6 November 2020
2QFY21 Results Update | Sector: Consumer
Emami
Estimate change
TP change
Rating change
Bloomberg
Equity Shares (m)
M.Cap.(INRb)/(USDb)
52-Week Range (INR)
1, 6, 12 Rel. Per (%)
12M Avg Val (INR M)
HMN IN
454
164.8 / 2.2
407 / 141
0/73/10
218
CMP: INR371
TP: INR440 (+19% )
Buy
Strong results; near-term outlook improving significantly
Emami (HMN) posted a beat on all fronts in its 2QFY21 results.
Importantly, (a) strengthening rural growth (50% of HMN’s sales), (b)
extremely strong health and hygiene sales, (c) initial good winter demand,
and (d) the low winter season sales base of last year augur well for sales
and earnings growth over the next few quarters.
We remain bullish on the stock, despite two primary concerns. (a) The likely
delay in pledge reduction to zero (earlier targeted by Mar’21; currently at
~40% levels) is disappointing. (b) There is no evidence of a structural
turnaround yet. (Just to put this in perspective, 2QFY21 was the first
quarter of double-digit sales growth in 17 quarters. This was barring
1QFY19, which saw healthy growth, driven by the soft base of 1QFY18 –
which declined due to the GST implementation.) Nevertheless, the earnings
momentum driven by the above factors implies that despite the recent
rally, the stock remains inexpensive at 26.1x FY22 EPS. Maintain
Buy.
Financials & Valuations (INR b)
Y/E March
2020 2021E 2022E
Sales
26.5 28.5 31.1
Sales Gr. (%)
-1.5
7.4
9.0
EBITDA
6.9
8.6
8.4
EBIT Margin (%)
26.0 30.1 27.0
Adj. PAT
5.6
6.6
6.3
Adj. EPS (INR)
12.4 14.9 14.2
EPS Gr. (%)
2.0 20.3 -4.5
BV/Sh.(INR)
40.2 49.8 50.3
Ratios
RoE (%)
28.8 32.8 28.4
RoCE (%)
28.8 34.1 30.4
Payout (%)
64.6 50.3 63.2
Valuation
P/E (x)
29.9 24.9 26.1
P/BV (x)
9.2
7.4
7.4
EV/EBITDA (x)
24.3 18.5 18.9
Div. Yield (%)
2.2
2.0
2.4
Shareholding pattern (%)
As On
Sep-20 Jun-20
Promoter
53.9
53.4
DII
28.6
31.4
FII
9.0
5.7
Others
8.6
9.6
FII Includes depository receipts
Robust performance on all fronts
Sep-19
52.7
25.5
11.7
10.1
Consolidated net sales grew 11.3% YoY to INR7.3b
(est. INR6.8b). EBITDA
increased 33.2% YoY to INR2.6b (est. INR2b); PBT was up 32.2% YoY to
INR2.4b (est. INR1.8b); and adj. PAT before amortization grew 31.6% YoY to
INR2.1b (est. INR1.5b).
Gross margins were up 60bp YoY
to 70.3% in 2QFY21. The EBITDA margin
expanded 570bp YoY to 35% (est. 29.2%) on account of lower employee
costs as a percentage of sales (-70bp YoY), lower ad spends (-120bp YoY),
and lower other expenses (-330bp YoY).
Absolute ad spends grew 3% YoY to INR1.1b.
1HFY21 revenue declined 7.1% YoY, whereas EBITDA / adj. PAT before
amortization grew +16.2%/+16.8% YoY.
Domestic revenues (incl. CSD) grew 13% YoY, and the international business
grew 11% YoY in 2QFY21. Domestic volumes grew 10% YoY in 2QFY21.
Within domestic,
HMN reported sales growth in most of its categories in
2QFY21: Healthcare (+53% YoY), Kesh King (+45% YoY), Pain Management
(+31% YoY), Navratna (+14% YoY), and 7 Oils-in-One (+9% YoY). The only
categories that registered a decline were Male Grooming (-24% YoY) and
BoroPlus (-25% YoY).
Highlights from management commentary
Urban sales grew 8% and rural sales increased 20% for the quarter;
management expects rural momentum to continue.
Demand for winter products has picked up in the last few days with the
onset of winter in North India. HMN had a weak base of winter sales in
3QFY20.
Krishnan Sambamoorthy – Research analyst
(Krishnan.Sambamoorthy@MotilalOswal.com)
Research analyst: Dhairya Dhruv
(Dhairya.Dhruv@motilaloswal.com)
Investors are advised to refer through important disclosures made at the last page of the Research Report.
Motilal Oswal research is available on www.motilaloswal.com/Institutional-Equities, Bloomberg, Thomson Reuters, Factset and S&P Capital.
6 November 2020
1