Emami Ltd. - Ventura Securities Ltd. BUY - 1 of 17 - Monday 30th December, 2013

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  • Emami Ltd.

    BUY

    - 1 of 17 - Monday 30th

    December, 2013

    This document is for private circulation, and must be read in conjunction with the disclaimer on the last page.

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    OIN

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    Target Price `539 CMP `475 FY15 PE 24.7x

    Index Details Leadership presence in niche under-penetrated product categories, expansion of its distribution reach and strong focus on rural markets should help Emami Ltd (Emami) drive its top line going ahead. Moreover, despite the revenue concentration among the top four brands, no single brand accounts for more than 20-22% of revenues and hence provides stability to revenues. This coupled with the regular flow of 2-3 new product launches / extensions every year should help keep the companys brand and product portfolio reinvigorated. Emami has a very aggressive marketing strategy in place. Its two-fold A&P strategy of using celebrity endorsements (one at the national level and another at regional level) should help improve their brand communication. This coupled with expansion of distribution network and rural focus should ensure growth momentum of companys brands, going ahead. We expect Emamis revenues to grow at 14.7% CAGR over FY13-15E to `2,237.2 crore by FY15E from `1,699.1 crore clocked in FY13. We initiate coverage on Emami as a BUY with a Price Objective of `539 representing an upside potential of ~14% over the next 15 months. At the CMP of `475, the stock is trading at 29.1x and 24.7x its FY14E and FY15E earnings respectively. Emamis revenues to grow at a healthy pace

    We expect the companys power brands (Navratna, Boroplus, Zandu & Mentho Plus and Fair & Handsome) to drive the top line growth on the back of its eminent presence in niche under-penetrated product categories, expansion of its distribution reach and strong focus on rural markets. Despite the revenue concentration among the top four brands, no single brand accounts for more than 20-22% of revenues and hence provides stability to revenues. Moreover, regular flow of 2-3 new product launches / extensions every year should help keep the companys brand and product portfolio reinvigorated besides building on the brand equity further.

    Sensex 21,143

    Nifty 6,291

    BSE 100 6,312

    Industry Personal Products

    Scrip Details

    Mkt Cap (` cr) 10,796

    BVPS (`) 38.2

    O/s Shares (Cr) 22.7

    Av Vol (Lacs) 0.1

    52 Week H/L 539/368

    Div Yield (%) 1.1

    FVPS (`) 1.0

    Shareholding Pattern

    Shareholders %

    Promoters 72.7

    DIIs 2.2

    FIIs 16.7

    Public 8.4

    Total 100.0

    Emami vs. Sensex

    Key Financials (` in Cr)

    Y/E Mar Net

    Revenue EBITDA PAT EPS

    EPS Growth (%)

    RONW (%)

    ROCE (%)

    P/E (x)

    EV/EBITDA (x)

    2012 1453.5 296.8 258.8 11.4 13.2 36.6 43.1 41.7 35.7

    2013 1699.1 347.3 314.7 13.9 21.6 40.5 46.7 34.3 30.5

    2014E 1937.0 403.6 370.6 16.3 17.8 39.3 45.5 29.1 26.2

    2015E 2237.2 479.4 436.8 19.2 17.8 37.4 45.5 24.7 22.1

  • - 2 of 17 - Monday 30th

    December, 2013

    This document is for private circulation, and must be read in conjunction with the disclaimer on the last page.

    Its international business (11% of sales) is also likely to witness strong traction (~15-20% CAGR) over the next couple of years on the back of demand pick up in key markets. On this backdrop, we expect Emamis revenues to grow at 14.7% CAGR over FY13-15E to `2,237.2 crore by FY15E from `1,699.1 crore clocked in FY13.

    Presence in low penetrated categories, aggressive promotion

    through celebrity endorsements and expansion in rural reach provides long term growth visibility

    Given the fact that ~60% of companys revenues come from categories which are relatively under penetrated, we believe that this attribute presents significant growth opportunity for Emami in the long term. Secondly, Emami follows two-fold A&P strategy i.e. one at the national level and another at regional level which is highly skewed towards celebrity endorsements. This aggressive strategy makes Emami one of the most aggressive spenders in the industry (~16.4% of sales in FY13) which we believe should help the company maintain growth momentum, going ahead. Lastly, on the distribution front, the company has a strong network of 3,000+ distributors, ~5,600 sub-distributors and ~6 lakh direct retail outlets tapping huge mass segment (targeting to reach 8.0 lakh direct retail outlets by FY15) and 40 lakh indirect outlets which should help company penetrate further. This expansion of distribution network coupled with rural focus should ensure growth momentum of companys brands.

    Valuation

    We initiate coverage on Emami Ltd (Emami) as a BUY with a Price Objective of `539 representing an upside potential of ~14% over the next 15 months. At the CMP of `475, the stock is trading at 29.1x and 24.7x its FY14E and FY15E earnings respectively. During past three years, Emami has broadly traded in 25-29x one-year forward PE band. We believe that the stock has the potential to trade in the upper range of this band on account of strong positioning in under-penetrated categories, thrust on rural market penetration, aggressive ad spends and rapid expansion in distribution network. Moreover, strong growth in International business should give push overall profitability and revenue growth. Accordingly, we have assigned a target multiple of 28x to its FY15E earnings translating into a target price of `539.

  • - 3 of 17 - Monday 30th

    December, 2013

    This document is for private circulation, and must be read in conjunction with the disclaimer on the last page.

    Company Background

    Emami Ltd (Emami), the flagship company of the Emami group, is one of the fastest

    growing FMCG players in India. The company is a niche category player / innovator

    in the relatively under penetrated therapeutic and ayurvedic categories, with

    products such as antiseptic cream, fairness cream, talcum powder, cooling oil,

    balms and pain relievers. Moreover, it has a large OTC portfolio constituting ~300

    products based on ayurvedic formulations.

    The company currently has 3,000+ distributors, 600,000+ retail outlets (direct

    distribution reach) and a brand reach of 4 mn outlets. It plans to scale up its direct

    distribution reach to 800,000 retail outlets over the next couple of years. Besides the

    domestic market, the company has a presence in more than 60 countries, including

    GCC, UK, Sri Lanka, Bangladesh, Nepal, Africa and CIS countries and overseas

    geographies contribute a little over 10% of its net sales.

    Emamis Product Portfolio

    Emami

    Product Portfolio

    Navratna Cooling Hair Oil

    MS: 55%

    RS: ~20%

    Position: #1

    Zandu & Mentho Plus Balm

    MS: 58%

    RS: ~22%

    Position: #1

    Boroplus Antiseptic cream

    MS: 74%

    RS: ~15%

    Position: #1

    Fair & Handsome cream

    MS: 58%

    RS: ~10%

    Position: #1

    Power BrandsRS: ~65%

    Other BrandsRS: ~29%

    Healthcare OTC (~300 products)

    RS: ~6%

    Navratna Cool Talc

    MS: 18%

    Boroplus Powder

    MS: 13%

    Fast Relief

    MS: 4%

    Chyawanprash

    MS: 10%

    Malai Kesar

    Cream

    Vasocare

    Cream

    Boroplus Lotion

    MS: 7%

    Zandu Vigorex Zandu Lalima

    Zandu

    PancharishtaZandu Nityam

    RS: Revenue Share

    MS: Market Share

    Source: Emami, Ventura Research

  • - 4 of 17 - Monday 30th

    December, 2013

    This document is for private circulation, and must be read in conjunction with the disclaimer on the last page.

    Key Investment Highlights

    Emamis revenues to grow at a healthy pace

    Over the period FY10-13, Emamis revenue has grown at a robust pace of ~18.5%

    CAGR from `1,021.7 crore in FY10 to `1,699.1 crore in FY13. This growth was

    largely driven by distribution expansion, product innovations and strong rural

    revenue growth. Particularly the power brands (65% of revenues) comprising of

    Navratna, Boroplus, Zandu & Mentho Plus and Fair & Handsome have witnessed

    resounding successes, evidenced by