Brokerages Expect Emami To Recover After Hit-And-Miss Quarter

Consumer goods maker Emami Ltd. reported a slight improvement in profit and operating margins, but missed analyst expectations in the fourth quarter.

Net profit in the March-ended quarter grew 1.5 percent to Rs 83.3 crore, compared to the same quarter last year. Revenue fell 4.1 percent to Rs 577.6 crore. The topline and bottomline both missed the consensus of analyst estimates tracked by Bloomberg.

Operational profit fell 2.1 percent, but operating margin expanded 70 basis points to 30.8 percent over the corresponding quarter of last year.

Here's what brokerages are saying about Emami post earnings

CLSA

Rating: Underperform
Target price: Will revisit after management concall on May 8.

• Impact of demonetisation continued to impact business in India.
• Overall, volumes down over 6 percent due to severe pressure in the Middle East, North Africa, Afghanistan, and Pakistan (MENAP) region.
• Emami reported a decline in gross margin after a long time, but hefty cuts in advertising and promotional spends helped maintain EBITDA margin
• Emami commissioned a new unit at Guwahati with an investment of Rs 300 crore in February. It should help the company keep its fiscal outflow low in the medium term.

Credit Suisse

Rating: Maintain Outperform
Target Price: Rs 1,250

• Steep decline in the Middle East were initially due to weakness in consumer demand but have now led to significant drop in stocks with traders.
• Demonetisation hurt company more due to its higher dependence on the wholesale channel than other FMCG peers.
• Expect recovery to kick in starting second quarter of FY18 post GST disruption.
• Key drivers: 1) New launches like Zandu gel and spray, 2) Recovery in international business (which declined 38 percent in Q4FY17) and 3) normalisation of wholesale channel.
• The company is looking to significantly increase its distribution reach by 1,00,000 outlets in FY18 to take up direct coverage to 8,00,000.

Goldman Sachs

Rating: Neutral
Target Price: Rs 1,157

• FMCG firm's earnings were below expectations on weak sales performance
• Key takeaway: Domestic growth at 3 percent was at similar levels as previous quarter due to channel disruption in wholesale and rural business.
• Brands like BoroPlus (-2 percent), healthcare range (-11 percent) and Kesh King (1 percent) reported weak growth.
• Will look for more details on gross margin performance on the earnings conference call.
• Upside risks: Faster new product growth, benefits from low commodity prices
• Downside risks: Failure of new product launches, higher competition

Nomura

Rating: Maintain Buy
Target Price: Rs 1,275

• Earnings were below expectations at the revenue and EBITDA level
• Core Naratna brand performed in line with expectations
• Growth prospects remain strong; expect bounce back in Q1 FY18
• Valuations look reasonable at 32 times FY19F price to earnings.

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