EMAMI LTD Result Update: Q3 FY 12 C.M.P : Rs.435.00 Target Price : Rs. 492.00 Date : 13 th April 2012 BUY Stock Data: Sector: FMCG Face Value Rs. Rs.1.00 52 wk. High/Low (Rs.) 545.00/320.75 Volume (2 wk. Avg.) 8546.00 BSE Code 531162 Market Cap (Rs.In mn) 65815.50 Share Holding Pattern SYNOPSIS Emami Limited is one of the fastest growing ayurveda-focused, health, beauty and personal care product companies in India The Company has acquired infrastructure in Egypt to set up a manufacturing facility. Manufacturing facility also proposed in Bangladesh. Net Sales and PAT of the company are expected to grow at a CAGR of 17% and 20% over 2010 to 2013E respectively. 1 Year Comparative Graph The Company has completed integration of the distribution network of Zandu with Emami. BSE SENSEX Emami Ltd Emami has launched a range of baby products under the brand name Emami Healthy and Fair baby range which includes a soap, talc and oil. The Company invested Rs.230 crores in advertisement and communication, 18% of total revenues, in 2010-11. Years Net sales EBITDA Net Profit EPS P/E FY 11 12777.80 3740.40 2287.10 15.12 28.78 FY 12E 14699.89 3956.18 2541.06 16.79 25.90 FY 13E 16463.87 4420.82 2906.14 19.21 22.65 1
Peer Group Comparison Name of the company CMP(Rs.) Market Cap.(Rs.Mn.) EPS(Rs.) P/E(x) P/Bv(x) Dividend (%) Emami Ltd 435.00 65815.50 15.12 28.78 9.54 350.00 Hindustan Unilever 424.10 916697.4 12.21 34.73-650.00 Godrej Cons 493.20 167834.7 16.35 30.17-450.00 Gillette India 2547.65 83015.7 18.91 134.73 13.83 150.00 Investment Highlights Q3 FY12 Results Update Emami Ltd disclosed results for the quarter ended Dec 2011. Net sales for the quarter moved up 13% to Rs.4572.60 million as compared to Rs.4060.10 million during the corresponding quarter last year. During the quarter, the company has reported Net Profit increased to Rs.945.00 million from Rs.855.50 million in previous year same quarter. The Basic EPS of the company stood at Rs.6.25 for the quarter ended Dec 2011. Quarterly Results - Consolidate (Rs in mn) As At Dec-11 Dec-10 %change Net sales 4572.60 4060.10 13 PAT 945.00 855.50 10 Basic EPS 6.25 5.65 10 2
Basic EPS of the company stood at Rs.6.25 3
Break up of Expenditure Expenditure for the quarter stood at Rs.3192.50mn, which is around 15% higher than the corresponding period of the previous year. Raw material cost of the company for the quarter accounts for 23% of the sales of the company and stood at Rs.1070.40mn from Rs.922.80mn of the corresponding period of the previous year. Other Expenditure cost increased 36% YoY to Rs.637.5mn from Rs.470.30 mn and accounts for 14% of the revenue of the company for the quarter. OPM and NPM for the quarter stood at 31% and 21% respectively from 32% and 21% respectively of the same period of the last year. 4
Company Profile Emami incorporated in 1983 Kemco Chemicals is one of the renowned FMCG players in India. Headquartered at Kolkata, the company s manufacturing facilities are located at Kolkata, Guwahati and Pondicherry. The company manufactures products under various categories namely Hair Care, Skin Creams and Lotions, Talcum Powder and ayurvedic health care products. The company has global presence in 60 countries that includes CIS, Middle East, Indian sub-continent, Europe and North America. Company s research and development centre is spread over on 20,000 Sq. feet of land, equipped with state of art technologies and has a workforce of highly qualified and respected scientists and ayurvedic doctors. The company operates its distribution network through 28 depots in India. Emani has over 2500 distributors with a direct presence in 4 lacs outlets. The company has a marketing workforce of over 1200 people. The company also has an overseas marketing offices located UK and UAE. Emami has received ISO 9001:2000 certification for its quality management. Brands Navratna Oil. Navratna Lite. Navratna Extra Thanda. Navratna Cool Talc. Boroplus Antiseptic Cream. Boroplus Prickly Heat Powder. Fair and Handsome. Himani Fast Relief. Mentho Plus. Sonachandi Chyawanprash. Sonachandi Amritprash. Malai Kesar Cold Cream. Hair life. Baby Massage Oil. 5
Subsidiary Companies Emami UK Ltd. Emami Bangladesh Ltd. Emami International F ZE. Emami Overseas FZE Pharma Derm S A E Co, Egypt SCOT Analysis Strengths Challenges: Presence of established distribution networks in both urban and rural India Low Operational Costs Availability of a wide range of raw material bases suitable for various FMCG organizations, mainly food processing units and chemical units Low labour units Low labour costs Lower investment scope in relevant technology and achieving economies of scale especially in small sectors Low export levels Me-too products, which mimic established brands. These products narrow the scope of FMCG products in the rural and semi-urban market. Fierce competition, leading to a significant rise in the marketing costs of middle and small sized players of the Industry. Infrastructure bottlenecks may hinder in certain cases Opportunities Threats Low rural penetration Rising income levels, i.e. increase in purchasing power of consumers Large domestic market a population of over one billion. Export potential High consumer goods spending Removal of import restrictions resulting in the replacement of domestic brands Slowdown in rural demand Tax and regulatory structures 6
Financial Results 12 Months Ended Profit & Loss Account (Consolidate) Value(Rs.in million) FY10A FY11A FY12E FY13E 12m 12m 12m 12m Description Net Sales 10379.90 12777.80 14699.89 16463.87 Other Income 70.10 185.10 166.46 174.78 Total Income 10450.00 12962.90 14866.35 16638.66 Expenditure -6894.40-9222.50-10910.16-12217.84 Operating Profit 3555.60 3740.40 3956.18 4420.82 Interest -209.70 111.70 133.31 146.64 Gross Profit 3345.90 3852.10 4089.49 4567.46 Depreciation -1175.20-1160.90-1190.43-1249.95 Exceptional Items -121.30 0.00 0.00 0.00 Profit before Tax 2049.40 2691.20 2899.07 3317.51 Tax -352.10-404.10-358.01-411.37 Profit after Tax 1697.30 2287.10 2541.06 2906.14 Equity Capital 151.30 151.30 151.30 151.30 Reserves 6102.90 6747.20 9288.26 12194.39 Face Value(Rs.) 2.00 1.00 1.00 1.00 Total No. of Shares 75.65 151.30 151.30 151.30 EPS 22.44 15.12 16.79 19.21 *A=Actual, *E=Estimated 7
Quarterly Ended Profit & Loss Account (Consolidate) Value(Rs.in million) 30-Jun-11 30-Sep-11 30-Dec-11 31-Mar-12 3m(A) 3m(A) 3m(A) 3m(E) Description Net Sales 2999.10 3104.30 4572.60 4023.89 Other Income 31.10 89.30 19.60 26.46 Total Income 3030.20 3193.60 4592.20 4050.35 Expenditure -2337.60-2354.10-3192.50-3025.96 Operating Profit 692.60 839.50 1399.70 1024.38 Interest 33.20 22.20 37.10 40.81 Gross Profit 725.80 861.70 1436.80 1065.19 Depreciation -297.50-301.40-301.80-289.73 Profit before Tax 428.30 560.30 1135.00 775.47 Tax -13.30-53.90-190.00-100.81 Profit after Tax 415.00 506.40 945.00 674.66 Equity Capital 151.30 151.30 151.30 151.30 Face Value(Rs.) 1.00 1.00 1.00 1.00 Total No. of Shares 151.30 151.30 151.30 151.30 EPS 2.74 3.35 6.25 4.46 *A=Actual, *E=Estimated 8
Key Ratio Particulars FY10 FY11 FY12E FY13E EPS (Rs.) 22.44 15.12 16.79 19.21 EBITDA Margin (%) 34.25% 29.27% 26.91% 26.85% PAT Margin (%) 16.35% 17.90% 17.29% 17.65% P/E Ratio (x) 17.75 28.78 25.90 22.65 ROE (%) 27.14% 33.15% 26.92% 23.54% ROCE (%) 27.09% 28.23% 23.46% 21.40% EV/EBITDA (x) 8.47 17.60 16.64 14.89 Debt-Equity Ratio 0.40 0.32 0.25 0.20 Book Value (Rs.) 82.67 45.59 62.39 81.60 P/BV 4.82 9.54 6.97 5.33 Charts: 9
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Outlook and Conclusion At the current market price of Rs.435.00, the stock is trading at 25.90 x FY12E and 22.65 x FY13E respectively. Price to Book Value of the stock is expected to be at 6.97 x and 5.33 x respectively for FY12E and FY13E. Earning per share (EPS) of the company for the earnings for FY12E and FY13E is seen at Rs.16.79 and Rs.19.21 respectively. Net Sales and PAT of the company are expected to grow at a CAGR of 17% and 20% over 2010 to 2013E respectively. The Company has completed integration of the distribution network of Zandu with Emami. Emami has launched a range of baby products under the brand name Emami Healthy and Fair baby range which includes a soap, talc and oil. The Company invested Rs.230 crores in advertisement and communication, 18% of total revenues, in 2010-11. On the basis of EV/EBITDA, the stock trades at 16.64 x for FY12E and 14.89 x for FY13E. We expect that the company will keep its growth story in the coming quarters also. We recommend BUY in this particular scrip with a target price of Rs.492.00 for Medium to Long term investment. 12
Industry Overview Fast Moving Consumer Goods (FMCG) goods are popularly named as consumer packaged goods. Items in this category include all consumables (other than groceries/pulses) people buy at regular intervals. The most common in the list are toilet soaps, detergents, shampoos, toothpaste, shaving products, shoe polish, packaged foodstuff, and household accessories and extends to certain electronic goods. These items are meant for daily of frequent consumption and have a high return. A major portion of the monthly budget of each household is reserved for FMCG products. The volume of money circulated in the economy against FMCG products is very high, as the number of products the consumer use is very high. Competition in the FMCG sector is very high resulting in high pressure on margins FMCG companies maintain intense distribution network. Companies spend a large portion of their budget on maintaining distribution networks. New entrants who wish to bring their products in the national level need to invest huge sums of money on promoting brands. Manufacturing can be outsourced. A recent phenomenon in the sector was entry of multinationals and cheaper imports. Also the market is more pressurized with presence of local players in rural areas and state brands Scope of the Sector The Indian FMCG sector with a market size of Rs.1,30,000 crore is the fourth largest sector in the economy. A well-established distribution network, intense competition between the organized and unorganized segments characterizes the sector. FMCG market in India is growing at a fast pace despite of the economic downtrend. The increasing disposable income and improved standard of living in most tier II and tire III cities are spearheading the FMCG growth across the nation. The changing 13
profile and mind set of the consumers has shifted the thought to Value for Money from Money for Value. At present, rural consumers spend about US$ 9 billion per annum on FMCG items and product categories such as instant noodles, deodorant and fabric, with the pace of consumption growing much faster than urban areas, as per the findings. The industry will witness a spate of acquisitions & mergers in the 2010. There will be a renewed focus on rural consumers too, by an analyst based in Mumbai. The fast moving consumer goods (FMCG) sector is expected to grow 13 per cent during FY 2010-11 on the back of strong economic growth, a good monsoon and subsequent rise in rural income, according to an industry body. Over the years companies like HUL, ITC and Dabur have improved performance with innovation and strong distribution channels. Their key categories have strengthened their presence and outperformed peers in the FMCG sector. On the contrary, Colgate Palmolive and Britannia Industries are strong in single product category i.e. tooth pastes and Biscuits. In addition companies have been successful in reviving their presence in the semi-urban and rural markets. Major investments Some of the major investments in the industry are: Chennai-based FMCG Company CavinKare is planning to invest around US$ 109.50 million over the next two years in various expansion plans, including a greenfield facility for namkeen at Thane, cool drinks in the North and others. Nestle, the fast moving consumer goods major, plans to invest US$ 50.49 million to set up its first research and development (R&D) centre in India at Manesar in adjoining Gurgaon district. The facility will be made operational by July 2012. 14
Packaged consumer goods company GlaxoSmithKline Consumer Healthcare (GSKCH) plans to invest over US$ 64.87 million on repositioning milk food drink Horlicks as the company s umbrella brand. FieldFresh Foods, joint venture of the Bharti Enterprises and Del Monte Pacific Ltd, has inaugurated their Research and Development and manufacturing facility in Hosur, Tamil Nadu at an investment of US$ 25.93 million. Agri solutions provider Buhler India plans to invest US$ 22.55 million in an integrated manufacturing unit and other expansion projects in the next four years, in line with its plans to achieve US$ 225.49 million turnover by 2014. Soft drinks and snacks major Pepsico is planning to invest US$ 500 million in India in the next two years. Atlanta-based Coca Cola Company plans to invest up to US$ 120.75 million to set up a new bottling plant in Karnataka, India Disclaimer: This document prepared by our research analysts does not constitute an offer or solicitation for the purchase or sale of any financial instrument or as an official confirmation of any transaction. The information contained herein is from publicly available data or other sources believed to be reliable but do not represent that it is accurate or complete and it should not be relied on as such. Firstcall India Equity Advisors Pvt. Ltd. or any of it s affiliates shall not be in any way responsible for any loss or damage that may arise to any person from any inadvertent error in the information contained in this report. This document is provide for assistance only and is not intended to be and must not alone be taken as the basis for an investment decision. 15
Firstcall India Equity Research: Email info@firstcallindia.com C.V.S.L.Kameswari Pharma U. Janaki Rao Capital Goods A. Rajesh Babu FMCG H.Lavanya Oil & Gas Ashish Kushwaha Diversified Firstcall India also provides Firstcall India Equity Advisors Pvt.Ltd focuses on, IPO s, QIP s, F.P.O s,takeover Offers, Offer for Sale and Buy Back Offerings. Corporate Finance Offerings include Foreign Currency Loan Syndications, Placement of Equity / Debt with multilateral organizations, Short Term Funds Management Debt & Equity, Working Capital Limits, Equity & Debt Syndications and Structured Deals. Corporate Advisory Offerings include Mergers & Acquisitions(domestic and cross-border), divestitures, spin-offs, valuation of business, corporate restructuring-capital and Debt, Turnkey Corporate Revival Planning & Execution, Project Financing, Venture capital, Private Equity and Financial Joint Ventures Firstcall India also provides Financial Advisory services with respect to raising of capital through FCCBs, GDRs, ADRs and listing of the same on International Stock Exchanges namely AIMs, Luxembourg, Singapore Stock Exchanges and other international stock exchanges. For Further Details Contact: 3rd Floor,Sankalp,The Bureau,Dr.R.C.Marg,Chembur,Mumbai 400 071 Tel. : 022-2527 2510/2527 6077/25276089 Telefax : 022-25276089 E-mail: info@firstcallindiaequity.com www.firstcallindiaequity.com 16