Emami’s (HMN) sales grew 10.2% y-o-y to R5.8 billion (Ind-AS) in 2QFY17. EBITDA rose 15.1% y-o-y. PAT before amortisation increased 9.6% YoY to R1.3 billion. Overall volume growth stood at 10% y-o-y in 2QFY17. Domestic sales grew 14% y-o-y, led by volume growth of 11% y-o-y. International business sales declined 11% y-o-y, while CSD segment posted sales growth of 14% y-o-y.
Gross margin expanded 60bp y-o-y to 67%. Lower A&P spends (-50bp y-o-y to 17%) and other expenses (-70bp y-o-y to 9.3%) led to EBITDA margin expansion of 130bp y-o-y to 30%, partially offset by higher employee costs (+50bp y-o-y to 10.7%).
Management expects healthy volume growth. b) raw material costs in line with management guidance; not increased prices so far, but will definitely increase before year-end. c) FY17 capex target at R2 billion. With ongoing product/packaging improvements in key brands, HMN is likely to get back to double-digit volume growth in FY17.
Performance of new launches is encouraging. We continue to like HMN, given its strong medium-term earnings visibility post Kesh King acquisition (45% EBITDA margin business turning EPS-accretive in second year). Track record of driving synergies from Zandu acquisition gives us conviction on potential upside from Kesh King. Stock trades at 31.9x September 2018 EPS. Maintain buy with a revised target price of R1,350 (37x September 2018 EPS).