Driven by re-staging ‘Smart and Handsome’ in Q3 FY25 and ‘Kesh King’ (planned) in Q2 FY26, and D2C brands (TMC, Brillare) growth returning post management transition, we expect a 7% volume CAGR for Emami over FY25-27 (5% in FY25). The focus on innovation with 25 launches in FY25 and likely inorganic growth (Rs7.5bn cash on the Balance Sheet) should further support the growth outlook. The recent fall in prices of crude oil should keep input cost favourable, expanding margins (110bps over FY25-27). This should drive a 14% EPS CAGR over FY25-27; hence, we find the present valuation of 24x FY27e P/E attractive (a 37% discount to peers). Our TP of Rs840 implies 35x FY27e EPS.
Untimely rain could weigh on Q1, but portfolio seasonality concentration seen reducing. The contribution of seasonal products to domestic revenue has shrunk from 49% in FY20 to 44% in FY24. Emami has summer & winter products, impacted by adverse weather. In fact, unseasonal rains in Apr-May are expected to curtail demand for summer products in Q1. However, we are sanguine regarding longer-term growth notwithstanding seasonality, as core, rejigged and D2C brands fire up in coming quarters.
Launches, acquisition to boost growth. Over the years, Emami invested >Rs23.5bn for acquisitions, which today account for almost half of its revenue. With Rs7.5bn cash on its balance sheet, we expect it to take the M&A/ inorganic growth route to boost revenue. In FY25 it launched 25 products in male grooming, shampoo, soap, hair oil and health care. These will also add to growth in coming quarters. We are building in a 10% revenue CAGR over the next 2 years, aided by 7% volume growth.
Valuation. The stock trades at 27x/24x FY26e/27e EPS of Rs21.2/23.9. Key risks: Failure of launches, unwarranted or pricey acquisitions and stiff competition.