Buy Emami; target of Rs 526: Prabhudas Lilladher

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Prabhudas Lilladher's research report on Emami

We believe Emami has hit a sweet spot for growth led by 1) Strong rural demand as it is 55% of sales for Emami 2) strong demand for winter care products on early onset of winter 3) low base for 3Q ( 5 year sales growth of 3.3%, 19.7% and 25.8% decline in 4Q and 1Q) 4) Kesh king has gained traction and is gaining share in premium hair oil segment 5) Strong demand for Immunity boosters like Chawyanprash and Kesari jeevan and 6) benign input costs of LLP and Mentha oil. We believe success of F&H re-launch and pick up in male grooming portfolio is key to sustaining growth beyond next 2/3 quarters. Emami has taken steps for broad based growth with new launches in Immunity boosters, health and Hygiene products (Sanitizers, Handwash, Anti Septic Soaps, Floor cleaners, surface cleaners etc.), although we remain cautious on scalability. We believe worst is over and accelerated amortization, net cash balance sheet (Rs2.5bn in 2Q21), 40-50% dividend payout, gradual reduction in promoter pledge (45%, likely to decline in 4Q) are positive. The stock trades at 23.6xFY23 EPS (Excluding Amortization) of Rs18.8. Retain Buy

Outlook

We are upgrading target price of Emami to Rs526 (Rs450 earlier) as we increase PE multiple from 26 to 28x (last 5-year average 38.6x, 25% discount to coverage universe) and rollover valuations to FY23.

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