PL Stock Report: Emami (HMN IN) - Q2FY24 Result Update – Cautiously optimistic, Winter to watch out for - Accumulate

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

Rating: ACCUMULATE | CMP: Rs519 | TP: Rs564

Q2FY24 Result Update – Cautiously optimistic, Winter to watch out for

Quick Pointers:

§ Volumes up 2% led by robust growth in MT/E-com, GT sees decline.

§ RM remains benign, aiming for ~250bps EBITDA margin expansion in FY24

We increase our FY24E/FY25E EPS estimates by 3.6%/2.1% following higher than expected gross margin expansion and higher volume growth at 2% in 2Q. Emami has given cautiously optimistic outlook given benign raw material prices, expected pickup in rural demand and likely traction from various new launches under Zandu and international business. 2Q saw volume growth of 2% led by robust growth in both MT & E-com channel. HMN remains positive on OTC Healthcare, Navratna & new launches under Boroplus.

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 and 4) strengthen its healthcare portfolio with acquisition of Axiom Ayurveda (blend of fruit juice and aloe Vera). We estimate 9.6% PAT CAGR over FY23-26 and value the stock at 26x Sep25 EPS assigning a value of Rs564 (Rs524 earlier). Retain Accumulate.

Domestic volumes grow 2%, Revenue up by 6.3%: Revenues grew by 6.3% YoY to Rs8.6bn (PLe: Rs8.5bn). Domestic revenues increased by 4% driven by 2% volume growth, International business grew by 12%. Gross margins expanded by 345bps YoY to 70.1% (Ple: 66.0%). EBITDA grew by 19.6% YoY to Rs2.3bn (PLe: Rs2.2bn); Margins expanded by 301bps YoY to 27% (PLe:26.0%). Adj PAT declined by -0.1% YoY to Rs1.8bn (PLe:Rs 1.6bn). Declared interim dividend of Rs4/share.Growth across divisions – Boroplus: -4%, Male grooming: -7%, Navratna: 12%, Kesh King: -5%, Pain Management: 1% and HealthCare: 4%.

Concall key takeaways: 1) Demand has seen an uptick post July/August in anticipation of festive season 2) Channels such as MT/E-com grew at ~17-18%/50% taking salience to 24% of domestic sales. 3) MT/E-com have margin lower than GT, however gradual margin expansion is being seen in both this channel 4) GT decline led by challenging demand environment in medico business, however demand in 3Q seems promising 5) Rural markets are still muted, expected to bounce back due to govt spending & investments made through KHOJ initiative 6) International markets see double-digit growth led by robust performance in the SAARC & MENAP region 7) Boro plus & Kesh King suffered amid lower consumption demand 8)Chemist reach has grown by 20% to 125k outlets 9) Helios & Brillare contribution reached to 5% of sales 10) Kesh King Sales are cyclical in nature subject to promotional spending 11) Cool Oil range is facing some competition amid new launches by one of the leading FMCG player 12) Zandu care launched products across D2C portals including copper glasses to cater to all range of Ayurveda benefits. 13)Revenue expected to grow by high single digits for FY24 14) EBITDA margins to increase by 250bps in FY24

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