28 February 2020
Update | Sector: Consumer
Emami
Buy
BSE SENSEX
38,297
S&P CNX
11,202
CMP: INR256
TP: INR310(+21%)
Near-term recovery unlikely, cheap valuations offer comfort
We recently met Emami’s (HMN) management to get an update on its overall
business. Key takeaways:
Demand is yet to pick up after weakening in the December quarter for both
the company and the sector.
Terms of trade to distributors have worsened with credit to general trade
now at 10-12 days. This can be attributed to delayed summer offtake (due
to extended winter) and trade liquidity concerns.
However, we find comfort in favorable material costs, demand prospects
from Rabi harvest, and strong product pipeline ready for launch when
sentiment improves.
Valuations and view:
After coming in at an admirable ~20%/ 34%/35% in
the first five years of the decade, sales/EBITDA/PAT CAGR has slowed down
significantly to ~5%/ 7%/3% for the five years ending FY20. Sales growth in
many of HMN’s key categories has been impacted in recent years due to
rural slowdown (52% rural dependency), liquidity crunch (~40% wholesale
contribution) and category growth issue (majorly problem-solving portfolio
and not everyday use products with the former getting affected more in a
weak demand situation). However, none of these are structural issues and
thus HMN will be a key beneficiary when the tide turns. Valuations of 20x
trailing EPS and 16.4x FY22 EPS (~20x after taking into account
amortization) also offer some comfort. Moreover, valuations are at ~60%
discount to peer average and ~50%/40% discount to its own 5/10-year
average.
Maintain Buy
with a
TP of INR310 (targeting 20x FY22E adj. EPS).
Stock Info
Bloomberg
Equity Shares (m)
M.Cap.(INRb)/(USDb)
52-Week Range (INR)
1, 6, 12 Rel. Per (%)
12M Avg Val (INR M)
Free float (%)
HMN IN
959
116.4 / 1.6
416 / 246
-13/-16/-41
276
47.3
Financials Snapshot (INR b)
Y/E March
2019 2020E 2021E 2022E
Sales
26.9 27.8 30.9 34.8
Sales Gr. (%)
6.4
3.2 11.2 12.7
EBITDA
7.3
7.5 8.3 9.3
EBIT Margin (%) 26.9 27.1 26.8 26.8
Adj. PAT
5.5
5.7 6.2 7.1
Adj. EPS (INR)
12.2 12.5 13.7 15.7
EPS Gr. (%)
0.2
3.1 9.6 14.2
BV/Sh.(INR)
45.7 51.0 51.7 53.7
Ratios
RoE (%)
27.0 25.9 26.7 29.8
RoCE (%)
28.4 28.2 28.4 31.6
Payout (%)
32.9 43.9 54.6 57.4
Valuation
P/E (x)
21.1 20.5 18.7 16.4
P/BV (x)
5.6
5.0 5.0 4.8
EV/EBITDA (x)
15.7 14.5 13.1 11.5
Div. Yield (%)
1.6
2.1 2.9 3.5
Shareholding pattern (%)
As On
Promoter
DII
FII
Others
Dec-19
52.7
28.7
10.4
8.2
Sep-19
52.7
25.5
11.7
10.1
Dec-18
72.7
7.7
10.8
8.8
Detailed takeaways
FII Includes depository receipts
Stock Performance (1-year)
Emami
520
440
360
280
200
Sensex - Rebased
Weak demand persists:
Demand environment remains bleak, similar to the
December quarter when things had worsened sequentially and YoY for both
the company and the sector.
Summer season offtake delayed:
Management appeared hopeful in the
third-quarter post results call that up-stocking will happen in products like
Navratna oil ahead of the summer season (usually begins in mid- Feb).
However, even toward end-February, sales have not picked up owing to
extended winter in several parts of the country.
Lack of daily use portfolio – a drawback:
The problem solving nature of
HMN’s products – and not everyday use – has also affected offtake in a
weak demand environment.
High wholesale and rural sales make task difficult:
HMN’s highest
exposure to wholesale (~40%) among peers and among the highest rural
proportion in total sales have kept the sales trajectory weak.
No green shoots in any geography:
There is no geography where the sales
outlook is better than the others.
Krishnan Sambamoorthy – Research analyst
(Krishnan.Sambamoorthy@MotilalOswal.com); +91 22 6129 1545
Research analyst: Dhairya Dhruv
(Dhairya.Dhruv@motilaloswal.com); +91 22 6129 1547 |
Pooja Doshi
(Pooja.Doshi@MotilalOswal.com); +91 22 5036 2689
Investors are advised to refer through important disclosures made at the last page of the Research Report.
Motilal Oswal research is available on www.motilaloswal.com/Institutional-Equities, Bloomberg, Thomson Reuters, Factset and S&P Capital.