Emami To Raise Stake In Axiom To 50% After Scaling Up Business, Says CFO

Emami Ltd. will look to raise its stake to 50% in Axiom Ayurveda Pvt. in a bid to widen its play in India's Rs 30,000-crore health and wellness market.

On Thursday, the packaged goods maker acquired 26% stake in Axiom Ayurveda, the maker of AloFrut brand of beverages, and its associates, according to an exchange filing. Although Emami didn't disclose the deal value, it said the acquisition was internally funded.

"We have ample cash on the balance sheet, despite the dividend payout, annual buybacks of shares and acquisitions," NH Bhansali, chief executive officer-finance, strategy and business development, and chief financial officer of Emami, told BQ Prime.

The company, he said, would further raise stake over a period, backed by future cash generation. As of March 2023, the company's net cash position is around Rs 275 crore. It reported an Ebitda of Rs 862.8 crore last fiscal.

Emami considers the Axiom stake acquisition as a strategic investment, as post the pandemic consumers have become more conscious and focused on their health, which offers tremendous opportunities in the long term.

Axiom’s revenue grew 16.2% to Rs 129 crore in FY23. Founded in 1995, the business has an Ebitda margin of 12%. Bhansali expects the business to grow at about 20-25%, on a conservative basis, in the next three years.

The acquisition marks Emami’s foray into the juice segment, but with a differentiated offering.

AloFrut's juices are a nutritious blend of aloe vera pulp and other fruits. It is positioned as "health juice" because aloe vera is widely known as a rich source of vitamins, minerals and essential amino acids, the company said.

India's juices market size is estimated at about Rs 20,000-crore and within that, health juice is roughly about Rs 3,200-crore, according to Bhansali. "We see a strong headroom for growth in this category, as the consumption levels are still low, and today health and wellness is the buzzword for consumers."

The mainstay AloFrut brand contributes three-fourths of Axiom’s revenue. Apart from that, Axiom's portfolio in the beverage segment includes mocktails and energy drinks. The company is also present in ayurvedic healthcare juice segment, under the Jeevan Ras brand and beauty and personal care, which collectively contributes 15-20% to the business.

Unlike Emami’s other investee brands, a bulk of Axiom’s revenue is generated from the general trade and Canteen Stores Department. The revenue share of modern trade and e-commerce segments together forms 20%.

Axiom has its own manufacturing facility at Ambala and is setting up a fully automated facility in Jammu, entailing costs of Rs 160 crore under the PLI scheme. The facility is expected to be commercialised next month.

With the Axiom acquisition, Emami has now created a portfolio of five consumer brands, with large thrust on health and well-being. Earlier, it acquired financial stake in four digital brands — Helios Lifestyle (The Man Company), Brillare, Tru Native F&B and Fur Ball Story. It has raised its stake in all of these brands, the recent being in The Man Company and Brillare.

These five investments yield combined sales of about Rs 260 crore.

"Emami enjoys volume leadership across most core categories and the company has generally entered categories with high margin and less competition, reflected in its better financial performance in the past," said Nitin Gupta, senior research analyst tracking the consumer sector at Emkay Global Financial Services Ltd. "Unlike peers, we see Emami’s strategy of financial investment as apt, given its limited capital muscle."

Emami also has one of the best margin profiles in the sector, given its discretionary portfolio and low competitive intensity, according to Gupta. As on March 2023, the company's Ebitda margin stood at 25.3%.

As raw material prices are witnessing deflationary effects, the company expects margin to see steady expansion, according to Emkay Global.

"Unlike in the past when its Ebitda margin peaked at 30%, the company is now looking to expand margin to 26-27% and redeploy any further benefit towards category-development initiatives," the brokerage said in a note.

Emami's overall capex in the last decade stood at Rs 6,200 crore, of which Rs 2,200 crore is being deployed for inorganic actions, according to Emkay.

In all its investee companies, the balance stake is with the respective promoter and no other external investors. For Axiom, too, the company will function independently and be run by its promoters, Bhansali said.