MOSL: EMAMI (Buy)-Volume disappointment-Kesh King showing signs of revival

Emami: Volume disappointment; Kesh King showing signs of revival

(HMN IN, Mkt Cap USD3.8b, CMP INR1138, TP INR1505, 32% Upside, Buy)

• Emami’s (HMN) consol. net sales (reported) increased 6% YoY to INR7.57b (est. of INR8.13b). Domestic revenue, adjusted for GST/ VAT, grew by 10% YoY, while International revenue increased 16% YoY. CSD sales declined 2% YoY. Volume growth of 6% YoY missed our estimate of +12%, despite a weak base.
• Gross margin expanded 40bp YoY to 69.2% in 3QFY18. However, EBITDA margin shrunk 120bp YoY to 35.0% due to a rise of 110bp YoY in A&P, 50bp YoY in other expenses and 10bp YoY in staff costs. Consol. EBITDA grew 2.4% YoY to INR2.65b (est. of INR2.99b). Consol. PAT before amortization rose 1.4% YoY to INR2.07b (est. of INR2.22b). Consol. reported PAT grew 9.6% YoY to INR1.47b.
• Nine-month performance: Reported net sales were flat YoY at INR19.16b. Gross margin was flat YoY at 67.3%. However, an increase of 80bp YoY in staff costs, 60bp YoY in other expenses and 30bp YoY in A&P led to a 170bp YoY contraction in the EBITDA margin to 28.5%. EBITDA declined 6% YoY to INR5.46b. PAT before amortization declined 6.3% YoY to INR4.27b
• Concall highlights: 1) Rural promises a good growth trajectory going forward; already contributing to incremental growth. 2) Taken price hike in some part of the portfolio due to a 15-20% increase in mentha cost as well as crude prices.