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SECURITY ANALYSIS AND PORTFOLIO

MANAGEMENT

(Fundamental analysis for EMAMI LTD)

By

HEMNATH.D

08MBI042

MBA (Integrated)


2/17

FUNDAMENTAL ANALYSIS

Fundamental Analysis is the examination of the underlying forces that affect the

well being of the economy, industry groups, and companies. As with most analysis, the goal is

to derive a forecast and profit from future price movements. At the company level fundamental

analysis may involve examination of financial data, management, business concept and

competition. At the industry level, there might be an examination of supply and demand forces

for the products offered. For the national economy, it might focus on economic data to assess

the present and future growth of the economy. To forecast future stock prices, this analysis

combines economic, industry, and company analysis to derive a stock's current fair value and

forecast future value. If fair value is not equal to the current stock price, analysts believe that

the stock is either over or under valued and the market price will ultimately gravitate towards

fair value. Fundamental lists do not heed the advice of the random walkers and believe that

markets are weak-form efficient. By believing that prices do not accurately reflect all available

information, analysts look to capitalize on perceived price discrepancies.

ECONOMY ANALYSIS

GDP:

India's economy grew at a higher-than-expected 5.5 per cent in the quarter ending in June,

against analysts' forecasts of 5.3 per cent, government data showed on Friday. Economic

growth in Asia's third largest economy slipped to 6.5 per cent in 2011/12 fiscal year ending in

March from an annual rate of 8.4 per cent in the two previous fiscal years. India's economy

would grow at 6.7 per cent in the current fiscal year, less than an earlier estimate of 7.5-8.0 per

cent, Prime Minister Manmohan Singh's Economic Advisory Council said two weeks ago.

"Sense of relief was palpable in the domestic financial markets after the stronger-than-expected

Q2 GDP print. Whilst an upside surprise at 5.5 percent, the pace of growth is undeniably below


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potential and validates the need for the government to address sluggishness in investment and

external sector activity.

The country's economic growth in the current fiscal is expected to remain below 6 per cent,

possibly due to low confidence levels in the industry, a survey today said.

"A majority of CEOs remain pessimistic about the outlook for the economy in the current year

and expect only a moderate recovery in the forthcoming year," CII said in its survey.

The survey indicated that the GDP growth during 2012-13 is expected to remain below 6 per

cent, it said.

"This reflects low confidence levels in industry. The first quarter GDP numbers corroborate the

fact that the slowdown is sustaining. Our best hope would be that the economy is bottoming

out," CII Director General Chandrajit Banerjee said in a statement.

However, from the results of the snap poll or from government data, the industry body does not

have adequate indicators to substantiate this hypothesis.

Poor showing by the manufacturing sector pulled down the GDP growth to 5.5 per cent in the

April-June quarter, the decade's worst Q1 performance.

Over half of the 75 CEOs who participated in the survey expect the average rate of inflation in

this financial year to be in the range of 7-8 per cent.

About 75 per cent of the respondents do not expect economic reforms - introduction of GST,

FDI in multi-brand retail and FDI cap in insurance and pension sectors - to move forward given

that general elections are coming up in 2014.

Majority of the respondents expect both domestic and international investment either to

increase or remain unchanged during 2012-13, CII said.

RBI has projected the country's economic growth at 7.3 per cent this fiscal, even as it has

assessed the inflation rate to rule at around 6.5 per cent by end-March, 2013.

"The global outlook looks slightly better than expected earlier. Overall, the domestic growth

outlook for 2012-13 also looks a little better than in 2011-12," Reserve Bank of India (RBI)

Governor D. Subbarao said in a statement.


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INFLATION:

The country's wholesale inflation unexpectedly dropped to near three-year low of 6.87 per cent

in July from 7.25 per cent in June, while consumer price inflation slowed slightly to 9.86 per

cent from 10.02 per cent. "Also, construction number looks abnormally strong. On paper this

looks good, but there is some scope of revision in the GDP data. For RBI, I guess it will

possibly help them to explain their anti-inflation stance. But even if on relative basis the

number looks good, overall it is still weak. If we look at the first half of 2012, growth is 5.4

percent compared with 6.4 percent in second half of 2011.

CURRENCY RATES:

"Likely to take some of the heat out of USD/INR but only at the margin. The RBI still

maintains a hawkish bias and rate cuts still seem some way off. Asian data momentum has not

been great in Q3 so difficult to see a dramatic improvement in Q3." But for the companies

doing operation in abroad from india has a greater benefit from currency rates.

MONETARY POLICY:

I don't think that today's growth number will lead to any change in the Reserve Bank of India's

monetary policy stance. It is unlikely that there will be a rate cut before the fourth quarter of the

current fiscal year ending in March 2013.

IIP:

India's industrial production has contracted 1.8% during June 2012 compared with 2.5% growth

in May 2012. This was mainly due to sharp fall of 27.9% in capital goods. June industrial

production came in the red down 1.8%, lower than ours and consensus estimates.

Consequently, on a cumulative basis, factory output was -0.1% in 1QFY13 v/s 7% in the same

period last year. The production numbers will have a bearing on the 'value-add'

industry numbers for 1QFY13 GDP. This coupled with sub-par monsoons and the deceleration

seen in some of the service sectors could result in a sub 5% 1Q FY13 GDP print due on Aug


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31. This is largely in line with our recently revised FY13 GDP estimate at 5.4% with the base

effect having a positive impact on 3Q/4Q trends.

Industrial Production in India decreased 1.8 percent in June of 2012. Historically, from 1994

until 2012, India Industrial Production averaged 7.4 Percent reaching an all time high of

20.0 Percent in November of 2006 and a record low of -7.2 Percent in February of 2009.

Industrial production measures changes in output for the industrial sector of the economy

which includes manufacturing, mining, and utilities. Industrial Production is an important

indicator for economic forecasting and is often used to measure inflation pressures as

high levels of industrial production can lead to sudden changes in prices. This page

includes a chart with historical data for India Industrial Production

Rating agency CRISIL cut its growth forecast to 5.5 percent for the fiscal year ending March,

just two months after pruning its projection to 6.5 percent from 7 percent.

POLITIAL SYSTEM:

Formation of a stable government at the Centre will have positive implications for Indias

sovereign rating, global agency Standard and Poor's today said without indicating when it

would review country's rating. Generally speaking political stability is a positive factor for the

sovereign ratings. Because of strong mandate, next government will have a better opportunity

to execute its policy agenda.

INDUSTRY ANALYSIS:


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HEALTH CARE

As with virtually every other segment of the global economy, including software, financial

services, manufacturing etc, the healthcare industry is becoming increasingly global in nature.

Since independence in 1947, India has come a long way in achieving basic health goals. The

Indian healthcare sector has now become the largest service sector. Since public and

government funding has proved inadequate, the private sector and foreign direct investment has

been encouraged to participate in developing this sector.

As world class medical facilities become available, the process of marketing specialized

healthcare to patients from overseas is being facilitated by private healthcare sector, the tourism

sector and the government of India. The Indian National Medical Policy of 2002 strongly

encourages the providing of such health services to overseas patients to capitalize on the

country's comparative cost advantage. The providers of such services are encouraged by giving

these services the status of "deemed exports".

Several initiatives have to succeed. India is rushing to develop an integrated system to link

travel agencies, healthcare providers, insurers and patients. The popular stereotype image of

India as a hot country with poverty, squalor and undeveloped infrastructure definitely does not

help. The image of poverty and bad hygiene impacts the level of confidence that one needs to

have before going to India for a medical procedure.

GROWTH:

The rate of growth of the health care industry in India is moving ahead neck to neck with the

pharmaceutical industry and the software industry of the country. Much has been said and done

in the health care sector for bringing about improvement. Till date, approximately 12% of the

scope offered by the health care industry in India has been tapped. The health care industry in

India is reckoned to be the engine of the economy in the years to come. Health care industry in

India is worth $17 billion and is anticipated to grow by 13% every year. The health care sector


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encompasses health care instruments, health care in the retail market, hospitals enrolled to the

hospital networks etc.

The Indian healthcare sector is expected to reach US$ 100 billion by 2015 from the current US$

65 billion, growing at around 20 per cent a year, according to rating agency Fitch. Some of the

major factors driving the growth in the sector include increasing population, growing lifestyle

related health issues, cheaper costs for treatment, thrust in medical tourism, improving health

insurance penetration, increasing disposable income, government initiatives and focus on

Public Private Partnership (PPP) models.

Further, the Indian pharmaceutical market is also set to witness medium-term growth. The

sector is expected to grow at 15.3 per cent from 2011-12 to 2013-14, according to a Barclays

Capital Equity Research report on India Healthcare & Pharmaceuticals.

India is one of the world's most lucrative healthcare markets, and is expanding rapidly,

according to latest findings of a report titled 'Indian Healthcare - New Avenues for Growth'.

The Indian healthcare industry estimated at US$ 40 billion in 2010is expected to reach US$ 280

billion by 2020. According to Frost & Sullivan reports, spending on information technology

(IT) by Indian healthcare players was estimated at US$ 244 million in 2010 and is expected to

grow at 22 per cent a year over the next 10 years. Further, huge private sector investments will

significantly contribute to the development of hospital industry, comprising around 80 per cent

of the total market, highlighted the RNCOS report, titled 'Indian Hospital Services Market

Outlook'.

"India is the first country to have a large number of multinational healthcare providers. Thereare seven-eight very active MNCs. It opens a whole host of opportunities for us. I see the

healthcare sector as one of the biggest business opportunities," as per Terri Bresenham,

President and CEO, GE Healthcare India, and MD, Wipro GE Healthcare, India.

India will witness the largest number of mergers and acquisitions (M&A) in the pharmaceutical

and healthcare sector, according to consulting firm Grant Thornton. A survey conducted across

100 companies has revealed that a fourth of the respondents were optimistic about acquisitions

in the pharmaceutical sector.


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Investment Opportunities

According to a survey conducted by consulting firm, Grant Thornton, India is expected to

witness the largest number of merger and acquisitions (M&As) in the pharmaceutical and

healthcare sector in 2012. The survey that was being conducted across 100 companies stated

that fourth of the respondents were bullish on acquiring companies in the pharmaceutical space.

"The expectations of M&A activity in the pharma and healthcare sector could be explained by

factors such as the impending patent cliff in the US, the increasing attractiveness of India as a

low-cost R&D destination and the increasing success of Indian firms in getting ANDA

approvals," said Sunil Makharia executive VP (finance) Lupin Pharmaceuticals. Patent cliff

refers to expiry of legal protection to top-selling drugs.

According to a report by Price Waterhouse Coopers, an estimated 189 million people in the

country will be more than 60 years of age by 2025, needing higher healthcare spends.

According to a new report published by RNCOS, titled "Booming Medical Tourism in India"

Indias share in the global medical tourism industry will reach around 3 per cent by the end of

2013. The report states that medical tourism is expected to generate revenue around US$ 3

billion by 2013, growing at a CAGR of around 26 per cent during 20112013. The number of

medical tourists is anticipated to grow at a CAGR of over 19 per cent during the forecast period

to reach 1.3 million by 2013.

COMPANY ANALYSIS:

EMAMI LTD:


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The inception of Emami Group took place way back in mid seventies when two childhood

friends, Mr. R.S. Agarwal and Mr. R.S. Goenka left their high profile jobs with the Birla Group

to set up Kemco Chemicals, an Ayurvedic medicine and cosmetic manufacturing unit in

Kolkata in 1974.

It was an extremely bold step in the early seventies when the Indian FMCG market was still

dominated by multinationals. Several such companies headquartered in Kolkata were

considering shifting out of West Bengal due to labor unrest and political problems.

But against all odds with a vision of combining the age old wisdom of Ayurveda with modern

manufacturing techniques for creating winning brands the company was started with a meager

amount of Rs. 20,000.

A dream of reaching out to the Indian middle class; a target audience whom they thought will

have increasing potential for consumption, the company started manufacturing cosmetic

products as well as Ayurvedic medicines under the brand name of Emami from a small factoryin Kolkata

Standardised Work Processes

Emami is a global company, offering a diverse portfolio of products to markets in more than 60

countries. With the SAP implementation, we-ll be able to manage our entire global supply

chain more efficiently, enabling us to make the best possible business decisions ranging from

capacity planning to production scheduling.

Imagine a scenario in which we can analyze and evaluate our global inventory with a few

strokes of the keyboard. That scenario is now within reach because our new applications and

processes allow us to apply a simplified and standardized approach to doing business.


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The SAP implementation is helping to reduce the amount of time and effort it takes to fulfill

customer requests and transactions. Having a robust, online transactional system with a single

data base is making that happen.

Improved Timeliness

Operational efficiency to respond quickly to fast changing market realities is a strength we built

in our IT department.

Strengthen Relationships

Companywide access to accurate information about customers, production and distribution will

form the backbone of our customer care conceptultimately integrating disparate touch points,

raising the quality of customer interactions, and focusing business processes across the

enterprise around customer needs. Business process will streamline and automation across all

locations.

Accuracy of Information

Our new system will serve as a repository of information and allow us to build accurate

customer profiles based on the products we sell and the services we offer.

But it-s not only about having the right data. It-s about having that data presented in the right

format, at the right time and in the right place. And it-s about carrying that customer

information all the way through the product cycle, from order commitment to production

scheduling to delivery to invoicing.


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GROWTH:

Emami Ltd is planning to invest up to Rs 125 crore this fiscal to expand capacity and marketing

expenses to grow sales in excess of 15%, a senior company official said.

"We are setting up three new plants in Bangladesh, Egypt and Assam this fiscal," said chief

executive officer (finance, strategy and business development) NH Bhansali.

Emami is expecting 14-18 % growth this fiscal in both sales and profitability. "As of now, there

is not much impact of the poor monsoon," he said.

The company on Wednesday reported 12.3% jump in its net profit at Rs 47 crore for the first

quarter ended June 30 on back of 14.1% growth in net sales at Rs 339 crore.

However, the company's domestic sales grew at a faster pace of 22.2% during the quarter at Rs

299 crore, providing another indication that consumer demand is still upbeat in the country.

"Continued growth in urban demand and rapid expansion in rural areas have helped the

company to maintain doubledigit sales growth. Consumer sentiment has been good and demand

for our products continues to be robust," Emami director Mohan Goenka said.

Emami posted healthy profitable growth from its main brands like Navratna Oil,, Boroplus

Antiseptic Cream,Zandu and Menthoplus Balm. Navratna Cool Talcum Powder and Prickly

Heat Powder also registered strong growth aided by strong summer season.

"We have sustained our sales momentum, at a time when input costs and inflationary pressures

were high," said Goenka. The company's board on Wednesday also approved 800 % dividend,

including 400% special dividend.

COMPETITORS:


12/17

Procter & Gamble Hygiene & Healt

Jyothy Laboratories Ltd.

Marico Ltd.

Parikh Herbals Ltd.Amar Remedies Ltd.

JHS Svendgaard Laboratories Ltd.

J L Morison (India) Ltd.

PRODUCTS:

Baby massage oil

Boroplus antiseptic cream

Boro plus pickly heat powder

Fair and handsome

Hairlife

Himami fast relief

Malai kesar cold cream

Mentho plus

Navaratna cool talc

Navaratna Extra thanda

Navaratna lite

Navaratna oil

Sonachandi Amritprash

Sonachandi chawanprash

Emami Previous Years
http://economictimes.indiatimes.com/jyothy-laboratories-ltd/stocks/companyid-16356.cmshttp://economictimes.indiatimes.com/marico-ltd/stocks/companyid-5886.cmshttp://economictimes.indiatimes.com/parikh-herbals-ltd/stocks/companyid-5399.cmshttp://economictimes.indiatimes.com/amar-remedies-ltd/stocks/companyid-3287.cmshttp://economictimes.indiatimes.com/jhs-svendgaard-laboratories-ltd/stocks/companyid-15363.cmshttp://economictimes.indiatimes.com/j-l-morison-(india)-ltd/stocks/companyid-13525.cmshttp://economictimes.indiatimes.com/marico-ltd/stocks/companyid-5886.cmshttp://economictimes.indiatimes.com/parikh-herbals-ltd/stocks/companyid-5399.cmshttp://economictimes.indiatimes.com/amar-remedies-ltd/stocks/companyid-3287.cmshttp://economictimes.indiatimes.com/jhs-svendgaard-laboratories-ltd/stocks/companyid-15363.cmshttp://economictimes.indiatimes.com/j-l-morison-(india)-ltd/stocks/companyid-13525.cmshttp://economictimes.indiatimes.com/jyothy-laboratories-ltd/stocks/companyid-16356.cms


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Consolidated Balance Sheet ------------------- in Rs. Cr. -------------------

Mar '12 Mar '11 Mar '10 Mar '09 Mar '08

12 mths 12 mths 12 mths 12 mths 12 mths

Sources Of Funds

Total Share Capital 15.13 15.13 15.13 12.43 12.50

Equity Share Capital 15.13 15.13 15.13 12.43 12.43

Share Application Money 0.00 0.00 0.00 0.70 0.00

Preference Share Capital 0.00 0.00 0.00 0.00 0.08

Init. Contribution Settler 0.00 0.00 0.00 0.00 0.00

Preference Share Application Money 0.00 0.00 0.00 0.00 0.00

Employee Stock Opiton 0.00 0.00 0.00 0.00 0.00

Reserves 691.50 674.72 611.70 284.99 273.93

Revaluation Reserves 0.00 0.00 0.00 0.00 0.00

Networth 706.63 689.85 626.83 298.12 286.43

Secured Loans 108.13 175.64 149.23 373.06 46.02

Unsecured Loans 0.10 48.23 104.02 67.05 76.71

Total Debt 108.23 223.87 253.25 440.11 122.73

Minority Interest 0.12 0.07 0.00 0.00 0.48

Policy Holders Funds 0.00 0.00 0.00 0.00 0.00

Group Share in Joint Venture 0.00 0.00 0.00 0.00 0.00

Total Liabilities 814.86 913.72 880.08 738.23 409.16



Application Of Funds

Gross Block 841.90 800.06 763.80 706.72 111.13

Less: Accum. Depreciation 434.20 314.83 202.72 93.95 28.30

Net Block 407.70 485.23 561.08 612.77 82.83

Capital Work in Progress 76.81 6.48 6.21 36.70 13.47

Investments 80.33 6.61 61.62 39.34 114.05

Inventories 112.20 123.36 82.65 73.80 97.63

Sundry Debtors 100.54 108.91 75.46 71.04 37.82

Cash and Bank Balance 275.94 9.31 28.98 11.28 6.58

Total Current Assets 488.68 241.58 187.09 156.12 142.03

Loans and Advances 123.82 162.07 112.86 86.44 197.78

Fixed Deposits 0.00 201.19 132.45 2.83 0.04

Total CA, Loans & Advances 612.50 604.84 432.40 245.39 339.85

Deffered Credit 0.00 0.00 0.00 0.00 0.00

Current Liabilities 200.22 116.03 111.79 144.05 93.86

Provisions 162.14 73.34 69.46 52.04 46.80

Total CL & Provisions 362.36 189.37 181.25 196.09 140.66

Net Current Assets 250.14 415.47 251.15 49.30 199.19

Minority Interest 0.00 0.00 0.00 0.00 0.00

Group Share in Joint Venture 0.00 0.00 0.00 0.00 0.00Miscellaneous Expenses 0.00 0.01 0.04 0.13 0.11


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Total Assets 814.98 913.80 880.10 738.24 409.65

Contingent Liabilities 27.48 27.91 17.08 14.98 23.98

Book Value (Rs) 46.70 45.59 82.85 47.86 46.08

Emami Previous Years

Consolidated Profit & Lossaccount

------------------- in Rs. Cr. -------------------



Income

Sales Turnover 1,477.94 1,277.78 1,037.98 764.71 619.16

Excise Duty 24.43 18.77 16.28 17.25 2.19

Net Sales 1,453.51 1,259.01 1,021.70 747.46 616.97

Other Income 36.18 42.23 28.96 12.75 21.94

Stock Adjustments -22.17 28.48 0.94 -46.92 18.54

Total Income 1,467.52 1,329.72 1,051.60 713.29 657.45

Expenditure

Raw Materials 606.23 553.32 382.81 220.99 248.31

Power & Fuel Cost 6.97 6.09 5.53 3.42 1.29

Employee Cost 92.31 76.76 60.09 48.15 33.20

Other Manufacturing Expenses 4.65 3.85 2.80 43.02 46.58

Selling and Admin Expenses 0.00 372.82 310.62 229.46 195.66

Miscellaneous Expenses 424.41 18.52 14.66 16.29 13.72

Preoperative Exp Capitalised 0.00 0.00 0.00 0.00 0.64

Total Expenses 1,134.57 1,031.36 776.51 561.33 539.40



Operating Profit 296.77 256.13 246.13 139.21 96.11

PBDIT 332.95 298.36 275.09 151.96 118.05

Interest 15.21 15.23 54.73 37.39 7.37

PBDT 317.74 283.13 220.36 114.57 110.68

Depreciation 120.89 116.09 117.52 18.00 7.40

Other Written Off 0.00 0.00 0.00 0.00 0.00

Profit Before Tax 196.85 167.04 102.84 96.57 103.28

Extra-ordinary items 0.20 -0.26 0.22 0.26 0.00

PBT (Post Extra-ord Items) 197.05 166.78 103.06 96.83 103.28

Tax 40.32 40.15 35.43 14.38 12.66

Reported Net Profit 258.81 228.71 169.73 91.75 90.62

Minority Interest -0.03 -0.01 0.00 0.12 0.43

Share Of P/L Of Associates 0.00 0.00 0.00 -0.23 0.01

Net P/L After Minority Interest &

Share Of Associates 156.55 126.88 72.28 81.96 89.95

Total Value Addition 528.34 478.04 393.69 340.35 291.08


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Preference Dividend 0.00 0.00 0.00 0.00 0.00

Equity Dividend 121.05 52.96 45.39 34.05 27.97

Corporate Dividend Tax 19.43 8.80 7.71 5.79 4.75

Per share data (annualised)

Shares in issue (lakhs) 1,513.12 1,513.12 756.56 621.45 621.45

Earning Per Share (Rs) 17.10 15.12 22.43 14.76 14.58

Equity Dividend (%) 0.00 0.00 0.00 0.00 0.00

Book Value (Rs) 46.70 45.59 82.85 47.86 46.08

Consolidated Cash Flow ofEmami

------------------- in Rs. Cr. -------------------



Net Profit Before Tax 298.94 269.12 217.07 105.87 103.92

Net Cash From OperatingActivities

360.45 126.52 146.21 263.69 21.87

Net Cash (used in)/fromInvesting Activities

-132.65 37.04 -33.63 -466.41 -41.28

Net Cash (used in)/fromFinancing Activities

-144.93 -102.24 34.03 219.74 0.27

Net (decrease)/increase InCash and Cash Equivalents

65.44 49.07 147.32 7.49 -18.59

Opening Cash & CashEquivalents

210.50 161.43 14.11 6.62 25.21

Closing Cash & CashEquivalents

275.94 210.50 161.43 14.11 6.62


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Average Raw Material Holding -- 28.63 34.34 47.28 22.54

Average Finished Goods Held -- 31.65 23.94 33.79 35.43

Number of Days In Working Capital 61.95 124.17 93.18 23.74 116.23

Profit & Loss Account Ratios

Material Cost Composition 41.70 43.94 37.46 29.56 40.24

Imported Composition of RawMaterials Consumed

-- -- -- -- --

Selling Distribution CostComposition

-- 26.22 27.38 26.85 28.91

Expenses as Composition of TotalSales

-- -- -- -- --

Cash Flow Indicator Ratios

Dividend Payout Ratio Net Profit 54.27 27.00 31.29 43.36 36.27

Dividend Payout Ratio Cash Profit 36.99 17.91 18.48 36.25 33.52

Earning Retention Ratio 19.48 45.97 29.97 56.58 63.25Cash Earning Retention Ratio 52.44 73.20 72.54 63.70 66.07

AdjustedCash Flow Times 0.37 0.97 1.31 4.01 1.27

FINANCIALS:

MARKET CAP (RS CR) 7,564.07

*P/E 28.39

*BOOK VALUE (RS) 46.08

INDUSTRY P/E 39.79

*EPS (TTM) 17.61

*P/C 19.53

*PRICE/BOOK 10.85

DIV YIELD.(%) 1.60%

FACE VALUE (RS) 1.00

Recommendation: BUY or WAIT TO BUT AT BEST PRICE

The company performance is very good in terms of increasing sales turnover by years and

during summer the stock has a good performance because of sales volume increase by product

navaratna oil and prickly heat powder. At current position we can buy or to wait for some time

for a buy at best price when decreases.