Emami Q4 net profit drops 60% but brokerages maintain ‘buy’ tag

Revenue from operations during the quarter was up 9 percent to Rs 836 crore, from Rs 768 crore registered in Q4 of FY22.

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Share price of FMCG major Emami is likely to open lower on May 26, a day after company reported its March quarter earnings.

Emami on May 25 posted a 60 percent drop in consolidated net profit to Rs 142 crore for the quarter that ended March 2023, on muted demand.

The company posted a consolidated net profit of Rs 354 crore in the corresponding period of FY22.

Revenue from operations during the quarter was up 9 percent to Rs 836 crore, from Rs 768 crore registered in Q4 of FY22.

The company attributed the decline in net profit to muted demand for personal care products and excessive rainfall in many parts of the country in March, which impacted the demand for summer products.

For the full year, the company’s revenue at Rs 3,406 crore grew by 7 percent. Net profit for FY23 slipped to Rs 627 crore, down from Rs 836 crore over the previous year.

In FY23 the gross margins were at 64.7 percent, contracting by 160 basis points due to inflationary pressure and an unfavourable portfolio mix in the first three quarters, the statement said.

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Here is what brokerages have to say about stock and the company post March quarter earnings:

Prabhudas Lilladher

Broking firm increase its EPS estimates for FY24/FY25 by 3.4%/6.5% which factors in impact of easing raw material inflation, pickup in rural demand across categories (ex of summer portfolio) and increased ad spends behind core brands.

4Q results saw volume growth of 2% while summer portfolio was impacted due to unseasonal rains across India.

Key categories like Pain Management and Health Care are expected to grow (after 2 years of COVID numbers in base) in FY24. Input cost pressures have come off, which gives promise for demand in upcoming quarters.

Emami is investing for the future with 1) new launches in existing categories like Boroplus, Zandu and new product launches in D2C 2) investment in D2C businesses and Modern Trade 3) increase in direct town coverage to 60k (from 52k) by FY24 and 4) increasing ad-spend to gain market share.

Prabhudas Lilladher estimate 19.4% PAT CAGR over FY23-25 and value the stock at 25x Mar25 EPS and assign a value of Rs 517/share (Rs 485 earlier). Retain Accumulate.

Sharekhan

Emami delivered a muted performance in FY2023 with revenue growth in high single digit and contraction in OPM. For FY2024, the domestic business is expected to grow by 8-10%, largely driven by strong growth in the newly acquired businesses, while OPM is expected to be higher than 27%.

Emami has a strong brand portfolio and its sustained focus on product launches, distribution expansion, scale-up of emerging channels, strong pipeline of D2C brands, growth in international business, and improved penetration will help to improve its growth prospects in the medium term.

OPM is expected to improve in the coming years with raw-material prices stabilising.

The stock has corrected by 11% in the past six months and is currently trading at 20.4x and 17.2x its FY2024E and FY2025E earnings, respectively. Sharekhan maintain ‘Buy’ recommendation with a revised price target (PT) of Rs 460.

Nirmal Bang

Emami’s Domestic business grew by 5% YoY in 4QFY23 (volume growth of 2% YoY) as unseasonal rainfall impacted demand for summer products., Adjusted for Dermicool and Helios mergers, which together contributed ~10% to sales in 4QFY23, volume growth declined YoY.

International business grew by 19% YoY in 4QFY23, driven by growth in markets of MENA, CIS and SAARC regions. Overall net sales growth in 4QFY23 stood at 8.8% YoY.

Changes to the model have led to 5.3%/1.3% cut in FY24E/FY25E EPS (before amortization). While the summer portfolio has not done well and may remain a drag in the near term, recovery in the rural market (>50% salience) could benefit the overall growth prospects.

Considering the likelihood of asset monetization over the next month (and subsequent reduction in promoter pledge), along with the inexpensive valuation, Nirmal Bang assign a multiple of 25x on FY25E EPS and maintain ‘Buy’ rating on Emami with a target price (TP) of Rs 490.

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