Target: ₹622

CMP: ₹496.15

Emami is a FMCG company with niche focus on relatively under penetrated segments such as antiseptic cream, fairness cream, talcum powder, cooling oil, pain balm and pain reliever.

Emami’s power brands such as Navratna Oil, Boroplus Cream, Zandu and MenthoPlus Balm, Fair & Handsome, Boroplus powder, Navratna cool talc, fast relief, SonaChandi & Zandu account for 75 per cent of company’s sales.

Emami sales have grown at a CAGR of 38.5 per cent (FY2010-20). Geographical breakup of sales: Domestic (80 per cent) and International (17 per cent). The International segment is primarily driven by SAARC countries (39 per cent) and MENAP countries (41 per cent).

Going forward strong demand in health & hygiene segment coupled with new product launches is expected to drive top line. In addition we see margin accretion on account of price hikes linked to input costs and cost controls implemented by the company. Favorable seasonal climate, rise in rural share of volumes and growth in modern trade & e-commerce channels during the coming quarters are further positives that can aid margins improvement from current levels.

At CMP, Emami is trading at a P/E multiple of 27.3x FY23 and 23.9x FY24. We revise our rating on the stock to a Buy (earlier OutPerformer) with a revised target price of ₹622 (earlier: ₹610).

Risks: Sharp increase in the menthol price & crude derivatives could impact the margins; rise in competition in key products can impact volume growth adversely.