Date of Research – 14 January 2016

Price – 999.85

About the Company

Establishes in 1974, Emami Limited (“Emami” or the “Company”) is engaged in the business of manufacturing and marketing personal care, health care and beauty products. Emami has pan-India presence with four regional sales offices and 32 depots and market presence across 60 countries through subsidiaries in the UAE, Bangladesh, the UK and Egypt. The Company’s manufacturing facilities are in Kolkata (West Bengal), Guwahati (Assam), Pantnagar (Uttarakhand), Vapi (Gujarat), Silvassa (Dadra & Nagar Haveli) and Talasari (Maharashtra). The Company also commenced its first greenfield international unit in Dhaka, Bangladesh.

The Company’s portfolio comprises around 250 products. Brands like Boroplus, Navratna, Zandu Balm & Mentho Plus Balm and Fair and Handsome are market leaders in their respective segments. Other prominent brands include Sona Chandi Chyawanprash, Kesari Jivan, Fast Relief, Malai Kesar cold cream and Vasocare petroleum jelly. The Zandu health care portfolio comprises Zandu Pancharista, Vigorex, Rhumasyl, Lalima, Sudarshan, Trifala and Nityam Churna among other. The Company has made brand investments of over Rs. 1,000 crore in the last five year.

Key Financial Figures

Consolidated	(Rs. Cr)
Particulars	FY 2013	FY 2014	FY 2015	FY 2016	FY 2017
Total Income from Operations	1,699.10	1,820.77	2,217.25	2,623.79	2,532.61
Expenses	1,255.46	1,315.40	1,681.76	2,150.10	1,773.48
Earnings Before Other Income, Interest, Tax and Depreciation (Operating Profit)	443.64	505.37	535.49	473.69	759.13
Depreciation	124.07	96.15	34.31	44.96	308.58
Finance Costs	6.57	5.38	5.14	54.03	58.01
Other income	55.68	62.18	96.41	42.41	31.08
Exceptional items	–	8.89	–	–	–
PBT	368.68	457.13	592.45	417.11	423.62
Tax	54.00	54.70	107.00	58.49	83.61
PAT (before Minority Interest and share of Associates)	314.68	402.43	485.45	358.62	340.01
Profit/ (loss) attributable to Minority Interest	(0.06)	(0.04)	(0.16)	(0.44)	(0.41)
Share of profit / (loss) of Associates	–	–	–	–	–
Consolidated Profit / (Loss) for the year	314.74	402.47	485.61	359.06	340.42

Profitability Analysis

Consolidated	(%)
Particulars	FY 2013	FY 2014	FY 2015	FY 2016	FY 2017
Operating Profit Margin Ratio	26.11	27.76	24.15	18.05	29.97
Net Profit Margin Ratio	18.52	22.10	21.89	13.67	13.43

Operating profit margin is a measurement of the proportion of a company’s revenue that is left over after paying for production costs such as raw materials, salaries and administrative costs. Net profit margin is arrived at by deducting non operating expenses such as depreciation, finance costs and taxes out of operating profit and shows what is left for the shareholders as a percentage of net sales. Together these ratios help in understanding the cost and profit structure of the firm and analysing business inefficiencies.

• Profitability Ratios

Key Balance Sheet Figures

Sources of Funds / Liabilities	(Rs. Cr)
Particulars	FY 2012	FY 2013	FY 2014	FY 2015	FY 2016
Share Capital	15.13	15.13	22.70	22.70	22.70
Reserves & Surplus	691.50	762.34	909.42	1,207.94	1,380.44
Net worth (shareholders funds)	706.63	777.47	932.12	1,230.64	1,403.14
Minority Interest	0.12	0.05	0.01	4.56	4.12
Long term borrowings	52.68	28.17	17.45	1.71	300.00
Current liabilities	391.94	380.58	318.93	386.53	912.74
Other long term liabilities and provisions	11.47	16.21	28.99	40.84	44.55
Deferred Tax Liabilities	14.50	13.68	4.79	12.05	–
Total Liabilities	1,177.34	1,216.17	1,302.29	1,676.32	2,664.55

 

Application of Funds / Assets	(Rs. Cr)
Particulars	FY 2012	FY 2013	FY 2014	FY 2015	FY 2016
Fixed Assets	480.34	439.64	407.77	477.59	2,037.92
Noncurrent Investments	6.77	6.78	6.62	6.61	6.61
Current assets	658.03	730.99	845.71	1,144.36	503.95
Long term advances and other noncurrent assets	28.03	34.15	42.20	43.68	111.07
Deferred tax assets	–	–	–	–	0.92
Goodwill on consolidation (net)	4.17	4.61	–	4.08	4.08
Total assets	1,177.34	1,216.17	1,302.29	1,676.32	2,664.55

Efficiency Analysis

	(%)
Particulars	FY 2012	FY 2013	FY 2014	FY 2015	FY 2016
ROCE	50.16	55.06	53.22	43.29	27.75
ROE / RONW	36.63	40.48	43.18	39.46	25.56

Return on Capital Employed (ROCE) measures a company’s profitability from its overall operations by calculating the return generated on the total capital invested in the business (i.e. equity + debt). Return on Equity (ROE) or Return on Net Worth (RONW) measures the amount of profit which the company generates on money invested by the equity shareholders. In short, ROE draws attention to the return generated by the shareholders on their investment in the business. Together these ratios can be used in comparing the profitability of the company with other companies in the same industry.

• Efficiency Ratios

Valuation Analysis

Consolidated
Particulars	FY 2013	FY 2014	FY 2015	FY 2016	FY 2017
Total Income from Operations (Rs. Cr.)	1,699.10	1,820.77	2,217.25	2,623.79	2,532.61
Growth (%)	16.90 %	7.16 %	21.78 %	18.34 %	(3.48 %)
PAT (Rs. Cr.)	314.68	402.43	485.45	358.62	340.01
Growth (%)	21.59 %	27.89 %	20.63 %	(26.15 %)	(5.19 %)
Earnings Per Share – Basic (Rs. )	20.80	17.73	21.40	15.82	15.00
Earning Per Share – Diluted (Rs. )	20.80	17.73	21.40	15.82	15.00
Price to Earnings	19.36	24.87	48.28	58.84	74.67

• Price Earnings Ratio

Dividend History

The Company has maintained an average dividend yield of 1.43 % over the last 5 financial years.

Liquidity and Credit Analysis

Current Ratio

Higher current ratio implies healthier short term liquidity comfort level. A current ratio below 1 indicates that the company may not be able to meet its obligations in the short run. However, it is not always a matter of worry if this ratio temporarily falls below 1 as many times companies squeeze out short term cash sources to achieve a capital intensive plan with a longer term outlook. Emami’s average current ratio over the last 5 financial years has been 2.19 times which indicates that the Company is comfortably placed to pay for its short term obligations.

Long term Debt to Equity Ratio

Companies operating with high debt to equity on their balance sheets are vulnerable to economic cycles. In times of slowdown in economy, companies with high levels of debt find it increasingly difficult to service the interest on their borrowings as profit margins decline. We believe that long term debt to equity ratio higher than 0.6 – 0.8 could affect the business of a company and its results of operations. Emami’s average long term debt to equity ratio over the last 5 financial years has been 0.05 times which indicates that the Company operates with very low level of debt and is placed well to withstand economic slowdowns.

Interest Coverage ratio

Interest coverage ratio indicates the comfort with which the company may be able to service the interest expense (i.e. finance charges) on its outstanding debt. Higher interest coverage ratio indicates that the company can easily meet the interest expense pertaining to its debt obligations. In our view, interest coverage ratio of below 1.5 should raise doubts about the company’s ability to meet the expenses on its borrowings. Interest coverage ratio below 1 indicates that the company is just not generating enough to service its debt obligations. Since Emami operates with very low levels of debt, its average interest coverage ratio over the last 5 financial years has been 51.77 times which indicates that the Company can meet its debt obligations without any difficulty.

• Liquidity & Credit Ratios

Ownership pattern

In its latest stock exchange filing dated 31 March 2017, Emami reported a promoter holding of 72.74 %. Large promoter holding indicates conviction and sincerity of the promoters. We believe that a greater than 35 % promoter holding offers safety to the retail investors.

At the same time, institutional holding in the Company stood at 17.64 % (FII+DII). Large institutional holding indicates the confidence of seasoned investors. At the same time, it can also lead to high volatility in the stock price as institutions buy and sell larger stakes than retail participants.