Emami Q3 Results Review - Volume Muted; Rural Recovery A Key Monitorable: Motilal Oswal

Motilal Oswal Report

Emami Ltd. reported 1.4% YoY sales growth in Q3 FY24 (estimate +3.1%), hit by subdued rural demand and weak performance of the winter portfolio. The non-winter portfolio clocked 5% YoY revenue growth, while the winter portfolio (such as Boroplus) posted a 9% YoY contraction. The healthcare range was flat YoY (the immunity range contracted). Navratna and pain management ranges clocked 7% and 3% YoY growth, respectively.

Emami’s volume dipped 1% YoY in Q3 FY24. Besides weak general demand, delayed winter also hurt growth. The four-year volume compound annual growth rate stood at 2%.

Gross margin expanded 290 basis points YoY to 68.8% due to softening raw material prices. Ebitda margin rose 170 bp YoY to 31.6% (the best margin profile among fmcg peers). Ebitda growth stood at 7% YoY during the quarter.

Emami’s core categories are niche and they have been witnessing slow user addition over the last five years. Although Emami commands a high market share in core categories, the share gain is no longer a catalyst for volume growth. Management has initiated several steps (e.g., team additions, new launches, hiring consultants, marketing spends, etc.) over the last three-four years to revive volume growth; however, the desired result has not yet been achieved.

We factor in these issues in our target valuation multiple (at 40- 50% discount to peers). We value Emami at 28 times price/earning on Dec-25 earnings per share to arrive at our target price of Rs 600. Reiterate 'Buy'.

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