MOSL: EMAMI (Buy)-Rural recovery just the beginning of growth revival-Valuations attractive

​EMAMI: Rural recovery just the beginning of growth revival; Valuations attractive; maintain Buy

(HMN IN, Mkt Cap USD4.8b, INR1340, TP INR1655, 23% Upside, Buy)

We maintain our BUY rating on Emami, as:

• It is a great play on rural demand growth and wholesale recovery.
  
• Before the slowdown caused by extraordinary factors like demonetization, Emami had the best track record among peers on consistency of earnings growth, which we expect will make a comeback.
  
• Emami has a formidable portfolio of dominant brands, with best-in-class R&D and advertisement to support existing brands and new launches.
  
• Despite likely resumption of better-than-peers’ earnings growth of 20% CAGR over FY18-21, the stock trades in line with peer multiples.
  
• Our target price of INR1655 implies a one-year upside of 23% and a two-year upside of 39%. Our bull case upside is 33% for one year and 53% for two years.
  

Prime play on rural demand growth and wholesale recovery

• With the highest proportion of sales from rural and the highest proportion of sales from wholesale, Emami is a great play on recovery in both channels. Rural demand has already perked up from 2QFY18 and we believe will only pick up momentum because of a confluence of positives like near-normal monsoon, benefits of extension of DBT, rural wage increases, another year of healthy increase in minimum support prices (MSPs) and farm loan waivers granted in the past few months. In addition, the upcoming budget on February 1, 2018, the last full budget before national elections in 2019, is likely to have schemes to benefit the rural voter. The wholesale channel is likely to recover by 4QFY18. Emami will be the biggest beneficiary of the resurgence in both these channels.