PL Stock Report: Emami (HMN IN) - Q1FY24 Result Update - Cautiously optimistic outlook - Accumulate

Emami (HMN IN) - Amnish Aggarwal - Head of Research, Prabhudas Lilladher Pvt Ltd

Rating: ACCUMULATE | CMP: Rs460 | TP: Rs517

Q1FY24 Result Update - Cautiously optimistic outlook

Quick Pointers:

♦ Volumes up 3%, non-summer portfolio up 16%, summer portfolio declines 5%

♦ RM remains benign, aiming for 200-250bps EBITDA margin expansion in FY24

Emami has given cautiously optimistic outlook which factors in softening raw material inflation, expected pickup in rural demand and increased ad spends behind core brands. 1Q saw volume growth of 3% as summer portfolio reported 5% decline in sales due to unseasonal rains across India. HMN remains positive on OTC Healthcare, Male grooming with double digit sales growth expectations while Kesh King, Boroplus and Navratna will report 6-8% CAGR. E-com & MT continue to grow well ahead of company & have potential to grow 15-20% with target salience to ~25% of domestic sales.

Emami is investing for growth with 1) new launches in existing categories like Boroplus, Zandu, Kesh King and new product launches in D2C 2) investment in new D2C new age businesses & Modern Trade 3) increase in direct town coverage to 60k (from 52k) by FY24 and 4) increasing ad-spend to gain market share. We estimate 18.8% PAT CAGR over FY23-25 and value the stock at 25x Mar25 EPS assigning a value of Rs517 (unchanged). Retain Accumulate.

Domestic volumes grow 3%, Revenue up by 6.8%: Revenues grew by 6.8% YoY to Rs8.3bn (PLe: Rs8.0bn). Gross margins expanded by 241bps YoY/238bps QoQ to 65.4% (PLe: 64.0%). EBITDA grew by 9.6% YoY to Rs1.9bn (PLe: Rs1.9bn); Margins expanded by 60bps YoY but contracted 89bps QoQ to 23.0% (PLe:24.0%). Ad-spends were up 11% YoY. Adj PAT grew by 86.5% YoY to Rs1.4bn (PLe: Rs 1.3bn). Growth across segments: Boroplus: 19%, Pain Management: 13%, Health Care: 11%, 7 Oils in One/Kesh King: 2%, Male grooming: 0%, and Navratna: -8%. Channels: MT/E-commerce posted a 45%/47% growth respectively. E-commerce contribution to domestic sales at 9.7% (+260bps YoY).

Concall key takeaways: 1) Demand has sequentially improved for non-summer products (up 16% YoY) while summer products sales declined 5% YoY 2) Channels such as MT/E-com grew at 45%/47% taking salience to 19.4% of domestic sales. HMN expects 15-20% growth with 25% contribution to domestic sales. 3) Rural demand to see a steady recovery aided by favourable monsoons, lower inflation & liquidity pressure 4) International markets to see double-digit growth led by existing markets & brands 5) Market share maintained in talc powders 6) Ethical focus remains on increasing coverage/throughput per doctor 7) Focus on margin improvement in MT/E-com channels in FY24 8) Direct coverage increased to 1mn outlets 9) GT focus on core outlets and increase throughput through trade marketing initiatives 10) Innovation contribution of 3% expected in FY24 11) Kesh King growth(8% CAGR) to be led by Shampoos 12) EBITDA margins expected to increase by 200-250bps in FY24 13) Depreciation to range between Rs450-500mn on a quarterly basis 14) Hospital sale transaction to conclude by Aug’23 taking pledge to 18-20% (from 33%) 15) Tax rates to remain at 10% over FY24-26

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