1

SYNOPSIS

Emami Limited is one of the fastest growing ayurveda-focused, health, beauty and personal care product companies in India

The Company has acquired infrastructure in Egypt to set up a manufacturing facility. Manufacturing facility also proposed in Bangladesh.

Net Sales and PAT of the company are expected to grow at a CAGR of 17% and 20% over 2010 to 2013E respectively.

The Company has completed integration of the distribution network of Zandu with Emami.

Emami has launched a range of baby products under the brand name Emami Healthy and Fair baby range which includes a soap, talc and oil.

The Company invested Rs.230 crores in advertisement and communication, 18% of total revenues, in 2010-11.

Years Net sales EBITDA Net Profit EPS P/E

FY 11 12777.80 3740.40 2287.10 15.12 28.78

FY 12E 14699.89 3956.18 2541.06 16.79 25.90

FY 13E 16463.87 4420.82 2906.14 19.21 22.65

Stock Data:

Sector: FMCG

Face Value Rs. Rs.1.00

52 wk. High/Low (Rs.) 545.00/320.75

Volume (2 wk. Avg.) 8546.00

BSE Code 531162

Market Cap (Rs.In mn) 65815.50

Share Holding Pattern

1 Year Comparative Graph

BSE SENSEX Emami Ltd

C.M.P : Rs.435.00 Target Price : Rs. 492.00 Date : 13th April 2012 BUY

EMAMI LTD

Result Update: Q3 FY 12

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Peer Group Comparison

Name of the company CMP(Rs.) Market

Cap.(Rs.Mn.) EPS(Rs.) P/E(x) P/Bv(x) Dividend (%)

Emami Ltd 435.00 65815.50 15.12 28.78 9.54 350.00

Hindustan Unilever 424.10 916697.4 12.21 34.73 - 650.00

Godrej Cons 493.20 167834.7 16.35 30.17 - 450.00

Gillette India 2547.65 83015.7 18.91 134.73 13.83 150.00

Investment Highlights

Q3 FY12 Results Update

Emami Ltd disclosed results for the quarter ended Dec 2011. Net sales for the

quarter moved up 13% to Rs.4572.60 million as compared to Rs.4060.10 million

during the corresponding quarter last year. During the quarter, the company has

reported Net Profit increased to Rs.945.00 million from Rs.855.50 million in

previous year same quarter. The Basic EPS of the company stood at Rs.6.25 for

the quarter ended Dec 2011.

Quarterly Results - Consolidate (Rs in mn)

As At Dec-11 Dec-10 %change

Net sales 4572.60 4060.10 13

PAT 945.00 855.50 10

Basic EPS 6.25 5.65 10

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Basic EPS of the company stood at Rs.6.25

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Break up of Expenditure

Expenditure for the quarter stood at Rs.3192.50mn, which is around 15% higher

than the corresponding period of the previous year. Raw material cost of the

company for the quarter accounts for 23% of the sales of the company and stood

at Rs.1070.40mn from Rs.922.80mn of the corresponding period of the previous

year. Other Expenditure cost increased 36% YoY to Rs.637.5mn from Rs.470.30

mn and accounts for 14% of the revenue of the company for the quarter.

OPM and NPM for the quarter stood at 31% and 21% respectively from 32% and

21% respectively of the same period of the last year.

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Company Profile

Emami incorporated in 1983 Kemco Chemicals is one of the renowned FMCG players

in India. Headquartered at Kolkata, the company’s manufacturing facilities are located

at Kolkata, Guwahati and Pondicherry. The company manufactures products under

various categories namely Hair Care, Skin Creams and Lotions, Talcum Powder and

ayurvedic health care products.

The company has global presence in 60 countries that includes CIS, Middle East,

Indian sub-continent, Europe and North America. Company’s research and

development centre is spread over on 20,000 Sq. feet of land, equipped with state of

art technologies and has a workforce of highly qualified and respected scientists and

ayurvedic doctors.

The company operates its distribution network through 28 depots in India. Emani has

over 2500 distributors with a direct presence in 4 lacs outlets. The company has a

marketing workforce of over 1200 people. The company also has an overseas

marketing offices located UK and UAE. Emami has received ISO 9001:2000

certification for its quality management.

Brands

Navratna Oil.

Navratna Lite.

Navratna Extra Thanda.

Navratna Cool Talc.

Boroplus Antiseptic Cream.

Boroplus Prickly Heat Powder.

Fair and Handsome.

Himani Fast Relief.

Mentho Plus.

Sonachandi Chyawanprash.

Sonachandi Amritprash.

Malai Kesar Cold Cream.

Hair life.

Baby Massage Oil.

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Subsidiary Companies

Emami UK Ltd.

Emami Bangladesh Ltd.

Emami International F ZE.

Emami Overseas FZE

Pharma Derm S A E Co, Egypt

SCOT Analysis

Strengths

Presence of established distribution networks in both urban and rural India

Low Operational Costs

Availability of a wide range of raw material bases suitable for various FMCG

organizations, mainly food processing units and chemical units

Low labour units

Low labour costs

Challenges:

Lower investment scope in relevant technology and achieving economies of scale

especially in small sectors

Low export levels

‘Me-too’ products, which mimic established brands. These products narrow the

scope of FMCG products in the rural and semi-urban market.

Fierce competition, leading to a significant rise in the marketing costs of middle

and small sized players of the Industry.

Infrastructure bottlenecks may hinder in certain cases

Opportunities

Low rural penetration

Rising income levels, i.e. increase in purchasing power of consumers

Large domestic market – a population of over one billion.

Export potential

High consumer goods spending

Threats

Removal of import restrictions resulting in the replacement of domestic brands

Slowdown in rural demand

Tax and regulatory structures

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Financial Results

12 Months Ended Profit & Loss Account (Consolidate)

Value(Rs.in million) FY10A FY11A FY12E FY13E

12m 12m 12m 12m

Description

Net Sales 10379.90 12777.80 14699.89 16463.87

Other Income 70.10 185.10 166.46 174.78

Total Income 10450.00 12962.90 14866.35 16638.66

Expenditure -6894.40 -9222.50 -10910.16 -12217.84

Operating Profit 3555.60 3740.40 3956.18 4420.82

Interest -209.70 111.70 133.31 146.64

Gross Profit 3345.90 3852.10 4089.49 4567.46

Depreciation -1175.20 -1160.90 -1190.43 -1249.95

Exceptional Items -121.30 0.00 0.00 0.00

Profit before Tax 2049.40 2691.20 2899.07 3317.51

Tax -352.10 -404.10 -358.01 -411.37

Profit after Tax 1697.30 2287.10 2541.06 2906.14

Equity Capital 151.30 151.30 151.30 151.30

Reserves 6102.90 6747.20 9288.26 12194.39

Face Value(Rs.) 2.00 1.00 1.00 1.00

Total No. of Shares 75.65 151.30 151.30 151.30

EPS 22.44 15.12 16.79 19.21

*A=Actual, *E=Estimated

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Quarterly Ended Profit & Loss Account (Consolidate)

Value(Rs.in million) 30-Jun-11 30-Sep-11 30-Dec-11 31-Mar-12

3m(A) 3m(A) 3m(A) 3m(E)

Description

Net Sales 2999.10 3104.30 4572.60 4023.89

Other Income 31.10 89.30 19.60 26.46

Total Income 3030.20 3193.60 4592.20 4050.35

Expenditure -2337.60 -2354.10 -3192.50 -3025.96

Operating Profit 692.60 839.50 1399.70 1024.38

Interest 33.20 22.20 37.10 40.81

Gross Profit 725.80 861.70 1436.80 1065.19

Depreciation -297.50 -301.40 -301.80 -289.73

Profit before Tax 428.30 560.30 1135.00 775.47

Tax -13.30 -53.90 -190.00 -100.81

Profit after Tax 415.00 506.40 945.00 674.66

Equity Capital 151.30 151.30 151.30 151.30

Face Value(Rs.) 1.00 1.00 1.00 1.00

Total No. of Shares 151.30 151.30 151.30 151.30

EPS 2.74 3.35 6.25 4.46

*A=Actual, *E=Estimated

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Key Ratio

Particulars FY10 FY11 FY12E FY13E

EPS (Rs.) 22.44 15.12 16.79 19.21

EBITDA Margin (%) 34.25% 29.27% 26.91% 26.85%

PAT Margin (%) 16.35% 17.90% 17.29% 17.65%

P/E Ratio (x) 17.75 28.78 25.90 22.65

ROE (%) 27.14% 33.15% 26.92% 23.54%

ROCE (%) 27.09% 28.23% 23.46% 21.40%

EV/EBITDA (x) 8.47 17.60 16.64 14.89

Debt-Equity Ratio 0.40 0.32 0.25 0.20

Book Value (Rs.) 82.67 45.59 62.39 81.60

P/BV 4.82 9.54 6.97 5.33

Charts:

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Outlook and Conclusion

At the current market price of Rs.435.00, the stock is trading at 25.90 x FY12E and 22.65 x FY13E respectively.

Price to Book Value of the stock is expected to be at 6.97 x and 5.33 x respectively for FY12E and FY13E.

Earning per share (EPS) of the company for the earnings for FY12E and FY13E is seen at Rs.16.79 and Rs.19.21 respectively.

Net Sales and PAT of the company are expected to grow at a CAGR of 17% and 20% over 2010 to 2013E respectively.

The Company has completed integration of the distribution network of Zandu with Emami.

Emami has launched a range of baby products under the brand name Emami Healthy and Fair baby range which includes a soap, talc and oil.

The Company invested Rs.230 crores in advertisement and communication, 18% of total revenues, in 2010-11.

On the basis of EV/EBITDA, the stock trades at 16.64 x for FY12E and 14.89 x for FY13E.

We expect that the company will keep its growth story in the coming quarters also. We recommend ‘BUY’ in this particular scrip with a target price of Rs.492.00 for Medium to Long term investment.

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Industry Overview

Fast Moving Consumer Goods (FMCG) goods are popularly named as consumer

packaged goods. Items in this category include all consumables (other than

groceries/pulses) people buy at regular intervals. The most common in the list are

toilet soaps, detergents, shampoos, toothpaste, shaving products, shoe polish,

packaged foodstuff, and household accessories and extends to certain electronic

goods. These items are meant for daily of frequent consumption and have a high

return.

A major portion of the monthly budget of each household is reserved for FMCG

products. The volume of money circulated in the economy against FMCG products is

very high, as the number of products the consumer use is very high. Competition in

the FMCG sector is very high resulting in high pressure on margins

FMCG companies maintain intense distribution network. Companies spend a large

portion of their budget on maintaining distribution networks. New entrants who wish

to bring their products in the national level need to invest huge sums of money on

promoting brands. Manufacturing can be outsourced. A recent phenomenon in the

sector was entry of multinationals and cheaper imports. Also the market is more

pressurized with presence of local players in rural areas and state brands

Scope of the Sector

The Indian FMCG sector with a market size of Rs.1,30,000 crore is the fourth largest

sector in the economy. A well-established distribution network, intense competition

between the organized and unorganized segments characterizes the sector.

FMCG market in India is growing at a fast pace despite of the economic downtrend.

The increasing disposable income and improved standard of living in most tier II and

tire III cities are spearheading the FMCG growth across the nation. The changing

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profile and mind set of the consumers has shifted the thought to “Value for Money”

from “Money for Value”.

At present, rural consumers spend about US$ 9 billion per annum on FMCG items

and product categories such as instant noodles, deodorant and fabric, with the pace of

consumption growing much faster than urban areas, as per the findings.

“The industry will witness a spate of acquisitions & mergers in the 2010. There will be

a renewed focus on rural consumers too,” by an analyst based in Mumbai.

The fast moving consumer goods (FMCG) sector is expected to grow 13 per cent during

FY 2010-11 on the back of strong economic growth, a good monsoon and subsequent

rise in rural income, according to an industry body.

Over the years companies like HUL, ITC and Dabur have improved performance with

innovation and strong distribution channels. Their key categories have strengthened

their presence and outperformed peers in the FMCG sector. On the contrary, Colgate

Palmolive and Britannia Industries are strong in single product category i.e. tooth

pastes and Biscuits. In addition companies have been successful in reviving their

presence in the semi-urban and rural markets.

Major investments

Some of the major investments in the industry are:

Chennai-based FMCG Company CavinKare is planning to invest around US$

109.50 million over the next two years in various expansion plans, including a

greenfield facility for namkeen at Thane, cool drinks in the North and others.

Nestle, the fast moving consumer goods major, plans to invest US$ 50.49

million to set up its first research and development (R&D) centre in India at

Manesar in adjoining Gurgaon district. The facility will be made operational by

July 2012.

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Packaged consumer goods company GlaxoSmithKline Consumer Healthcare

(GSKCH) plans to invest over US$ 64.87 million on repositioning milk food

drink Horlicks as the company’s umbrella brand.

FieldFresh Foods, joint venture of the Bharti Enterprises and Del Monte Pacific

Ltd, has inaugurated their Research and Development and manufacturing

facility in Hosur, Tamil Nadu at an investment of US$ 25.93 million.

Agri solutions provider Buhler India plans to invest US$ 22.55 million in an

integrated manufacturing unit and other expansion projects in the next four

years, in line with its plans to achieve US$ 225.49 million turnover by 2014.

Soft drinks and snacks major Pepsico is planning to invest US$ 500 million in

India in the next two years.

Atlanta-based Coca Cola Company plans to invest up to US$ 120.75 million to

set up a new bottling plant in Karnataka, India

______________ ____ _________________________ Disclaimer:

This document prepared by our research analysts does not constitute an offer or solicitation

for the purchase or sale of any financial instrument or as an official confirmation of any

transaction. The information contained herein is from publicly available data or other

sources believed to be reliable but do not represent that it is accurate or complete and it

should not be relied on as such. Firstcall India Equity Advisors Pvt. Ltd. or any of it’s

affiliates shall not be in any way responsible for any loss or damage that may arise to any

person from any inadvertent error in the information contained in this report. This document

is provide for assistance only and is not intended to be and must not alone be taken as the

basis for an investment decision.

16

Firstcall India Equity Research: Email – info@firstcallindia.com

C.V.S.L.Kameswari Pharma

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A. Rajesh Babu FMCG

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Ashish Kushwaha Diversified

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