Healthcare and hygiene portfolio has grown by 29% in Q1 – Emami

Healthcare and hygiene portfolio has grown by 29% in Q1 – Emami

Update on the Indian Equity Market:
On Tuesday, NIFTY closed in the green at 11,322 (+0.5%). Top gainers in NIFTY50 were Zee (+5.2%), JSW Steel (+3.9%), and Axis bank (+3.9%). The top losers were Shree Cement (-3.9%), Titan (-3.6%), and UPL (-2.3%). The top sectoral gainers were MEDIA (+1.9%), PVT BANK (+1.7%) and METAL (+1.6%) and sectoral losers were PHARMA (-1.4%), IT (-0.5%), and REALTY (-0.5%).

Excerpts of an interview with Mr NH Bhansali, CEO, Emami with ET now dated 10th August 2020:

● April was impacted badly. They progressed well in May and in June they grew in single digit. The July trajectory is also good. They grew in double digits in July and they expect the growth to resume.
● On the international front also, while they have declined in the first quarter but in the second quarter, they expect to improve on the international front as well. They expect moderate growth in 2QFY21.
● The healthcare and hygiene portfolio has grown by 29% in Q1FY21 and it contributed around 43% of the turnover in the first quarter. While the summer brands and other brands including the male grooming all de-grew by 44%.
● This pulled down the overall growth which contributed around 57%. Going forward they expect good growth from the healthcare and hygiene products kind of sanitizers.
● new launches there in the healthcare and sanitizers like Boroplus Sanitizer, soaps, aloe vera gel, zandu immunity range, chyawanprash they all contributed around 5% of the turnover.
● Navratna and others were declining in the first quarter but now in June-July they have started recovering. Kesh King range was declining in April-May but cumulatively in June, the Kesh King range has been able to wipe out its losses.
● It is stable now, it has maintained its growth and they expect now the growth to come in in the second quarter. Summer brands have also now started picking up while the decline earlier was higher but in June-July the decline has been lesser.
● The gross margins have reduced by 230 bps and EBITDA margins has improved by 480 bps. The gross margin has been mainly because of the benign cost and they expect this kind of margins to continue.
● On the EBITDA level, they had taken many initiatives, right from reducing on the advertisements which was not required in the April as they were completely off air in April, May and June now gradually they are resuming some of the advertisements
● They have internally targeted to improve their costs by around Rs 80-100 crore in the next 12 months and they are well on the path and they would continue to achieve it.
● They have made 12 new launches in this quarter and which were all around health and hygiene and sanitizers and all. In the times to come, they are planning to get into the home hygiene products which may include disinfectants, toilet cleaners and bathroom cleaners and other things.
● Rural demand has picked up well, in fact, it is visible in the rural areas compared to the urban but there is no significant down trading on LUPs.
● They have initiated so many things, they have done digital marketing because their focus is more on addressing the consumers digitally without physical touch so while the retail and modern trade has been impacted, and they are exploring other channels also.
● They are doing a lot many initiatives by telemarketing, digital marketing, tele-calling for taking the orders and ensuring that the supplies are done on time. In fact, the E-commerce business has more than doubled in this first quarter despite such a decline and it is continuing to grow.

Consensus Estimate: (Source: market screener and websites)

● The closing price of Emami was ₹ 337/- as of 11-August-2020. It traded at 34x/ 31x the consensus earnings estimate of ₹ 9.9/ 10.8 for FY21E/22E respectively.
● The consensus price target is ₹ 301/- which trades at 28x the earnings estimate for FY22E of ₹ 10.8/-
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