Motilal Oswal's research report on Emami
HMN reported better-than-expected sales in 4QFY23 (up 8.8% YoY). The overall domestic volumes grew ~2%, while organic business volumes continued to decline, affected by persistent weakness in rural and summer portfolio due to excessive unseasonal rainfall in some parts of the country. The management has guided for a ~200-250bp expansion in gross margin going ahead and expects A&P spends to be ~17% of sales. It is also encouraging to see growth in D2C brands (The Man Company grew ~40%) and the management expects growth of ~50-60% YoY in D2C brands in FY24. We reiterate our BUY rating, as 1) HMN with over 50% of sales from the rural segment could be a beneficiary of a gradual rural revival; 2) valuations are inexpensive at 20xFY25E EPS; 3) improving revenue performance and investments in terms of rural distribution expansion and ad-spends in recent years.
Outlook
We reiterate our BUY rating on the stock. Valuations are inexpensive at 16.8x FY25E EPS. We arrive at a TP of INR460. (valuing the company at 20x FY25E EPS, ~40% discount to its peers on a pre-amortisation basis).
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