Strong positions in most product categories and aggressive expansion plans make a strong case for Emami.
Stability is what most investors are looking for and the fast-moving consumer goods (FMCG) sector is one way to get it. The sector has always been a defensive bet for long-term investors who want steady returns with low risk. Among the companies in the sector, Emami has the potential to grow on the back of rising consumerism and increasing penetration.
Right position. The company has successfully differentiated itself from bigger players by concentrating on products that result from the blend of ayurveda and modern manufacturing. Its target audience is both rural and urban, and across all age groups.
It has a portfolio of 20 products in personal care, healthcare, ayurvedic health supplements and over-the-counter (OTC) products segments.
Emami’s product differentiation has put its brands in the top slots in their respective categories. In financial year (FY) 2008, its pain relief ointment brand Fast Relief grew by 17 per cent in value, outpacing the category growth. Its market share is now 11 per cent. Sona Chandi Chyawanprash’s share also grew by 10 per cent. The Navratna Oil brand has 51 per cent share in its category while antiseptic cream Boro Plus commands 73 per cent share. The company’s latest product, Fair and Handsome, has
created a completely new market for men’s fairness products.
Emami has diversified its business internationally and exports to 60 countries. Its international business grew by 12 per cent in FY08 and accounted for 10 per cent of its revenue.
The company recently acquired 27.5 per cent stake in Zandu Pharmaceutical Works and has offered to acquire 20 per cent more in an open offer that has been approved by the Securities Appellate Tribunal. This underlines Emami’s intention to leverage Zandu’s established ayurvedic healthcare products business.
Funding its expansion should not be a problem for Emami because of its ability to generate cash through operations and the low debt on its balance sheet.
Performance. Emami has registered a steady growth in the past few years. From FY2000 to FY08, net sales grew from Rs 148.35 crore to Rs 583.71 crore at compounded annual growth rate (CAGR) of 19 per cent. Its operating profit during the same period moved up by 23.16 per cent CAGR, indicating its pricing power and efficient management of expenditure. The same is reflected in its operating margin, which improved from 14.28 per cent in FY2000 to 19.22 per cent in FY08. Net profit has also grown at 23.67 per cent CAGR from Rs 16.95 crore in FY2000 to Rs 92.75 crore in FY08.
During the quarter ended June 2008, the year-on-year net sales growth stood at 16.89 per cent, in line with the overall growth of the FMCG sector at 15-16 per cent. Its operating margin dipped by 28 basis points from 11.94 per cent in the corresponding quarter largely due to rise in raw material prices putting pressure on margins. But most FMCG companies are able to absorb this as of now because of their pricing power and ability to tinker with product pack sizes.
Valuations. The stock is currently trading at about Rs 277 and considering the trailing twelve months earnings per share (EPS) of Rs 15.13, the market is paying 18.31 times its earnings. Dabur India, a close competitor, is now trading at a trailing PE of 24.19. Going by the past five years’ growth in EPS, the expected figure in FY09 is Rs 19.83, or an even lower PE of 14. A comparatively cheaper valuation and its business growth make Emami an attractive buy in the long term.
Right position. The company has successfully differentiated itself from bigger players by concentrating on products that result from the blend of ayurveda and modern manufacturing. Its target audience is both rural and urban, and across all age groups.
It has a portfolio of 20 products in personal care, healthcare, ayurvedic health supplements and over-the-counter (OTC) products segments.
Emami’s product differentiation has put its brands in the top slots in their respective categories. In financial year (FY) 2008, its pain relief ointment brand Fast Relief grew by 17 per cent in value, outpacing the category growth. Its market share is now 11 per cent. Sona Chandi Chyawanprash’s share also grew by 10 per cent. The Navratna Oil brand has 51 per cent share in its category while antiseptic cream Boro Plus commands 73 per cent share. The company’s latest product, Fair and Handsome, has
created a completely new market for men’s fairness products.
Emami has diversified its business internationally and exports to 60 countries. Its international business grew by 12 per cent in FY08 and accounted for 10 per cent of its revenue.
The company recently acquired 27.5 per cent stake in Zandu Pharmaceutical Works and has offered to acquire 20 per cent more in an open offer that has been approved by the Securities Appellate Tribunal. This underlines Emami’s intention to leverage Zandu’s established ayurvedic healthcare products business.
Funding its expansion should not be a problem for Emami because of its ability to generate cash through operations and the low debt on its balance sheet.
Performance. Emami has registered a steady growth in the past few years. From FY2000 to FY08, net sales grew from Rs 148.35 crore to Rs 583.71 crore at compounded annual growth rate (CAGR) of 19 per cent. Its operating profit during the same period moved up by 23.16 per cent CAGR, indicating its pricing power and efficient management of expenditure. The same is reflected in its operating margin, which improved from 14.28 per cent in FY2000 to 19.22 per cent in FY08. Net profit has also grown at 23.67 per cent CAGR from Rs 16.95 crore in FY2000 to Rs 92.75 crore in FY08.
During the quarter ended June 2008, the year-on-year net sales growth stood at 16.89 per cent, in line with the overall growth of the FMCG sector at 15-16 per cent. Its operating margin dipped by 28 basis points from 11.94 per cent in the corresponding quarter largely due to rise in raw material prices putting pressure on margins. But most FMCG companies are able to absorb this as of now because of their pricing power and ability to tinker with product pack sizes.
Valuations. The stock is currently trading at about Rs 277 and considering the trailing twelve months earnings per share (EPS) of Rs 15.13, the market is paying 18.31 times its earnings. Dabur India, a close competitor, is now trading at a trailing PE of 24.19. Going by the past five years’ growth in EPS, the expected figure in FY09 is Rs 19.83, or an even lower PE of 14. A comparatively cheaper valuation and its business growth make Emami an attractive buy in the long term.
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