PremiumEmami Ltd has done well in fiscal 2021, notwithstanding the covid-19 pandemic. Consolidated revenues increased by 8.5% year-on-year to ₹2,880 crore. What’s more, cost savings led to faster profit growth. In FY21, earnings before interest, tax, depreciation and amortization (Ebitda) increased by nearly 28% year-on-year to ₹883 crore.
“Emami saw a growth recovery and a strong earnings performance in FY21 after five years," analysts from Emkay Global Financial Services Ltd said.
“Despite headwinds at the onset, FY21 turned out to be a strong year for Emami, aided by a pick-up in the healthcare portfolio, recovery in key brands and traction in modern trade/ e-commerce," said analysts from Jefferies India Pvt. Ltd in a report on 25 May.
Indeed, Emami’s revenues had declined by around 26% year-on-year in the June quarter of FY21 as the covid-19 lockdown adversely impacted performance. Since then, revenues have grown year-on-year, with the March quarter growth at 37% being the best.
The results announced on Tuesday show domestic business, which accounted for 80% of total sales, increased by 44%, helped by a favourable base quarter. Further, domestic brand-wise performance was robust in the last quarter.
“However, on a two-year CAGR basis, growth rate accelerated (versus December quarter) for Navratna, pain management, male grooming and Zandu portfolio, while it moderated for Kesh King," said Jefferies analysts. CAGR is compounded annual growth rate.
Overall, its Ebitda margin expanded 378 basis points year-on-year to 22%, despite a contraction in gross margin owing to higher raw material costs. One basis point is 0.01%.
To be sure, investors have taken note of the good show that Emami had put up last year. After all, the stock has appreciated as much as 43% from its pre-covid highs seen in January 2020. Currently, Emami’s shares trade at around 33 times estimated earnings for FY22, based on Bloomberg data.
Even as valuations do not appear very demanding, investors will keep a close watch on whether the company’s growth momentum continues, going ahead. “While it is too early to call out the structural recovery in sales, the third successive quarter of two-year average sales of 7.5-10% is encouraging," said analysts from Motilal Oswal Financial Services Ltd.
“Whether Emami is able to sustain or surpass the better-than-usual sales momentum witnessed in the past three quarters remains to be seen, especially if seasonality and rural momentum turn out to be less favourable than recent quarters," they added.
In the near term, the pandemic is expected to weigh on demand for some parts of Emami’s portfolio, which could hurt revenues. This may well limit significant upsides in the stock in the immediate future.
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