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MOSL: EMAMI (Buy)-Volume trend remains muted

EMAMI: Volume trend remains muted

(HMN IN, Mkt Cap USD1.9b, CMP INR300, TP INR355, 18% Upside, Buy)

 

• Emami’s (HMN) third-quarter results disappointed on all fronts. According to management, part of the impact was due to delayed winter, which largely affected its winter portfolio (40% contribution). This should reverse in 4QFY20 if the summer season stocking pans out as expected.
• We maintain our Buy rating given inexpensive valuations. Key erstwhile overhang caused by high pledge levels of 70% has subsided after a sharp reduction earlier this week (post the sale of the group cement business). 

Muted but in-line performance; domestic volumes decline 2% YoY

• sales were up 0.2% YoY at INR8.1b (our estimate: INR8.3b). EBITDA grew 0.2% YoY to INR2.6b (our estimate: INR2.7b), while PBT was up 2.1% YoY at INR2.5b (our estimate: INR2.6b). Adj. PAT before amortization grew 2.8% YoY to INR2.1b (our estimate: INR2.2b).
• Gross margin expanded 120bp YoY to 68.2% in 3QFY20. EBITDA margin was flat YoY at 32.5% (our estimate: 32.9%). High employee costs (+60bp YoY) and ad spends (+110bp YoY) were offset by lower other expenses (-50bp YoY). Absolute ad spends were up 7.1% YoY at INR1.4b.
• For 9MFY20, consol. sales/EBITDA/PAT grew 3.3%/3.6%/10% YoY.
• Domestic volumes and revenue declined 2% YoY, while the international business grew by 18% YoY.