CMP 810.10

Target Price 956.00

ISIN: INE548C01032

NOVEMBER 1st

2014

EMAMI LIMITED

Result Update (CONSOLIDATED): Q2 FY15

BUYBUYBUYBUY

Index Details

Stock Data

Sector FMCG

BSE Code 531162

Face Value 1.00

52wk. High / Low (Rs.) 824.50/421.00

Volume (2wk. Avg. Q.) 30000

Market Cap (Rs. in mn.) 183892.70

Annual Estimated Results (A*: Actual / E*: Estimated)

YEARS FY14A FY15E FY16E

Net Sales 18207.70 21849.24 24471.15

EBITDA 5675.50 5803.01 6365.79

Net Profit 4024.70 4602.11 5074.53

EPS 17.73 20.27 22.35

P/E 45.69 39.96 36.24

Shareholding Pattern (%)

1 Year Comparative Graph

EMAMI LIMITED BSE SENSEX

SYNOPSIS

Emami Ltd, a personal products company, has

strong network of 3500 distributors and 5600 sub-

distributors, market presence across 75 countries

across the world including India.

The company has achieved a turnover of Rs.

4896.00 million, grew by 20.37% y-o-y for the 2nd

quarter of the current year 2014-15 as against Rs.

4067.40 million in the corresponding quarter of the

previous year.

The Group has posted a net profit after tax, Minority

Interest and Share of Profit or (loss) of Associates of

Rs. 927.60 million, grew by 16.01% y-o-y in Q2

FY15 as compared to Rs. 799.60 million in Q2 FY14.

Profit before Tax (PBT) is at Rs. 1177.80 million in

Q2 FY15 as compared to Rs. 982.60 million in Q2

FY14. An increase of 19.87% y-o-y.

The Company has declared a Interim Dividend @

400% i.e. Rs. 4/- per share on face value of Rs.

1.00/- each for the financial year 2014-15.

Net sales grew by 22.89% of Rs. 9713.30 million in

H1 FY15 when compared to Rs. 7903.90 million in

H1 FY14.

For the half year ended of FY15, Net profit jumps to

16.30% of Rs. 1635.70 million against Rs.1406.40

million for the half year ended of FY14.

Net Sales and PAT of the company are expected to

grow at a CAGR of 13% and 17% over 2013 to

2016E respectively.

PEER GROUPS CMP MARKET CAP EPS P/E (X) P/BV(X) DIVIDEND

Company Name (Rs.) Rs. in mn. (Rs.) Ratio Ratio (%)

Emami Ltd 810.10 183892.70 45.69 45.69 19.73 700.00

Bajaj Corp Ltd 283.05 41749.90 9.79 28.91 8.00 650.00

Godrej Consumer Products Ltd 967.75 329463.70 16.99 56.96 10.89 0.00

Hindustan Unilever Ltd 738.35 1597161.90 18.40 40.13 48.74 1300.00

Analysis & Recommendation - ‘BUY’

For Q2 FY15, Emami Ltd net profit after tax, Minority Interest and Share of Profit or (loss) of Associates of Rs.

927.60 million a growth of 16.01% y-o-y as compared to Rs. 799.60 million in Q2 FY14. Total Income has

increased from Rs. 4231.70 million for the quarter ended September 30, 2013 to Rs. 5018.30 million for the

quarter ended September 30, 2014.

Net sales grew by 22.89% of Rs. 9713.30 million in H1 FY15 when compared to Rs. 7903.90 million in H1 FY14.

For the half year ended of FY15, Net profit jumps to 16.30% of Rs. 1635.70 million against Rs.1406.40 million for

the half year ended of FY14. The Company focused countries, including Bangladesh, has its own plant performed

exceedingly well. Kingdom of Saudi Arabia and Oman in West Asia, Kenya and Uganda in Africa, and Russia were

the star performers. All its power brands such as Navratna, Fair and Handsome, BoroPlus and Zandu and Mentho

Plus products continues to witness strong growth and market share gains. The Company’s brands and their

extensions are expected to continue to do well along with international business. The outlook for the Indian

FMCG industry appears bright amid higher income levels and the expansion of the model retail format. Moreover,

rise in disposable incomes of rural dwellers may bolster the sector’s performance. Overall, the FMCG sector has a

great opportunity for growth marked by rising disposable incomes, increasing rural consumption, growing

population, education, urbanisation, modern retail formats and a consumption-driven society. We expect that the

company surplus scenario is likely to continue for the next three years, will keep its growth story in up coming

quarters. Hence, we recommend ‘BUY’ for ‘EMAMI LIMITED’ with a target price of Rs. 956.00 on the stock.

QUARTERLY HIGHLIGHTS (CONSOLIDATED)

Results updates- Q2 FY15,

Emami Ltd has achieved a turnover of Rs. 4896.00 million for the 2nd quarter of the current year 2014-15 as

against Rs. 4067.40 million in the corresponding quarter of the previous year. The company has reported an

EBITDA of Rs. 1280.90 million against Rs. 1310.60 million in the corresponding quarter of the previous year. The

Group has posted a net profit after tax, Minority Interest and Share of Profit or (loss) of Associates of Rs. 927.60

million in Q2 FY15 as compared to Rs. 799.60 million in Q2 FY14. The company has reported an EPS of Rs. 4.09

for the 2nd quarter of current year as against an EPS of Rs. 3.52 in the corresponding quarter of the previous year.

Rs. In million SEP-14 SEP-13 % Change

Net Sales 4896.00 4067.40 20.37

Net Profit 927.60 799.60 16.01

EPS 4.09 3.52 16.01

EBITDA 1280.90 1310.60 (2.27)

Break up of Expenditure

During the quarter, total expenditure rose by 18 per cent, mainly on account of, cost of Material consumed by

20%, Employee Benefits Expenses 21%, Advertisement & Sales Promotion Expenses by 33% and other

expenditure increased by 17% over corresponding quarter of previous year. Total expenditure in Q2 FY15 stood

to Rs. 3853.70 million as against Rs. 3253.00 million in Q2 FY14.

Standalone Results Q2 FY15,

The Company has posted a net profit of Rs. 891.20 million for the quarter ended Sept 30, 2014 as compared to

Rs. 759.30 million for the quarter ended Sept 30, 2013. Total Income has increased from Rs. 3907.60 million for

the quarter ended Sept 30, 2013 to Rs. 4562.60 million for the quarter ended Sept 30, 2014.

Break up of Expenditure

Rs. In millions

Q2 FY15 Q2 FY14

Cost of Material Consumed 1600.80 1334.30

Purchase of finished goods 334.20 297.10

Employee Benefit Expenses 444.00 367.60

Depreciation & Amortization

Expenses 89.90 314.10

Advertisement & Sales Promotion

Expenses 901.00 677.00

Other Expenditure 764.10 654.00

COMPANY PROFILE

Emami Ltd was established in the year 1978, as Himani Ltd (incorporated as a Private Limited Company in 1949)

had become sick unit and was up for sale. Himani, almost a 100 year old company with good brand equity in

Eastern India and a well laid out factory in Kolkata, was producing a number of cosmetics. Ten years after

commencement of the company, it launched their first flagship brand Boroplus Antiseptic Cream under the

Himani umbrella in 1984. Many additional brands followed Boroplus including Boroplus Prickly Heat Powder

which came as a brand extension of the mother brand. Emami brands started selling in all states of North, East

and West India. Today Boroplus is not only the largest selling Antiseptic Cream in India but also in Russia,

Ukraine, and Nepal. In 1998, Emami Ltd was merged with Himani Ltd and its name was changed to Emami Ltd as

per fresh certificate of incorporation dated September 1, 1998. Emami has been in the health, beauty and

personal care since the last 35 years and has sustained its prominent position in Ayurvedic products. About 80%

of the Company’s production comes from tax exempt zones.

The company has ultra modern manufacturing facilities at Kolkata (West Bengal), Abhoypur and Amingaon

(Assam), Panthnagar, Baddi (Himachal Pradesh), Dongri, Silvassa, Vapi. It has adopted the Total Quality

Management system and all its manufacturing facilities have received cGMP and ISO 9001:2000 certifications.

The Amingaon unit received “Par Excellence Award” and Abhoypur unit received “Excellence Award” in the All

India Competition on “National Convention on Quality Circles” conducted by National Quality Council.

Emami group has grown in India with presence in major sectors of FMCG, real estate, hospitals, retail, newsprint

manufacturing, pharmacy chain, contemporary art, edible oil and biodiesel.

� Key Businesses

• FMCG - Emami Limited is one of the leading and fastest growing personal and healthcare businesses in

India, with an enviable portfolio of household brand names such as Boroplus, Navratna, Fair and

Handsome, Zandu balm, Mentho Plus balm and Fast Relief.

• Newsprint- Emami Paper enjoys the position of being the largest manufacturer of newsprint in India,

and the only manufacturer in eastern India with units in Kolkata and Balasore. The firm recently invested

Rs. 2000 cr for capacity expansion as well as to foray into the pulp and writing paper segment.

• Ball pen tips manufacturing - CRI limited manufacturing ball point tips is another unit of the Emami

Group. It is the fourth largest tips manufacturing unit in the world with manufacturing units in West

Bengal and Gujarat. It has been consistent winner of the best exporter’s award from the Writing

Instruments organization in India.

• Retail- Starmark, retailing books, stationeries and gift items, it is one of the biggest retail stores in

Kolkata with 5 stores and plans for further expansion.

• Pharmacy – Emami Frank Ross Ltd is the oldest and largest pharmacy chain in Eastern India. The first

Frank Ross store was set up in 1906. An ambitious plan of having a network of the pharmacy chain with

over 150 outlets all over India has been taken up by the Group.

• Infrastructure and development - Emami also has large presence in real estate in West Bengal. It has

successfully executed more than 24 prestigious residential and commercial construction projects, mainly

in Kolkata. The existing projects span across the states of West Bengal, Uttar Pradesh, Tamil Nadu,

Andhra Pradesh and Maharashtra.

• Art - Emami Chisel Art Gallery since inception has promoted Indian art and young artists through

numerous exhibitions, retrospectives, art catalogues and publications. It has established itself as one of

the finest venues in East India, dealing in works of both modern and contemporary art. Spread across

15000 sq ft. the gallery collection includes paintings, sculptures, prints and drawings sourced from the

artists themselves, or from reputed art galleries and private collectors.

• Edible oil – The brand Healthy and Tasty is one of the most admired edible oil brand in the country

manufactured and marketed by Emami.

• Healthcare- AMRI, is the first super-speciality hospital in Eastern India to provide comprehensive cancer

treatment. It is also the largest hospital in the private sector. Increase direct reach in over 100,000

outlets for the Company’s healthcare products. The healthcare business performed commendably and

recorded a 36% growth with Pancharistha and Vigorex leading the growth.

• Cement - The Emami Group is setting up a Cement Plant in Chhattisgarh and units for grinding will be set

up in West Bengal and Orissa.

• Bio diesel– Emami has also forayed into the production of biodiesel, a substitute of diesel made from

100% renewable biological sources.

� Brands

• Boroplus

• Navratna

• Zandu balm

• Mentho plus balm

• Fair and Handsome

• Fast Relief

• Sona Chandi

• Kesari Jivan

• Vasocare

• 7 Oils in One

• HE

• Zandu

� International Subsidiaries

� Emami UK Ltd

� Emami Bangladesh Ltd

� Emami International FZE

� Emami Overseas FZE

� Pharma Derm S A E Co, Egypt

� Global Network

� Taking one step at a time Emami went overseas and international business contributes around 11% of

the total revenue, growing at a CAGR of 16% over last few years.

� Company also commenced its first greenfield international unit in Dhaka, Bangladesh Strong network of

3500 distributors and 5600 sub-distributors, with a direct reach across 6,25,000 retail outlets.

� Availability of products across 40,00,000 outlets Market presence across 75 countries across the world

including India, through subsidiaries GCC, UK, Sri Lanka, Bangladesh, Nepal, African and the CIS

countries.

� Emami Limited, the flagship company of the Group, recorded a turnover of Rs 1821 crore, 2013-14. The

result is that around 100 Emami products are sold every second somewhere in India or the world.

� Headquartered in Kolkata, West Bengal, Pan-India presence with four regional sales offices and 32

depots, Manufacturing units in Kolkata (West Bengal), Guwahati (Assam), Pantnagar (Uttarakhand), Vapi

(Gujarat), Silvassa (Dadra & Nagar Haveli) and Talasari (Maharashtra). Research & development units

held in Kolkata and Mumbai.

FINANCIAL STATEMENTS & ESTIMATIONS (CONSOLIDATED) (A*- Actual, E*- Estimations & Rs. In Millions)

Balance Sheet as at March31, 2013 -2016E FY13A FY14A FY15E FY16E

I. EQUITY AND LIABILITIES:

A. Shareholders’ Funds:

a) Share Capital 151.30 227.00 227.00 227.00

b) Reserves and Surplus 7623.40 9094.20 10412.86 11662.40

Sub-Total-Net worth 7774.70 9321.20 10639.86 11889.40

B. Minority Interest 0.50 0.09 0.00 0.00

C. Non-Current Liabilities:

a) long-term borrowings 281.75 174.45 191.90 207.25

b) Deferred Tax Liabilities [Net] 136.80 47.90 93.41 123.29

c) Other Long Term Liabilities 88.38 118.60 161.30 201.62

d) Long Term Provisions 73.71 171.28 231.23 286.72

Sub-Total-Long term liabilities 580.64 512.23 677.82 818.88

D. Current Liabilities:

a) Short-term borrowings 575.58 43.69 69.03 89.05

b) Trade Payables 1019.95 1429.72 2459.12 3098.49

c) Other Current Liabilities 563.42 504.51 595.32 684.62

d) Short Term Provisions 1646.89 1211.42 629.94 365.36

Sub-Total-Current Liabilities 3805.84 3189.34 3753.41 4237.52

TOTAL EQUITY AND LIABILITIES (A+B+C+D) 12161.68 13022.86 15071.09 16945.81

II. ASSETS:

E. Non-Current Assets:

F. Fixed Assets

i. Tangible Assets 3251.56 3880.74 4540.47 5039.92

ii. Intangible Assets 670.27 77.89 40.50 24.30

iii. Capital work-in-progress 472.59 117.37 64.55 40.02

iv. Intangible Asset under Development 2.03 1.68 1.38 1.52

a) Total Fixed Assets 4396.45 4077.68 4646.90 5105.76

b) Goodwill on consolidation (net) 46.07 0.00 0.00 0.00

c) other non-current assets 0.14 0.14 0.14 0.14

d) Non Current Investments 67.75 66.17 66.77 68.10

e) Long Term Loans and Advances 341.33 421.81 582.10 710.16

Sub-Total Non-Current Assets 4851.74 4565.80 5295.90 5884.16

G. Current Assets:

a) Current Investments 1563.41 2892.24 3421.71 3934.97

b) Inventories 1139.80 1411.48 1806.69 2204.17

c) Trade Receivables 1122.19 792.94 903.95 994.35

d) Cash and Bank Balances 2817.13 2699.63 2618.64 2671.01

e) Short Term Loans and Advances 667.41 660.77 1024.19 1257.16

Sub-Total Current Assets 7309.94 8457.06 9775.19 11061.65

TOTAL ASSETS (E+F) 12161.68 13022.86 15071.09 16945.81

Annual Profit & Loss Statement for the period of 2013 to 2016E

Value(Rs.in.mn) FY13A FY14A FY15E FY16E

Description 12m 12m 12m 12m

Net Sales 16991.00 18207.70 21849.24 24471.15

Other Income 556.80 621.80 668.44 688.49

Total Income 17547.80 18829.50 22517.68 25159.64

Expenditure -12554.60 -13154.00 -16714.67 -18793.84

Operating Profit 4993.20 5675.50 5803.01 6365.79

Interest -65.70 -53.80 -54.88 -57.62

Gross profit 4927.50 5621.70 5748.13 6308.17

Depreciation -1240.70 -961.50 -384.60 -407.68

Exceptional Items 0.00 -88.90 0.00 0.00

Profit Before Tax 3686.80 4571.30 5363.53 5900.50

Tax -540.00 -547.00 -761.62 -826.07

Profit After Tax 3146.80 4024.30 4601.91 5074.43

Minority Interest 0.60 0.40 0.20 0.10

Net Profit 3147.40 4024.70 4602.11 5074.53

Equity capital 151.30 227.00 227.00 227.00

Reserves 7623.40 9094.20 10412.86 11662.40

Face value 1.00 1.00 1.00 1.00

EPS 20.80 17.73 20.27 22.35

Quarterly Profit & Loss Statement for the period of 31 MAR, 2014 to 31 DEC, 2014E

Value(Rs.in.mn) 31-Mar-14 30-Jun-14 30-Sep-14 31-Dec-14E

Description 3m 3m 3m 3m

Net sales 4457.10 4817.30 4896.00 6675.70

Other income 184.30 207.70 122.30 107.62

Total Income 4641.40 5025.00 5018.30 6783.32

Expenditure -3285.80 -4051.70 -3737.40 -4873.26

Operating profit 1355.60 973.30 1280.90 1910.06

Interest -16.00 -8.10 -13.20 -14.45

Gross profit 1339.60 965.20 1267.70 1895.61

Depreciation -174.80 -44.10 -89.90 -50.34

Exceptional items -88.90 0.00 0.00 0.00

Profit Before Tax 1075.90 921.10 1177.80 1845.26

Tax 35.40 -213.00 -250.20 -265.72

Profit After Tax 1111.30 708.10 927.60 1579.55

Minority Interest 0.20 0.00 0.00 0.00

Net Profit 1111.50 708.10 927.60 1579.55

Equity capital 227.00 227.00 227.00 227.00

Face value 1.00 1.00 1.00 1.00

EPS 4.90 3.12 4.09 6.96

Ratio Analysis

Particulars FY13A FY14A FY15E FY16E

EPS (Rs.) 20.80 17.73 20.27 22.35

EBITDA Margin (%) 29.39 31.17 26.56 26.01

PBT Margin (%) 21.70 25.11 24.55 24.11

PAT Margin (%) 18.52 22.10 21.06 20.74

P/E Ratio (x) 38.94 45.69 39.96 36.24

ROE (%) 40.47 43.17 43.25 42.68

ROCE (%) 72.22 69.58 56.76 55.59

EV/EBITDA (x) 24.16 31.76 30.99 28.15

Book Value (Rs.) 51.39 41.06 46.87 52.38

P/BV 15.76 19.73 17.28 15.47

Charts

OUTLOOK AND CONCLUSION

� At the current market price of Rs. 810.10, the stock P/E ratio is at 39.96 x FY15E and 36.24 x FY16E

respectively.

� Earning per share (EPS) of the company for the earnings for FY15E and FY16E is seen at Rs. 20.27 and Rs.

22.35 respectively.

� Net Sales and PAT of the company are expected to grow at a CAGR of 13% and 17% over 2013 to 2016E

respectively.

� On the basis of EV/EBITDA, the stock trades at 30.99 x for FY15E and 28.15 x for FY16E.

� Price to Book Value of the stock is expected to be at 17.28 x and 15.47 x respectively for FY15E and FY16E.

� We recommend ‘BUY’ in this particular scrip with a target price of Rs.956.00 for Medium to Long term

investment.

INDUSTRY OVERVIEW

The Indian FMCG sector is the fourth largest sector in the economy with a total market size in excess of USD 13.1

billion. The FMCG market is set to treble from USD 11.6 billion in 2003 to USD 33.4 billion in 2015. The Indian

FMCG industry represents nearly 2.5% of the country’s GDP. In the last decade, the FMCG sector has grown at an

average of 11% a year; in the last five years, annual growth accelerated at compounded rate of 17.3%. The sector

is growing at rapid pace with well-established distribution networks and intense competition between the

organised and unorganised segments. It has a strong and competitive MNC presence across the entire value

chain. The FMCG’s promising market includes middle class and the rural segments of the Indian population, and

give brand makers the opportunity to convert them to branded products.

Population:

India’s current population is around 127 crore and growing at 1.58% annually exhibiting immense sectoral

potential.

Incomes:

India’s per capita income was estimated to have gone up by 10.4% to H6,423 per month in 2013-14 at current

prices, compared with H5,279 in the previous fiscal year. The annual per capita income at current prices during

2013-14 was estimated at H74,920 compared to H68,747 during 2012-13. This increase translated into an

increase in disposable incomes and consumption.

Middle class household:

The Indian middle-class population is the most promising market for the FMCG sector, providing brand makers

the opportunity to convert them to branded products. As per McKinsey Global Institute (MGI), the middle-class

population in India is likely to increase by about 12 times during 2005-2025; as a result, spending is expected to

increase significantly by 2025, fuelling consumption demand.

Urbanisation:

India’s urban population is around 30% of the total population and growing at an annual rate of 2.47%, which

will increase the consumption of FMCG products.

Youth:

India has the largest population of youth in the world with about 66% of the population under the age of 35,

catalysing the demand for FMCG products

Demand

• Rising incomes and growing youth population have been key growth drivers of the sector

• Brand consciousness has also aided demand

• First Time Modern Trade Shopper spend is estimated to triple to USD1 billion by 2015

• Tier-II/tier-III cities are witnessing faster growth in modern trade

Investments

o The industry has witnessed healthy FDI inflow, as the sector accounted for 3.0% of the country’s total FDI

inflow over April 2000 to October 2013

o Many players are expanding into new geographies and categories

o Organised retail share is expected to double to 14–18% of the overall retail market by 2015.

o Investment approval of up to 100% foreign equity in single brand retail and 51% in multi–brand retail

o Initiatives like Food Security Bill and direct cash transfer subsidies reach about 40% of households in India

Opportunities

� Low penetration levels in rural market offers room for growth

� Disposable income in rural India has increased

� Growing demand for premium products

� Exports is another growth segment

Outlook:

The outlook for the Indian FMCG industry appears bright amid higher income levels and the expansion of the

model retail format. Moreover, rise in disposable incomes of rural dwellers may bolster the sector’s performance.

Overall, the FMCG sector has a great opportunity for growth marked by rising disposable incomes, increasing

rural consumption, growing population, education, urbanisation, modern retail formats and a consumption-

driven society. The fast moving consumer goods (FMCG) sector in rural and semi-urban India is estimated to

cross USD20 billion by 2018 and USD100 billion by 2025. First-time modern trade shoppers (FTMS) spending on

FMCG products is estimated to triple to USD 1000 million by 2015 from USD280 million in 2012. FTMTS spent

35% on FMCG products, growing by 15% each year. This shopper segment is likely to drive the growth of the

country’s FMCG sector.

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.

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

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