Prabhudas Lilladher
Emami (Buy)
Target: ₹526
CMP: ₹434.85
We are upgrading target price of Emami to ₹526 (₹450 earlier) as we increase PE multiple from 26 to 28x (last 5-year average 38.6x, 25 per cent discount to coverage universe) and rollover valuations to FY23. We believe Emami has hit a sweet spot for growth led by: 1) strong rural demand; 2) strong demand for winter care products on early onset of winter; 3) low base for Q3; 4) Kesh king has gained traction and is gaining share in premium hair oil segment; strong demand for immunity boosters like Chawyanprash and Kesari jeevan; and 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 (sanitisers, handwash, anti-septic soaps, floor cleaners, surface cleaners etc.), although we remain cautious on scalability.
We believe worst is over and accelerated amortisation, net cash balance sheet (₹250 crore in Q2-21), 40-50 per cent dividend payout, gradual reduction in promoter pledge (45 per cent, likely to decline in Q4) are positive.