The stock of consumer goods major Emami has corrected nearly 3.5 per cent since its 52-week high of Rs 546.25.<\/p>\n
On August 29, the stock closed at Rs 521.90 on the BSE.<\/p>\n
After underperforming the Nifty FMCG index for a long time, the stock is now doing a catch up and surged over 13 per cent in the past one month.<\/p>\n
It has been on an uptrend since its March lows, gaining about 54 per cent during this period.<\/p>\n
This has helped the stock narrow its underperformance vis-a-vis the sector index seen over the past one year.<\/p>\n
The recent gains in the stock have been on the back of robust June quarter numbers, expectations of revenue growth, margin expansion and reduction in promoter share pledge.<\/p>\n
Overall, growth for the company in the June quarter came in at 7 per cent year-on-year (Y-o-Y), and this was broadly in line with estimates.<\/p>\n
This is despite sales being dragged down by the sluggish performance of the summer portfolio.<\/p>\n
Excluding this, domestic business growth was a robust 16 per cent.<\/p>\n
The summer portfolio declined by 5 per cent on account of unseasonal rains with the Navratna range witnessing a fall of 8 per cent.<\/p>\n
Emami was, however, able to improve sales growth of Dermicool by 9 per cent on the back of distribution initiatives.<\/p>\n
Growth in the quarter was led by pain management (up 13 per cent YoY), healthcare (up 11 per cent) and antiseptic cream BoroPlus (up 19 per cent).<\/p>\n
On a low base, modern trade and e-commerce channels, which account for about 10 per cent of sales, posted a growth of 45 per cent and 47 per cent, respectively, during the first quarter.<\/p>\n
Contribution to revenues increased by 510 basis points (bps) Y-o-Y.<\/p>\n
The company expects the two channels to grow by 15-20 per cent. For FY24, the company sees a revenue growth of 8-10 per cent with an operating profit margin expansion of 200-250 bps.<\/p>\n
This is led by double digit growth in international business, male grooming and healthcare segments.<\/p>\n
Easing input costs are expected to help boost profitability.<\/p>\n
Most brokerages have upgraded their operating profit estimates over the next two-three years due to expectations of a margin recovery.<\/p>\n
Analysts led by Percy Panthaki of IIFL Research, said, “With a higher salience of rural and mass-end discretionary products, Emami has been impacted disproportionately in the high inflationary times.<\/p>\n
“Moderation in the overall price index should bode well for demand recovery for Emami.”<\/p>\n
The brokerage, which has a buy rating, increased its operating profit estimates by 4-7 per cent over FY24-26.<\/p>\n
This is because it sees a margin recovery.<\/p>\n
Nirmal Bang Research, too, has revised its operating profit margin by 7 per cent for FY24 for Emami.<\/p>\n
This is due to the continued sales momentum and the management guidance of 200-250 bps margin expansion for the ongoing financial year.<\/p>\n
Further, the brokerage believes that the stock, which is trading at 21 times its FY25 earnings estimates, is inexpensive.<\/p>\n
Therefore, it has maintained a ‘buy’ rating.<\/p>\n
Another positive for the stock is the reduction in promoter pledge.<\/p>\n
The promoters expect to complete the sale of promoter group hospital (AMRI Hospitals) by the end of this month.<\/p>\n
They will use part of the proceeds to bring down their share pledge from 33 per cent to 18 per cent.<\/p>\n