Outlook is positive, though Covid will affect Q1; ‘Buy’ retained with TP of Rs 610
Emami’s consolidated Q4FY21 revenue (up 37.2% y-o-y) and PAT (up 190.8% y-o-y) surpassed our estimates, while Ebitda (up 65.2% y-o-y) came below estimate. Bolstered by strong performance in the healthcare portfolio, domestic volumes grew 39% y-o-y on a soft base of -19%. While two-year revenue CAGR is 6.9%, volume CAGR is 6.1%. Although mentha prices are benign, spike in other raw materials led to gross margin compression of 249bps y-o-y.
Overall, we expect the robust revenue trajectory to sustain led by sustained focus on health & hygiene. However, the company’s summer portfolio is likely to be impacted in Q1FY22 by Covid wave 2. Maintain Buy with revised TP of Rs 610 as we roll over to Sept 2022E.
Strong growth across categories: Robust revenue and volume growth were positives, as also strong performance in healthcare and pain management range. However, 249bps y-o-y and 771bps q-o-q gross margin compression was disappointing. Q4FY21 witnessed an all-round strong performance across brands with healthcare range, Navratna, pain management and 7 oils in one posting 48%, 13%, 33% and 45% growth, respectively, on two-year basis (Q4FY21 versus Q4FY19). Kesh King and BoroPlus grew strongly in Q4, but rose mere 7% and 5%, respectively, over two years. International business grew 21% on two-year basis.
Outlook: Positive – We expect robust revenue growth to sustain riding higher rural contribution and focus on health & hygiene. Furthermore, alleviation of the promoter level pledging concern is an added positive. We retain ‘BUY/SO’ with revised TP of Rs 610 (from Rs 595) as we roll forward to Sept 2022e. The stock is trading at 30.1x FY23e EPS.