.6 52.0 41.7 33.9 28.4 28.8 22.4 18.3 88.0 96.3 101.5

200

5.3

6.4

7.5 33.9 27.9 23.9 26.9 21.9 18.7 34.6 34.8 33.7

800

23.8 29.4 35.9 33.7 27.2 22.3 24.1 20.0 17.0 22.5 23.8 24.3

4,200

119.1 139.8 164.9 35.7 30.4 25.8 34.1 26.6 21.9 31.1 30.8 30.7

565

16.4 18.0 20.2 35.3 32.1 28.7 27.6 24.2 20.8 61.3 57.5 55.6

400

11.0 12.9 14.8 31.3 26.6 23.2 21.5 18.4 16.0 37.9 40.6 43.0

245

7.6

8.1

9.8 26.6 24.9 20.8 17.9 15.4 12.5 29.4 24.5 24.2

5,065

121.9 140.1 164.1 39.2 34.1 29.1 22.8 19.6 16.8 57.0 52.4 54.3

295

9.3 11.4 13.5 35.2 28.8 24.4 23.2 19.1 15.9 23.4 24.2 23.9

185

7.6

9.3 11.1 15.0 12.3 10.3 10.7

9.1

7.8 12.6 13.8 14.7

2,200

25.4 42.6 56.0 110.8 66.1 50.3 44.0 35.1 29.2

4.4

7.2

8.9

555

17.3

19.4

23.1

26.7

23.8

20.1

23.0

19.4

16.0

47.0

45.6

46.5

Source: Bloomberg, MOSL

25 April 2014

Emami

Risks and concerns

Currently, the key concerns relating to the stock are: (1) potential heightened

competition in its key categories, and (2) the management’s aggressive acquisition

intent in the domestic market, which could impact profitability as well as product

mix.

Increasing competition in key categories

HMN has followed the strategy of identifying opportunities in niche segments and

building sizeable brands in these segments. Within its key categories, competition

has thus far been largely regional. The entry of Marico (8-9% market share in Andhra

Pradesh) and Bajaj Corp in Cooling Oils has signaled the emergence of large pan

India competitors for HMN. However, we note that the efforts haven’t yielded much

dividend so far.

The larger threat of competition is in the Men’s Fairness category, where Beiersdorf

(Nivea), Hindustan Unilever, L’Oreal (Garnier) and P&G (Gillette) have upped the

ante. All these players have invested aggressively in their respective brands. HMN’s

Fair & Handsome

is well-placed, with its mass positioning and attractive pricing, but

increasing competitive intensity from large players is a concern from the pricing and

margin viewpoint.

Aggressive acquisition intent in domestic market

HMN acquired Zandu in November 2008 at ~60x FY08 earnings (~45x FY08 earnings

excluding land value). At that point, this was seen as an expensive acquisition and

significantly impacted the HMN’s valuations. However, post the acquisition, HMN

successfully increased Zandu’s profitability, creating value for the shareholders of

both companies.

HMN subsequently made an aggressive bid for Paras Pharmaceuticals, which was

speculated to have been higher than the eventual acquirer, Reckitt Benckiser (EV of

8x FY10 sales and 30x FY10 EBITDA). HMN’s stock price corrected 30%, but

recovered post the Reckitt purchase. The impact on HMN’s valuations on both

occasions was due to concerns on the company overpaying.

The management has indicated that it is not looking at any overseas opportunities,

currently. However, its intent to grow its domestic Healthcare and OTC portfolio

could result in an expensive acquisition, adversely impacting valuations at that

point. The management has indicated that it has not yet identified any other

domestic target in the OTC space, which is its key acquisition focus area.

Nevertheless, its acquisition intent remains an overhang.

25 April 2014

Emami

Annexure I

Background

Emami Limited (Bloomberg: HMN) is the flagship company of the ~INR60b Emami

Group. The two promoters, Mr RS Agarwal and Mr RS Goenka laid the foundations

of the company in 1974 as a partnership firm, Kemco Chemicals. In 1978, they

acquired Himani Limited, a cosmetics company based in eastern India, with a factory

in Kolkata. Himani launched

BoroPlus

in 1982 and the

Navratna

cooling oil range in

1989. In 1998, the promoters merged the two entities, creating Emami. The

company has since focused on expanding its portfolio in the Healthcare and

Personal Care space. In 2008, it acquired Zandu, giving it a leadership position in the

Balm category and access to a host of Ayurvedic and OTC products.

Exhibit 41: Management background

Name

N.H.Bhansali

AK Joshi

Chetan Gore

Dhiraj Agarwal

R K Surana

Krishna Mohan

Punita Kalra

Chandra Kant Katiyar

Designation

CEO-Finance Strategy and Business Development

Company Secretary and AVP Legal

CEO - International Business

Head Media Department

President - Operations and Commercial

CEO - Sales, Supply Chain and Human Capital

CEO R & D and Innovation

CEO Technical (Healthcare division)

Source: Company

25 April 2014

Emami

Exhibit 42: Details of Board of Directors

Name

R. S. Agarwal

R. S. Goenka

K. N. Memani

Y.P.Trivedi

P. K. Khaitan

Sajjan Bhajanka

Amit Kiran Deb

Designation

Founder & Executive Chairman

Founder & Wholetime Director

Non-Executive Independent Director

i. Former Chairman and Country Managing Partner of Ernst and Young, India

i. Eminent Tax Expert and Advocate, Supreme Court

ii. Rajya Sabha Member of the Parliament

i. Advocate and Senior Partner of M/s. Khaitan & Co

i. Chairman of Century Plyboards (I) Ltd

ii. Chairman and Managing Director of Cement Manufacturing Company Ltd.

i. Former Chief Secretary, Government of West Bengal

ii. Former Commissioner cum Secretary, Education and Social Welfare

Department, Government of Tripura

iii. Former Joint Secretary, Cabinet Secretariat and Department of Electronics,

Government of India.

S.B.Ganguly

Non-Executive Independent Director

i. Non-Executive Chairman of Peerless Trust Management Co Ltd.

ii. Former Chairman of Exide Industries Ltd.

Vaidya S. Chaturvedi Non-Executive Independent Director

Sushil K. Goenka

Mohan Goenka

Aditya V. Agarwal

Harsha V. Agarwal

Managing Director

Wholetime Director

Non-Executive Director

Wholetime Director

i. Responsible for developing the market share of the Company in India and is in

charge of various functions like Investor Relations, Sales.

i. He heads the Cement, edible oil and biodiesel, health care and paper

manufacturing businesses of the Group

i. He heads the merger and acquisitions, human resource, information

technology, media and advertising functions of Emami Ltd.

ii. He spearheaded the acquisition of Zandu Pharmaceutical Works Ltd in 2008

and the subsequent demerger of its FMCG business into Emami Ltd in 2009

iii. He continues to look after Zandu Ayurvedic and health care business

iv. He also heads the Group’s foray into Solar Power business

Priti A Sureka

Wholetime Director

i. She is the member of the Emami strategic think tank and one of the key

drivers of the crucial Marketing Division,

ii. She also heads the Company’s R & D and Market Research Divisions

iii. She mentors the group’s retail businesses

Source: Company

i. Founder of Ayurvedic Herbal Research Centre at Arogya Niketan, Vasai.

Details

25 April 2014

Emami

Annexure II

HMN’s entry into Men’s Fairness – a case study

Hindustan Unilever (HUVR) controls over 50% of the Skin Care market. Its key

brands in the category include

Fair & Lovely (FAL), Pond’s, Lakme

and

Vaseline.

enjoys leadership in the Fairness Cream market through FAL.

However, HMN took the initiative and launched the first Men’s Fairness Cream

brand,

Fair & Handsome

in 2005. It now controls 58% of the Men’s Fairness Cream

market, despite launches by other competitors (Fair

& Lovely MenzActive

by HUVR,

Nivea for Men, Fair One Man Cream, Garnier Power Light,

etc).

Despite a strong incumbent with an iconic brand nearly defining the category, HMN

identified the need for a new product and created a segment. It conducted market

research, which showed that 1/3rd of the buyers of Fairness Creams were men and

developed a dedicated product for this stratum. This highlights the benefits of

having a unique/niche offering, notwithstanding the size/reputation of the

incumbent leader.

HMN's F&H launch – background



Fairness Creams had traditionally tried to reach out to women by suggesting

that their chances of finding a good husband/job were considerably brightened

by using a fairness cream and men were targeted by hinting that they would be

able to impress a girl more easily if they also used a fairness-enhancing product.

One advertisement from HMN, for example, depicted a dark-complexioned boy

sneaking into a girls' hostel to steal a pack of a fairness cream meant for women.

He is shooed away by the girls and is subsequently advised by a friend to get a

fairness cream meant for males -Fair

& Handsome.

After using the product, he

becomes attractive to females, and a jingle plays in the background: 'Hi

handsome, hello handsome'.

HMN's

Fair & Handsome

provoked a reaction from HUVR, which also launched a

product meant for men, named

Fair & Lovely Menz Active

in 2006.

Exhibit 43: Emami's advertising blitzkrieg

25 April 2014

Emami

Exhibit 44: Emami is targeting 65% share in Men's Fairness

Cream…

Emami F&H market share

61.3

35%

27%

Exhibit 45: It has delivered 26% revenue CAGR in Fair &

Handsome

48%

F&H Sales growth

11%

2011

2012

2013

1QFY14

3Q14

FY09

FY10

FY11

FY12

13%

FY13

Exhibit 46:Skin Care market has more than doubled in 5-years Exhibit 47: Men's Fairness Cream market has also kept pace

Skin Care market size (INR b)

51.0

30.6

34.8

41.0

1.4

2.1

Men's fairness cream market size (INR b)

62.0

3.6

26.7

2007

2008

2009

2010

2011

2012

2009

2011

2013

Exhibit 48:Hindustan Unilever lost market share in Skin Care… Exhibit 49: …while Emami gained

58.5

57.5

56.2

56.4

55.8

1.9

HUL

2.4

Emami

2.9

2.8

2008

2009

2010

2011

2012

2008

2009

2010

2011

2012

Source: Company, MOSL

25 April 2014

Emami

Financials and valuations

Income statement

Y/E March

Net Sales

Change (%)

EBITDA

EBITDA Margin (%)

Depreciation

EBIT

Interest

Other Income

PBT

Tax

Tax Rate (%)

Reported PAT

Adjusted PAT

Change (%)

Min. Int. & Assoc. Share

Adj Cons PAT

2011

12,471

22.1

2,652

21.3

140

2,512

152

331

2,691

404

15.0

2,287

34.8

2,287

2012

14,535

16.6

2,788

19.2

188

2,600

152

541

2,989

401

13.4

2,588

13.2

2,588

2013

16,991

16.9

3,415

20.1

220

3,196

557

3,687

540

14.6

3,147

21.6

3,147

2014E

18,794

10.6

4,366

23.2

276

4,090

658

4,676

740

15.8

3,936

25.1

3,936

(INR Million)

2015E

21,639

15.1

5,099

23.6

323

4,777

757

5,468

1,058

19.4

4,410

12.0

4,410

2016E

25,023

15.6

6,046

24.2

364

5,682

876

6,492

1,258

19.4

5,234

18.7

5,234

Balance sheet

Y/E March

Share Capital

Reserves

Net Worth

Debt

Deferred Tax

Total Capital Employed

Gross Fixed Assets

Less: Acc Depreciation

Net Fixed Assets

Capital WIP

Investments

Current Assets

Inventory

Debtors

Cash & Bank

Loans & Adv, Others

Curr Liabs & Provns

Curr. Liabilities

Provisions

Net Current Assets

Total Assets

2011

151

6,747

6,899

2,294

137

9,329

7,993

-3,148

4,845

5,996

1,234

1,087

2,105

1,570

1,649

915

733

4,347

9,330

2012

151

6,915

7,066

1,611

145

8,823

8,377

-4,342

4,035

768

6,859

1,122

1,005

3,495

1,237

2,949

1,327

1,621

3,911

8,824

2013

151

7,623

7,775

1,201

137

9,112

9,394

-5,472

3,922

475

7,651

1,140

1,122

4,381

1,009

3,049

1,328

1,721

4,603

9,113

2014E

227

8,763

8,990

1,201

150

10,341

10,194

-6,769

3,425

9,833

1,368

1,625

5,691

1,148

3,030

1,156

1,874

6,803

10,341

(INR Million)

2015E

2016E

227

10,107

11,931

10,334

12,158

1,201

150

11,685

13,509

10,994

11,794

-8,112

-9,498

2,882

2,297

12,226

15,234

1,552

1,748

1,871

2,164

7,480

9,793

1,322

1,529

3,535

4,134

1,382

1,618

2,154

2,516

8,690

11,099

11,685

13,509

E: MOSL Estimates

25 April 2014

Emami

Financials and valuations

Ratios

Y/E March

Basic (INR)

EPS

Cash EPS

Book Value

DPS

Payout (incl. Div. Tax.)

Valuation(x)

P/E

Cash P/E

Price / Book Value

EV/Sales

EV/EBITDA

Dividend Yield (%)

Profitability Ratios (%)

RoE

RoCE

Turnover Ratios (%)

Asset Turnover (x)

Debtors (No. of Days)

Inventory (No. of Days)

Creditors (No. of Days)

Leverage Ratios (%)

Net Debt/Equity (x)

2011

10.1

10.7

30.4

2.3

27.0

2012

11.4

12.2

31.1

5.3

54.3

2013

13.9

14.8

34.3

5.3

45.0

22.3

20.8

9.0

3.9

19.6

1.7

34.8

31.2

1.4

31.8

36.1

32.8

0.3

37.1

34.6

1.6

25.2

28.2

33.3

0.2

42.4

41.8

1.9

24.1

24.5

28.5

0.2

2014E

17.3

18.6

39.6

6.7

45.2

26.7

25.0

11.7

5.4

23.0

1.4

47.0

48.8

1.9

31.6

26.6

29.1

0.1

2015E

19.4

20.9

45.5

7.7

46.4

23.8

22.2

10.2

4.6

19.4

1.7

45.6

50.2

2.0

31.6

26.2

30.3

0.1

2016E

23.1

24.7

53.6

9.0

45.7

20.1

18.8

8.6

3.9

16.0

1.9

46.5

52.1

2.0

31.6

25.5

31.0

0.1

Cash flow statement

Y/E March

OP/(Loss) before Tax

Depreciation

Interest

Direct Taxes Paid

(Inc)/Dec in Wkg Cap

CF from Op. Activity

(Inc)/Dec in FA & CWIP

(Pur)/Sale of Invt

CF from Inv. Activity

Inc/(Dec) in Net Worth

Inc / (Dec) in Debt

Interest Paid

Divd Paid (incl Tax)

CF from Fin. Activity

Inc/(Dec) in Cash

Add: Opening Balance

Closing Balance

2011

2,512

140

-148

-404

-1,215

886

-358

550

192

-297

-618

-587

491

1,614

2,105

2012

2,600

188

-147

-401

1,830

4,070

-1,088

-737

-1,825

-682

-1,405

-855

1,390

2,105

3,495

2013

3,196

220

-61

-540

187

3,002

-723

-410

-1,416

-658

1,621

2,759

4,380

2014E

4,090

276

-72

-740

-891

2,663

-325

-324

-1,779

536

2,874

2,817

5,691

(INR Million)

2015E

2016E

4,777

5,682

323

364

-66

-1,058

-1,258

-100

-98

3,875

4,625

-800

-2,045

-2,390

-436

-613

2,639

3,212

4,841

6,580

7,480

9,792

E: MOSL Estimates

25 April 2014

Emami

NOTES

25 April 2014

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