This Personal & Healthcare Company's Global Sales Up 45% YoY, Buy Stock For High Return: Says Motilal Oswal

Stock To Buy: Target Price & Financial Result

The Current Market Price (CMP) of Emami is Rs. 450. Motilal Oswal has estimated a Target Price for the stock at Rs. 520. This stock has the potential to give 16% return, in the upcoming 1 year. This is a large-cap stock with a market capitalization of around Rs. 20,226 crore.

Emami's overall volume growth in 1QFY23 stood at 9.6% YoY, while it was 2.4% ex-Dermicool (merged from this quarter). EBITDA/PBT remained flat YoY at Rs. 1.7b / Rs. 1.5b, respectively. Adj. PAT before amortization rose 3.5% YoY to Rs. 1.5b, while domestic volume rose 9.6% YoY. Gross margin contracted 340bp YoY to 62.6%, and EBITDA margin contracted 340bp YoY to 22.3%. Dermicool brand contributed 8% to domestic sales. Domestic business salience during 1QFY23 was at 85%.

 

Motilal Oswal: Why Should You Buy This Stock?

The company's international business salience during 1QFY23 stood at 15%. Domestic segmental performance YoY in 1QFY23: Navratna (+29%), Pain Management (-30%), BoroPlus (flat), Kesh King (+20%), Male Grooming (+32%), Healthcare (-25%) and 7 Oils in One (+45%).

Maintaining a buy rating, Motilal Oswal commented, "The ongoing material cost pressure and near-term rural weakness led to a 7.6% cut in our FY23E EPS, while there is no major change to our FY24E EPS. Emami's sales CAGR of 9.7% over FY20-FY22 was far better than the 3.0% sales CAGR over FY16-20. If this trajectory leads to sustainable and strong double-digit sales growth, a further re-rating is on the cards., ad increase in ad spends along with expansion in rural distribution reach. We arrive at our target price of Rs. 520, valuing the company at 23x Jun'24E EPS, at a 40% discount to its peers on a pre-amortization basis."

Company portfolio: Emami

Emami Limited is one of the leading and fastest growing personal and healthcare businesses in India, with an enviable portfolio of household brand names such as BoroPlus, Navratna, Fair and Handsome, Zandu Balm, Mentho Plus Balm, Fast Relief and Kesh King. Established in 1974, The Company has a portfolio of over 300 + products based on ayurvedic formulations. Emami's current operations comprise more than 60 countries including SAARC, MENAP, SEA, Africa, Eastern Europe and the CIS countries. Nearly 150 Emami products are sold every second somewhere around the world. Emami Limited, the flagship company of the Group, recorded a turnover of Rs. 3192 crore, in 2021-22.

The base of healthcare business along with pain management weakened in 1Q. However, it is likely to be less challenging in subsequent quarters. According to the management, material cost pressures are likely to persist for some more time. Its ad-spends-to sales ratio is expected to increase by over 100bp in FY23 and investments in Project Khoj will also continue.

Disclaimer

The above stock was picked from the brokerage report of Motilal Oswal. Investing in equities poses a risk of financial losses. Investors must therefore exercise due caution. Greynium Information Technologies, the author, and the brokerage house are not liable for any losses caused as a result of decisions based on the article.