Analyst Corner: Emami – Maintain ‘buy’ with a TP of Rs 310

However, we find comfort in favourable material costs, demand prospects from Rabi harvest, and strong product pipeline ready for launch when sentiment improves. Valuations and view: After coming in at an admirable ~20%/ 34%/35% in the first five years of the decade, sales/Ebitda/PAT CAGR has slowed down significantly to ~5%/ 7%/3% for the five years ending FY20.

Sales growth in many of HMN’s key categories has been impacted in recent years due to rural slowdown (52% rural dependency), liquidity crunch (~40% wholesale contribution) and category growth issue (majorly problem-solving portfolio and not everyday use products with the former getting affected more in a weak demand situation).
However, none of these are structural issues and thus HMN will be a key beneficiary when the tide turns. Valuations of 20x trailing EPS and 16.4x FY22 EPS (~20x after taking into account amortization) also offer some comfort.
Moreover, valuations are at ~60% discount to peer average and ~50%/40% discount to its own 5/10-year average. Maintain ‘buy’ with a TP of `310 (targeting 20x FY22E adj. EPS).

Demand environment remains bleak, similar to the December quarter when things had worsened sequentially and y-o-y for both the company and the sector. Management appeared hopeful in the third-quarter post results call that up-stocking will happen in products like Navratna oil ahead of the summer season (usually begins in mid-Feb).
However, even toward February-end, sales have not picked up owing to extended winter in several parts of the country. The problem solving nature of HMN’s products – and not everyday use – has also affected offtake in a weak demand environment.