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<\/p>\nWhile Emami is still struggling to push growth, given weak rural demand, the sale of the group’s stake in AMRI Hospitals should ease investor concerns about stake pledges by promoters.<\/p>\n
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It has also carried a series of stake acquisitions which should enable the expansion of its brand portfolio.<\/p>\n
The Q2 results are likely to see flat volumes and low revenue growth alongside some gross margin expansion.<\/p>\n
The sale of AMRI has raised a value of Rs 2,300 crore, which will translate into Rs 1,100 crore to promoters, net of tax.<\/p>\n
This should enable the outstanding pledge of 33 per cent of the promoter-stake to be reduced to around 13-14 per cent and promoter outstanding debt should reduce to Rs 1,000 crore.<\/p>\n
On the business front, most of Emami’s segments are expected to see flat or mild growth, with health care likely to do better — while hair oil and other segments could be subdued on weak rural demand due to inflation.<\/p>\n
The international business could see double-digit growth, but there are also currency headwinds.<\/p>\n
The gross margin is likely to trend up.<\/p>\n
Emami has recently acquired a 26 per cent stake in Axiom Ayurveda, which generates the bulk of its revenue from health juices.<\/p>\n
Axiom’s financial year 2022-23 (FY23) revenue stood at Rs 129 crore, with 34 per cent revenue compound annual growth rate (CAGR) over FY21-23.<\/p>\n
The business has a low double-digit EBITDA margin.<\/p>\n
Emami would probably look to raise its stake further.<\/p>\n
Emami has also acquired stakes in four D2C brands — Helios Lifestyle (The Man Company), Brillare, TruNativ, and Fur Ball Story.<\/p>\n
Helios Lifestyle caters to the male grooming segment, and Emami now has a total 50.4 per cent stake.<\/p>\n
While Helios has logged losses in the past, the company may see profits in FY24.<\/p>\n
Brillare is a skincare and haircare products company and Emami holds an aggregated 95.36 per cent stake.<\/p>\n
TruNativ is a smart nutrition company dedicated to servicing health and fitness enthusiasts.<\/p>\n
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Emami has a 20.65 per cent stake.<\/p>\n
Emami has a 30 per cent stake in the pet care start-up Cannis Lupus Services.<\/p>\n
The company uses the brand Fur Ball Story and offers ayurvedic medicines for dogs.<\/p>\n
In each of these investments, the remaining stake is with the respective promoter.<\/p>\n
In total, these five investments yield combined sales of Rs 260 crore.<\/p>\n
Emami gets a little over 50 per cent of its revenue from rural\/semi-urban markets and rural recovery is key to its growth.<\/p>\n
FY23 was a poor year with profit after tax contraction, EBITDA margin contraction, and lower return on equity (RoE) and return on capital employed (ROCE).<\/p>\n
As the trends go, FY24 should see recovery across the profit margins and ratios though revenues may not grow much.<\/p>\n
The stock is trading at a considerable valuation discount to other FMCG firms despite reasonable return ratios, and a likely EBITDA margin of 27 per cent.<\/p>\n
A pick up in rural consumption would lead to a stock rerating.<\/p>\n
However, a continued rural slowdown or persistent inflation could negatively impact the stock.<\/p>\n
Most analysts are positive.<\/p>\n