February 16, 2010

Emami Ltd.
…the power of brands
CMP Rs. 565.30
Key Share Data
Face Value (Rs.) Equity Capital (Rs. Crs) Market. Capitalization (Rs. Crs) 52-wk High / Low (Rs.) Average Yearly Volume BSE code NSE code Reuters code Bloomberg code 2.00 15.13 4245.48 620/175 34119 531162 EMAMILTD EMAM.BO HMN.IN

Target Rs. 711.00

Initiating Coverage- Buy

Company Profile
Emami Ltd. (EL) is the flagship company of the Kolkata based Emami Group, which is engaged in the business of manufacturing personal care and health care products for over 3 decades and has diversified in the field of real estate, paper, biofuel, cement etc. Some of the major brands of the company are Boroplus Antiseptic Cream, Boroplus Prickly Heat Powder, Fair and Handsome Fairness Cream for men, Navratna Oil, Himani Fast Relief, Mentho Plus balm, Sona Chandi Chyawanprash and Amritprash, amongst others.

Shareholding Pattern –

31st December, 2009

Investment Rationale
Presence in niche segments Emami is an FMCG company that offers products based on ayurvedic concept. The company operates in segments where there is minimum competition, hence ensuring a larger share of the market. The company only focuses on products offering high margins, thus maintaining superior profitability. Strong brands registering better than industry growth rates Emami has brands like Boroplus Antiseptic Cream and Navratna Oil which are undisputed market leaders in their respective categories. Other brands like Fair & handsome Fairness Cream, Sona Chandi Chawanprash, Himani Fast Relief, MenthoPlus Balms etc. are growing at better than the industry rate . International presence Emami has an international presence that includes 60 countries in the GCC, CIS and SAARC regions. The company’s exports grew by 60% in 2008-09, contributing 13.6% to the topline. This contribution is expected to grow in future. Extensive distribution network EL has an extensive distribution network of more than 2700 distributors, 1200 sub distributors, 60 super stockists and 4,00,000 direct outlets, covering every nook & corner of the country. Emami has tied up with ITC Ltd. to distribute products through the echoupal outlets, thus ensuring greater rural reach. The company also implemented project “Navodaya”, in consultation with E&Y, to tap the target customers in shopping malls and lifestyle outlets. Outlook & Recommendation EL is expected to expand both its topline and bottomline in future by virtue of increased market share, improved realizations and lower interest outgo. We recommend BUY rating on the stock with an 15 months target price of Rs 711, at 21x FY12 earnings, giving it an upside potential of 26% from the current levels. www.skpmoneywise.com

Financials (Consolidated) Financials (Rs. crs.) FY09 Net Sales 749.01 Sales Gr 29.39% EBIDTA 160.54 PAT 92.11 PAT Gr 1.73% EPS (Rs.) 13.85 CEPS (Rs) 15.61 Key Financial Ratios

(Rs. Crs)

987.80 31.88% 247.48 164.40 79.73% 21.73 24.51

1258.9 27.45 301.26 202.52 23.12 26.77 31.01

1600.7 27.15 382.38 256.14 26.41 33.86 40.45




Div. yield P/E P/BV P/Cash EPS MCap/Sales EV/EBIDTA ROCE RONW EBITDM(%) NPM (%) Debt-Equity

0.83 13.98 4.00 12.40 1.70 10.38 18.41% 30.46% 21.43% 12.25% 1.49

0.72 25.82 5.65 22.90 4.30 17.63 19.55% 21.93% 25.05% 16.69% 0.32

0.72 20.96 4.69 18.09 3.37 14.32 20.45% 22.41% 23.93% 16.13% 0.23

0.72 16.57 3.81 13.87 2.65 11.09 21.36% 23.05% 23.89% 16.03% 0.18

Performance comparison EL v/s BSE Midcap

4.00 2.00 0.00 -2.00

Emami Ltd.

BSE Midcap

Analyst: Soumen Ghosh
Tel No.: +91 33 4007 7416; Mobile: +919830447472 Email: soumen.ghosh@skpmoneywise.com

SKP Securities Ltd

Page 1 of 10

ITC.Emami Ltd.84 billion for improving rural infrastructure. Moreover. the industry is expected to register a 15% growth in 2010 as compared to the previous year.000-crore Indian FMCG industry is expected to witness a lot of action in 2010. Further. This is in addition to the farmers’ loan waiver of US$ 13. Hariyali Kisan Bazaars (DCM) and Aadhars (Pantaloon-Godrej JV). auto and consumer durables industries is estimated to match sales generated in urban areas soon. the rural market grew at an impressive rate of 25 per cent compared to the 7-10 per cent growth rate of the urban consumer retail market. oral care and household products. Rural India growth story • Rural India makes up 40 per cent of India’s US$ 280 billion retail market and offers alluring opportunities for retailers. rural India’s demand for personal care products grew faster than in urban areas during AprilSeptember 2009. Major domestic retailers like AV Birla. With the economy showing signs of revival. Industry Overview The fast moving consumer goods (FMCG) industry represents consumer goods required for daily or frequent use. The union budget for 2009-10 hiked the allocation for the National Rural Employment Guarantee Act (NREGA) to US$ 8. on FMCG. A recent study by the Rural Marketing Association of India (RMAI) found that the rural and small town economy which accounts for 60 per cent of India's income has remained insulated from the economic slowdown. rural market is seeing a 15 per cent growth rate. Kisan Sansars (Tata). rural incomes are on the rise driven largely due to continuous growth in agriculture for four consecutive years. Reliance and many others have already set up farm linkages. Godrej.03 billion in August 2008 and the rural market accounted for a robust 57 per cent share of the total FMCG market in India. Reliance Fresh. Project Shakti (Hindustan Unilever) and Naya Yug Bazaar are established rural retail hubs. The rural market offers great untapped potential. as per a RMAI study.86 billion and the ambitious Bharat Nirman Programme with an outlay of US$ 34. pharma. Rural consumers spend around 13 per cent of their income. In 2008. While durables market shrunk in urban India. According to a Technopak study. FMCG sales are up 23 per cent and telecom is growing at 13 per cent.9 billion by 2015 from the current levels.skpmoneywise. The Rs 86. the second highest after food (35 per cent). as per the latest numbers released by market researcher AC Nielsen. Most FMCG companies are now working on increasing their distribution in smaller towns and focusing on marketing and operations programme for semi-urban and rural markets. Choupal Sagars (ITC). The FMCG industry in India was worth around US$ 16.com Page 2 of 10 .03 billion. Further. giving a further boost to the rural economy. • • • • • • • SKP Securities Ltd www. rural demand for fast moving consumer goods (FMCG). the rural market has the potential to grow to US$ 1. It can be broadly classified into personal care.

deodorants. Consumers’ preference for FMCG products is shifting towards higher lifestyle categories like skin care. In 2008. • • • • • Company overview Emami Ltd. aggressive advertising and efforts to increase the visibility have acted as the driving force behind the growing demand of the products. Fair and Handsome Fairness Cream for men. anti-aging solutions. Boroplus Prickly Heat Powder. Emami acquired Zandu Pharmaceutical Works Ltd. paper. Himani Fast Relief.000 annual income) will drastically reduce from the current level of 54% of population to 22% of population by 2025. Navratna Oil. shampoos. Mentho Plus balm. hygiene and preference for packaged food which has given a major boost to the demand of FMCG products. which is engaged in the business of manufacturing personal care and health care products for over 3 decades and has diversified in the field of real estate.com Page 3 of 10 . (EL) is the flagship company of the Kolkata based Emami Group. India’s leadership in the ITES sector and the BPO boom has given rise to large numbers of young consumers. As per the McKinsey Global Institute (MGI). Some of the major brands of the company are Boroplus Antiseptic Cream.Emami Ltd. The rising of the middle class • The Indian middle class population is poised to grow from 300 million people in 2008 to 583 million people by 2025. These people will add to the demand of FMCG and other perishable and off-theshelf products. Zandu Kesari Jivan etc. Further. Sona Chandi Chyawanprash and Amritprash. These young consumers are experimental and willing to try new products. the number of people in the lowest income bracket (of less than Rs 90. This segment is expected to generate maximum demand for FMCG and consumer goods. Zandu Chawanprash. de-reservation from the small-scale sector and the concerted efforts of the companies engaged in the business of manufacturing of personal care and beauty care products to woo the burgeoning affluent segment of the middle class through the introduction of innovative methods of packaging the products. SKP Securities Ltd www. The growth in FMCG industry has also been fuelled by the reduction in the excise duties. The FMCG sector caters to the needs of the masses. constant innovations in the product. It does not merely address the needs of the rich and the elite.skpmoneywise. who typically live with their families and have large disposable incomes that can be spent at their discretion. an increase in the disposable income. Growing numbers in the strata of middle class has led to an increase in the awareness about health. cement etc. Low-priced products for the lower income and lower middle income groups account for over 60 per cent of the sector’s sales. thereby getting access to Zandu’s popular brands like Zandu Balm. This may lead to the launch of products specifically designed for the young people. Understanding and capturing their needs and synthesizing these into actionable strategies and then into final product is important for FMCG players. fairness products and men’s products. amongst others. biofuel.

com Page 4 of 10 . SKP Securities Ltd www.Emami Ltd.skpmoneywise. Emami Brand Zandu Brand Personal Care Health Care • • Cosmetics Ayurvedic Products • • • • Toiletries Skin Care Oral Care Hair Care • • OTC products Ayurvedic Medicines Source: Company Composite Scheme of Arrangement Consolidation of FMCG Business into one entity: The FMCG business of Zandu was demerged and transferred into Emami Ltd. Consolidation of real estate holdings: The realty undertaking of Emami including Emami Realty Limited and Emami’s interests in Zandu’s non-core business including real estate has been transferred into Emami Infrastructure Ltd (EIL). Business overview EMAMI LTD.

the company is able to keep costs under control even in case of escalating input costs. Emami’s brands are promoted by eminent celebrities like M S Dhoni. The company has a balanced portfolio comprising of products in health. Emami also uses judicious price increases to pass on the high input costs to the consumers. Capitalizing on the strong brand presence. the company has been innovative in the packaging of their products with a view to suit customer requirements. It is also the market leader in countries like Ukraine. After the acquisition of Zandu.skpmoneywise. Russia and Nepal. the company has extended the product by introducing Boroplus Winter and Summer Lotions. thus maintaining superior profitability.2% (as per AC Nielson 2007-08 Report). The company operates in segments where there is minimum competition. Panchristha.8% in 2007-08. beauty and personal care segments. Introduction of Low Unit Packs (LUP’s). etc. Also. The company only focuses on products offering high margins. men’s fairness cream and other niche Ayurvedic OTC products to the company’s advantage. thereby restricting the impact on margins. dibbies and small tubes helped in expanding the customer base by creating new customers. Kareena Kapoor. Shah Rukh Khan. Emami now has the strength of century old Zandu Ayurveda products like Zandu Balm.com Page 5 of 10 . While the category grew by 13. The brand extensions of the product include Navratna Cool Talc. Preety Zinta etc. while the product variations include Navratna Extra Thanda and Navratna Lite. Zandu Chawanprash. MNC companies are reluctant to enter these segments (eg. the product grew by 19. Strong brands registering better than industry growth rates The Boroplus Antiseptic Cream is the dominant market player with more than 73% share. Investment Rationale Presence in niche segments Emami is an FMCG company that offers products based on ayurvedic concept. Himani Navratna Oil is another market leader with more than 54% market share. thereby resulting in an increased market share across various segments. Sunny Deol. contract manufacturing and working capital management. Other brands like Fair & handsome Fairness Cream. balms. SKP Securities Ltd www.Emami Ltd. Amitabh Bachchan. Himani Fast Relief. Madhuri Dixit. where regional and local players rule the roost. Sona Chandi Chawanprash. hence ensuring a larger share of the market. Cooling oil). sachets. farm forestry initiative. Kesri Jeeven. Nityam Churna. which help the company in bolstering the brand image. who help the company to gain mass appeal through its brands. Through its efficient raw materials management. Mentho Plus Balms etc. are also growing at better than the industry rate. Emami has proven its ability to tap segments like cooling oil.

Emami’s products are also available in countries of Middle East. Emami Ltd’s Distribution Network RURAL URBAN Tie up with ITC e-chaupal Tie up with District Post Offices 11000 Emami Mobile Traders & Small Village Shops Coverage across 7 states and 8 lakh households Modern Trade Channel Retail Network Coverage of 4 states Coverage of 280 Post Offices Coverage of 2. Commonwealth of Independent States and SAARC countries. Extensive distribution network EL has an extensive distribution network of more than 2700 distributors.com Page 6 of 10 . Boroplus Antiseptic Cream continued to remain the number one brand in Russia. covering every nook & corner of the country. The company also implemented project “Navodaya”. in consultation with E&Y. International presence Emami has an international presence that includes 60 countries in the GCC. Europe.00. SKP Securities Ltd www. 60 super stockists and 4. 1200 sub distributors. This contribution is expected to grow in future.Emami Ltd. Tie up with the Indian Oil’s petrol pumps located in the rural areas has made it possible for the company to access the untapped rural markets.skpmoneywise. Besides army CSDs have also served as a significant mode of penetration into otherwise inaccessible areas. East Africa is a strong sales market for Mentho Plus Balm and Naturally Fair Cream. The company’s exports grew by 60% in 2008-09. CIS and SAARC regions. America and Australasia. while Mentho Plus Balm is number two brand in its category in Kenya.6% to the topline. to tap the target customers in shopping malls and lifestyle outlets.6 million outlets Coverage of 4 lakh retail outlets Source: Company Emami’s distribution network is extensive enough to include local paanbiri shops to reach the lower and lower-middle income population group.000 direct outlets. contributing 13.

Emami’s international business with revenues of Rs 41 crore has grown by 36% during the quarter. Emami also created a dedicated vendor community in non-excisable zones.21%. In order to reduce the freight rate. With subtle product variations (eg. which was a result of better realizations for the company’s products. topline and bottomline expanded by 43. Growth in the first nine months is 32% with exports at Rs 89 crore.05 crore. we expect the company to register EBIDTA CAGR of 27. Financial Performance Latest Results Update In Q3FY10.07% and 101. Sales: In the period FY2006-09.32 crore respectively.skpmoneywise.45% to Rs 746. However. for the period FY2010-12. EBIDTA: The company registered a CAGR of 58. The company has a strategy of introducing 2 to 3 new products every year. SKP Securities Ltd www.38% in Net Sales. going forward. For 9MFY10. Introducing smaller versions of Zandu Balm). the company has shifted focus from a multi-vendor plan to single-vendor plan within its plant proximity.74%. thereby capturing new market share.58 crore. The decrease in interest cost also helped to bolster the bottomline for the quarter.Emami Ltd. The EBIDTA growth is expected to be driven by efficient raw material management that includes a proper hedging policy in order to mitigate the risk of volatile commodity prices.com Page 7 of 10 . the topline grew by 30. The smart expansion in topline and cost control paved way for a 936 bps improvement in operating margins to 30.25% during FY2010-12. The growth is largely attributable to the demand from Middle East and Africa.64 crore and Rs 130. Zandu’s FMCG business is already adding to the topline of Emami Ltd. the company is penetrating untapped segments. Emami registered a CAGR of 49.01% to Rs 78. thereby protecting their interests through assured offtake. we expect the company to register CAGR of 20. The operating margin also improved by 979 bps to 25.34% to Rs 349.42% in EBIDTA during FY2006-09. Aggressive branding and promotions are also expected to increase the mindshare of the company. However.57%. while the bottomline expanded by 94.

However. APAT: Emami Ltd has an APAT CAGR of 30. and are consumed more during winter and summer seasons respectively. Naturally.05% during FY2006-09. SKP Securities Ltd www.com Page 8 of 10 . diversified and niche product offering. which helps the company in bolstering its bottomline. Concerns A major part of Emami’s product offering caters to skin care and hair oil segments. Farm forestry of herbs in Orissa. Outlook & Recommendation With strong R&D. The company also receives tax incentives for its Amingaon plant. giving it an upside potential of 26% from the current levels. EL offers investors an attractive proposition in the FMCG space.skpmoneywise. the severity of the seasons guide the consumption of these products.67% during FY2010-12. hence the interest outgo is expected to come down. we expect the company to achieve a CAGR of 27. and the lack of severity may hinder the sales growth in these segments. strong fundamentals and extensive distribution network. These products are seasonal in nature. usage of alternative raw materials and prudent packaging alterations also helps the company in countering the rise in raw material prices. MP and UP. the company’s diversified product breadth ensures the seasonal impact on the company’s topline is limited. Since the company is expected to substantially lower its debt in the next couple of years (net debt is expected to be below Rs 100 crore in FY2010). thereby protecting the margins. We recommend BUY rating on the stock with an 15 months target price of Rs 711.Emami Ltd. However. at 21x FY12 earnings.

62 -99.81 0.26 2.82 77.13 21.43 257.11 -177.00 256.20% 12.15% 18.11 86.57 5.19 21.10 67.37 1.40 4.41 -127.13 20.02 1116.13 890.66 556.73 214.56 37.84 268.48 25.38 23.94 FY11E 15.00 15.00 301.00 905.34 FY12 E 310.93% 1.57 26.11 49.57 21.75 FY12E 15.48 FY11E 1258.81 107.99 67.67 230.57 13.51 33.47 162.71 7.34 73.95% 46.13 185.67 31.49 -12.93 -79.30 149.41 152.13 288.62 14.43% 34. Recd & others Cash flow from investing activities Cash flow from financing activities Net Increase/Decrease in Cash & Cash Equivalents Opening Cash Balance Closing Cash Balance 105.92 114. & prov.73% 6.35 Cash Flow Statement Particulars FY09 Profit before Tax Add: Depreciation.com Page 9 of 10 .78 152.34 145.53 -97.32 34.20 105.55% 21.77 20.78 833.00 49.98 5.13% 23.) PER (x) Dividend Per Sh.00 1.35 9.73% 29. Crores) FY09 749.36% 23.26 36.51% 28.13 47.00 70.45 126.51 41.69 39.18 34.00 751.58% 18.82 22.90 223.42 171.00 1.90 5.63 2.31% 35.93% 21.06 -154.87 11.79 37.00 49.21 -30.22 22.57 13. liab.63 -104.19 75.91 0.00 40.00 246.54 21.09 4.81 14.00 202.57 33.13% 20.50 310.02 749.24 49.) (in Rs. (Rs.04 14. Div.93 52.73 25.93% 23.71 0.20 363.52 16.46 7.88% 247.02 1315.39 -541.69% 19. Net Current Assets Total Assets 373.87 3.58 49.05% 1.81 11.39% 160.98 12.03% 26.41% 30.73% 7.13 1098.11 12.12 0.29 -46.98 23.11 FY10E 200.00 92.47% 16.87 35.28 63.80 71.30 0.13 735.96 5.86 16.02 20.76 62.62 0.77 36.12% 7.25% 1.89% 26. & Other Expenses Net changes in WC.25 FY10E 15.00 49.62 0.26 14.43 SKP Securities Ltd www. Total Liabilities Net Fixed Assets Capital WIP Investments Inventories Accounts receivable Cash & Bank Loan & Advances Current Assets Current Liab.21 167.00 11.57 325.49 35.65 21.92 37.89 1315.22 137.61 0.17 50.13 Key Ratios Particulars Valuation Ratios P/E P/Cash EPS P/BV EV/EBIDTA EV/Sales Earnings Ratios OPM NPM ROCE RONW Balance Sheet Ratios Current Ratio Debt/Equity Debtor days Inventory Days FA Turnover FY09 13.34 47.25% 18.15% 382. tax interest Cash flow from operating activities Capital expenditure Investments.64% 25.00 10.32 3.54 -131.60 437.95 27.06 75.03 60.40 -81.61% 16.50 228.18 140.00 164.58 202.45% 301.22 291.72 989.97 -71.Emami Ltd.96 66.13 151.76 27.00 0.23 34. Sales of FA.48 FY12E 1600.02 989.65% 8.42 18.47% 16.00 106.00 1.32 10.00 1.16 9.00 1113.80 25.93% 47.05% 54.91 159.21 -618.33 40.01 29.60 271. Provisions Total Curr.76 51.14 5.33 47.63 0.69% 79.33 174.13 736.05 0.03% 21.95 24.18 Secured Loan Unsecured Loan Deferred Tax Liab.22 270.12 135.47 -183. Consolidated Financials Income Statement Particulars Net sales Growth (%) EBIDTA EBIDTA Margin (%) Growth (%) Depreciation EBIT EBIT Margin (%) Growth (%) Interest Interest Coverage (x) Other Income EBT Tax Minority Interest PAT PAT Margin (%) Growth (%) O/S Shares (Crs) EPS (Rs.47 47.16 FY11E 20.85 13.41% 7.33% 24.56 258.40 16.61 50.46% 1.09 2.50 200.41% 1.03 178.50 245.45% 22.skpmoneywise. Int.00 159.80 31.48 FY10E 987.18% 50.49 6.22 20.96 18.06 FY10E 25.56 92.69 14.14 16.47 612.37 1116.00 13.35 932.26 23.92 FY11E 246.38 4.08 117.82 5.65 17.65 -28.37 335.29 FY12E 16.87 50.49 749.48 Balance Sheet Particulars Equity Capital Reserves Share Warrants Net worth FY09 13.

futures or other derivatives related to such securities ("related investments"). Notes: The above analysis and data are based on last available prices and not official closing rates. SKP Securities Ltd. MyiIris.Emami Ltd. Ext. SKP Securities Ltd. or any of its associates or employees does not accept any liability whatsoever direct or indirect that may arise from the use of the information herein. ISI Securities and Bloomberg SKP Securities Ltd www.sec@bloomberg. we are unable to accept any liability for the accuracy of its contents.com Tel. Neither the information nor any opinion expressed constitutes an offer. block positioner. and its affiliates may trade for their own accounts as market maker. specialist and/ or arbitrageur in any securities of this issuer(s) or in related investments. 7416 Kolkata Office (Head Office) E. its affiliates. DISCLAIMER: This document is for private circulation only. (022) 22811015 . or any invitation to make an offer. officers. to buy or sell any securities or any options.net SKP Research is also available on Thomson First Call & Investext.Mail: soumen.com skp. directors.. Fax 2283 0932 E-Mail : dealingdesk@skpmoneywise. SKP Securities Ltd.ghosh@skpmoneywise. While this report has been prepared on the basis of published/ other publicly available information considered reliable.skpmoneywise. employees and employee benefit programs may have a long or short position in any securities of this issuer(s) or in related investments. TickerPlant. and may be on the opposite side of public orders.com Tel: (033) 40077000 Fax: (033) 40077007 Institutional Sales (Mumbai) Email: research@skpmoneywise. SKP Securities Ltd (Member of NSE & BSE) Analyst: Soumen Ghosh Tel:(033) 4007 7000. Moneycontrol.com Page 10 of 10 .

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