PremiumMUMBAI: Emami Ltd has done well in a challenging pandemic year. Its consolidated revenues for the financial year 2021 rose 8.5% year-on-year (YoY) to Rs2,880 crore. Revenue growth was the highest since fiscal 2016, said analysts from Jefferies India Pvt. Ltd.
What’s more, cost savings have led to faster profit growth. In FY21, earnings before interest, tax, depreciation and amortization (Ebitda) increased by nearly 28% year-on-year to Rs883 crore. “Despite headwinds at the onset, FY21 turned out to be a strong year for Emami, aided by pick-up in healthcare portfolio, recovery in key brands and traction in modern trade/ E-commerce," said Jefferies analysts in a report on 25 May.
Indeed, Emami’s revenues had declined around 26% YoY in the June quarter of fiscal 2021 as the pandemic hit performance. Since then, revenues have grown, with March quarter growth at 37% being the best. Last quarter’s results announced on Tuesday show domestic business, which accounted for 80% of total sales, has risen 44% helped by a favourable base quarter. Domestic brandwise performance has been robust in the March 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 compound annual growth rate.
March quarter 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 has put up last year. After all, the stock has appreciated 43% from its pre-covid highs seen in January 2020, suggesting investors are capturing a good portion of the optimism into the share price. Currently, the stock trades at around 33 times estimated earnings for financial year 2022, based on Bloomberg data.
While valuations are relatively cheaper than some other consumer firms, investors will watch whether Emami sustains its growth momentum, 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. The broker added, “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 favorable than recent quarters."
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 limit significant upsides in the stock in the immediate future.
Never miss a story! Stay connected and informed with Mint. Download our App Now!!