MOSL: EMAMI (Buy)-1QFY18 performance below estimates-outlook robust

​Emami: 1QFY18 performance below estimates; outlook robust

(HMN IN, Mkt Cap USD4.0b, CMP INR1135, TP INR1310, 15% Upside, Buy)

• 1QFY18 sales declined 16.2% YoY (est. of -5%) to INR5.4b. Revenues were impacted by significant destocking in the domestic business ahead of GST implementation and inventory correction in the international business. Domestic volumes declined ~18% YoY. CSD (4% salience) declined by 20% YoY.
• Gross margin shrunk 90bp YoY (est. of -200bp) to 63.6%. A&P spend declined 6.9% YoY on absolute basis, but as % of sales, was up 260bp YoY to 26.4%, led by aggressive spends on promotion of new launches. Sharp increase in other expenses (+200bp YoY to 10.6%) and higher employee expense (+240bp YoY to 11.9%) led to EBITDA margin contraction of 800bp YoY (est. -300bp YoY) to 14.8%. EBITDA thus declined 45.6% YoY (est. -17.5%) to INR802m. Adj. PAT before amortization fell 48.5% YoY (est. -23.1%) to INR605m.
• International (11% salience) sales declined 19% YoY, impacted by slowdown in the Middle-East market.
• Concall highlights: 1) Restocking has started in all geographies. Management expects 17-18% growth for the remaining nine months in the domestic business, with 14-15% volume growth. 2) Wholesale recovered in the last 10 days of July.