The consolidated sales of Emami in the fourth quarter of FY21 (up 37.2% yoy) and PAT (up 190.8% yoy) exceeded our estimates, while that EBITDA (up 65.2% year-on-year) fell below estimates. On the strength of the good performance of the healthcare portfolio, domestic volumes grew by 39% year-on-year on a soft basis of -19%. While the two-year revenue CAGR is 6.9%, the volume CAGR is 6.1%. Although mentha prices are benign, the rise in other commodities caused gross margin compression by 249 basis points year-on-year.
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- Maintain “buy” on Emami: Edelweiss
Overall, we expect the strong revenue trajectory to continue thanks to a continued focus on health and hygiene. However, the company’s summer portfolio will likely be affected in Q1 FY22 by the wave of Covid 2. Hold the purchase with a revised TP of Rs 610 as we move to September 2022E.
Strong Growth Across All Categories: Strong revenue and volume growth was positive, as was strong performance in the healthcare and pain management line-up. However, the gross margin compression of 249 bps yoy and 771 bps yoy was disappointing. T4FY21 witnessed strong overall performance among brands with Healthcare Line, Navratna, Pain Management and 7 Oils in One, showing growth of 48%, 13%, 33% and 45% , respectively, on a two-year basis (T4FY21 vs. Q4FY19). Kesh King and BoroPlus grew strongly in the fourth quarter, but only rose 7% and 5%, respectively, over two years. International business grew 21% on a two-year basis.
Outlook: Positive – We expect robust income growth to support a higher rural contribution and focus on health and hygiene. In addition, the alleviation of pledging concern at the promoter level is an additional positive. We are keeping “BUY / SO” with a revised TP of Rs 610 (from Rs 595) as we move forward until September 2022nd. The stock is trading at 30.1x EPS FY23e.