Karvy on Emami Ltd

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  • 8/17/2019 Karvy on Emami Ltd

    1/121

    Apr 30, 2016

    Emami LtdConsumer Staples-Household Products

    Emami Ltd

    India Research - Stock Broking BUY

    Bloomberg Code: HMN IN

    Recommendation (Rs.)

    CMP (as on Apr 29, 2016) 1007

    Target Price 1313

    Upside (%) 30

    Stock Information

    Mkt Cap (Rs.mn/US$ mn) 228500 / 3440

    52-wk High/Low (Rs.) 1368 / 870

    3M Avg. daily volume (mn) 0.2

    Beta (x) 0.7

    Sensex/Nifty 25607 / 7850

    O/S Shares(mn) 227.0

    Face Value (Rs.) 1.0

    Shareholding Pattern (%)

    Promoters 72.7

    FIIs 16.3

    DIIs 1.2

    Others 9.8

    Stock Performance (%)

    1M 3M 6M 12M

    Absolute 10 (0) (4) 7

    Relative to Sensex 7 (3) 1 14

    Source: Bloomberg

    Relative Performance*

    Source: Bloomberg; *Index 100

    Analyst Contact

    Kunal Jagda

    040 - 3321 6277

    kunalnarendra.jagda@karvy.com

    Market Leader of Cooling Hair Oil, Beating the Heat

    High Margin Products in the Portfolio are expected to drive EBITDA growth ahead of Sales growth: Recent acquisition of Kesh King Brand, accounts for around 75% gross margin and 45% EBITDA margin as compared to the other

    products in the portfolio. Kesh King Brand is expected to drive the top line growth

    by around 8% to 10% additionally. This will enable Emami to record higher margins

    in FY17E and FY18E.

    Marching ahead in the league of Herbal Products: Zandu accounts for ~25% of the total revenue of Emami, with over 200 products in the portfolio under the

    Zandu Brand. The company is also expected to extend the brand with couple of

    new products; with the most recent launch of Zandu Honey, Emami is currently test

    marketing these new products and it is expected to launch these products by the

    end of FY17E.

    Market Leader of Cooling Hair oil is beating the Heat: The best seller of all times, Emami’s Navratna cooling oil enjoys around 60% of the total market

    share. The rising temperature across India is expected to give robust growth to

    its Navratna cooling oil, Navratna Cool Talc and to Boroplus prickly heat powder.

    Historically, cooling oil has recorded 16% to 17% growth during moderate summer,

    so considering the current weather condition it is expected to grow at good pace.

    Valuation and Outlook 

    At CMP of Rs.1007, the stock is trading at P/E of 29.5x for FY18E. With the anticipated increase in top line due to high margin products in the portfolio, rising

    temperature across India, strong brand positioning, innovation and new product

    launches which were favourably received by the market, with strong balance sheet

    & nancial ratios, we expect that the consumer expenditure will further increase as

    the economy revives and hence there will be growth in Emami’s top line and bottom

    line as well. Based on P/E of 38.5x, we initiate the coverage with a “BUY” rating

    for a Target Price of Rs.1313 representing an upside of 30% for a period of 12-15

    months.

    Key Risks

     y Competition.  y Volatility in raw material prices.

    For private circulation only. For important information about Karvy’s rating system and other disclosures refer

    to the end of this material. Karvy Stock Broking Research is also available on Bloomberg, KRVY ,

    Thomson Publishers & Reuters

    Exhibit 1: Valuation Summary

    YE Mar (Rs. Mn) FY14 FY15 FY16E FY17E FY18E

    Net Sales 18208 22172 25334 29473 34504

    EBITDA 5023 5401 5784 6992 8634

    EBITDA Margin (%) 27.6 24.4 22.8 23.7 25.0

    Adj. Net Prot 4025 4856 5240 6309 7743

    EPS (Rs.) 17.7 21.4 23.1 27.8 34.1

    RoE (%) 47.1 44.9 38.3 37.9 38.1 P/E (x) 24.5 46.8 40.4 36.2 29.5

    Source: Company, Karvy Research, *Represents multiples for FY14 & FY15 are based on historic market price

    70

    90

    110

    130

    150

         A     p     r    -     1      5

         M     a     y    -     1      5

         J     u     n    -      1      5

         J     u      l   -      1      5

         A     u     g    -      1      5

         S     e     p    -     1      5

         O     c      t   -      1      5

         N     o     v    -      1      5

         D     e     c    -      1      5

         J     a     n    -      1      6

         F     e      b    -      1      6

         M     a     r   -      1      6

         A     p     r    -     1      6

    Emami Sensex

    http://www.karvy.com/

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    Emami Ltd

    Company Background

    Emami Group established in early 1970s, has grown in India,

    with its presence in major sectors like FMCG, Real Estate,

    Hospitals, Retail, Newsprint Manufacturing, Pharmacy chain,

    Contemporary art, Edible oil and biodiesel. Founded by two

    friends Mr. R.S. Agarwal and Mr. R.S. Goenka, today Emami

    is a trusted brand of the nation with over 25,000 employees and with a group turnover of about Rs.100 Bn. Emami Ltd is

    one of the leading and fastest growing personal and healthcare

    businesses in India, with an enviable portfolio of household

    brand names such as Boroplus, Navratna, Fair and Handsome,

    Zandu balm, Mentho Plus balm and Fast Relief. With seven

    manufacturing locations in India and one in Bangladesh

    supported by a widespread distribution network, the company

    is positioned to make its products available in every corner of

    the country. Emami has received countless accolades for its

    innovative and clutter-breaking products, which have carved

    out whole new segments from scratch in the Indian FMCG space and positioned the company as one of the fastest

    growing and most proftable companies in the sector.

    Exhibit 2: Shareholding Pattern (%)

    Source: BSE, Karvy Research

    Exhibit 3: Geography-wise Revenue Segmentation - FY15 (%)

    Source: Company, Karvy Research

    Balance sheet (Rs. Mn)

    FY15 FY16E FY17E FY18E

    Total Assets 16763 20273 24278 29197

    Net Fixed assets 4776 4917 5359 5797

    Current assets 5834 7693 10009 13155

    Other assets 6153 7663 8910 10245

    Total Liabilities 16763 20273 24278 29197

    Networth 12306 15023 18293 22307

    Debt 194 194 194 194

    Current Liabilities 3688 4451 5147 6002

    Other Liabilities 574 605 645 694

    Balance Sheet Ratios

    RoE (%) 44.9 38.3 37.9 38.1

    RoCE (%) 43.1 37.0 36.7 37.1

    Net Debt/Equity (x) (0.3) (0.3) (0.4) (0.4)

    Equity/Total Assets (%) 73.4 74.1 75.3 76.4

    P/BV (x) 18.5 14.1 12.5 10.2

    Source: Company, Karvy Research

    Cash Flow (Rs. Mn)

    FY15 FY16E FY17E FY18E

    PBT* 5924 6547 7884 9676

    Depreciation 343 383 428 476

    Tax (956) (1309) (1577) (1935)

    Changes in WC 734 (282) 15 8

    Others (705) (1092) (1265) (1464)

    CF from Operations 5340 4247 5484 6761

    Capex (1098) (500) (844) (887)

    Investments (18111) (1000) (1000) (1000)

    Others 16871 1139 1313 1512

    CF from Investing (2337) (361) (531) (375)

    Change in Debt 19 0 0 0

    Interest Paid (52) (51) (51) (51)

    Dividends & Others (2120) (2523) (3038) (3729)

    CF from Financing (2154) (2575) (3090) (3780)

    Change in Cash 814 1311 1863 2605

    Source: Company, Karvy Research, * Before Exceptional Item

    Company Financial Snapshot (Y/E Mar)

    Profit & Loss (Rs. Mn)

    FY15 FY16E FY17E FY18E

    Net sales 22172 25334 29473 34504

    Optg. Exp (Adj for OI) 16772 19550 22480 25870

    EBITDA 5401 5784 6992 8634

    Depreciation 343 383 428 476

    Interest 51 51 51 51

    Other Income 918 1197 1371 1570

    PBT 5924 6547 7884 9676

    Tax 1070 1309 1577 1935

    Adj. PAT 4856 5240 6309 7743

    Profit & Loss Ratios

    EBITDA margin (%) 24.4 22.8 23.7 25.0

    Net margin (%) 21.9 20.7 21.4 22.4

    P/E (x) 46.8 40.4 36.2 29.5 EV/EBITDA (x) 41.5 35.7 31.7 25.4

    Dividend yield (%) 0.8 1.0 1.1 1.4

    Source: Company, Karvy Research

    Promoters 72.7%

    FIIs 16.3% DIIs

    1.2%

    Others 9.8%

    Domestic 85.7%

    International

    14.3%

    http://www.karvy.com/

  • 8/17/2019 Karvy on Emami Ltd

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    Apr 30, 2016

    Emami Ltd

    High Margin Products in the Portfolio are expected to drive EBITDA growth ahead of Sales growth:

    Marching ahead in the league of Herbal Products: Zandu accounts for ~25% of the total revenue of Emami, with over 200 products in the portfolio under the Zandu Brand. The

    company is also expected to extend the brand with couple of new products; with the most recent launch of Zandu Honey,

    Emami is currently test marketing these new products and it is expected to launch these products by the end of FY17E. The

    company has also launched new products in diabetes space,