Emami – Volume growth remains weak; blow on edge
Emami Ltd’s Q2 FY24 revenue growth. of 6% was in line with our estimates while Ebitda growth of 20% was well ahead of our estimate (our estimate: 13%), helped by a higher than expected expansion in gross margin and better cost control. Domestic/international revenues grew by 4/12% YoY, with domestic volume growth of 2% (3% four-year CAGR).
Domestic growth was led by Navratna and Dermicool, which grew 12%, followed by pain management/health care, which grew 1/4%. BoroPlus / Kesh King / men’s grooming revenues fell 4/5/7% due to weak consumer demand.
The alternate channel continued to report stellar performance with modern business / e-commerce growing at 17/50% and now contributing 11/13% of domestic revenues. Gross margin expanded by 345 bps YoY to 70%, led by a soft commodity basket and price intervention with Ebitdam expansion of 300 bps to 27%.
Emami remains hopeful of demand recovery, especially in rural markets, while expanding FY24 Ebitdam by approx.200-250 bps, led by-
- easing of inflation;
- improving agricultural yields and rural wages;
- increase in government spending; and
- festive season
We slightly increase EPS due to gross margin expansion, while we remain cautious on core business growth, given the limited scope to add new customers in niche categories. We value the stock at 25 times price/earnings in Sep-25E EPS to derive a target price of Rs 500. Maintain ‘Reduce’.