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Saturday, November 9, 2013

Buy Emami Ltd. One Of The Best Stock In FMCG Sector Also Shariah Compliant - CMP 479.70, Target Price 575

Strong product portfolio in niche categories

Emami operates in niche categories like cooling oils, pain balms, antiseptic creams and men’s fairness creams with dominant market shares. Emami enjoys strong pricing power in most segments, thanks to its dominant market shares and minimal competition from large companies. Emami continues to record healthy mid-double digit revenue growth in the domestic business, witnessing a ~20% CAGR over the past three years. The international business revenue contribution is expected to increase to 18-20% from current ~10% over the next five years led by strong growth in Bangladesh and GCC. We expect Emami to witness 16% revenue CAGR over FY13-15.

 New product pipeline to secure long-term growth

Emami has an established track record of launching new brands and categories (like Men’s whitening cream) and transforming brands to block-buster brands. Emami continues to churn out new products that are either in niche segments or occupy differentiated positions within large categories. Over the past 2-3 years, Emami focused on growth in existing brands. However, in CY14, 3-4 new launches and brand extensions are likely to secure long-term growth. Emami is looking at OTC/healthcare as a future growth driver and is planning to expand its portfolio.

Margins to expand, recommend Buy

Given that rural growth is outpacing urban growth, Emami plans to add 75,000 to 100,000 outlets to its direct distribution reach in FY14, which will further fuel revenue growth. With menthol prices (key raw material input comprising ~35% of Emami’s total raw material cost) coming off, Emami’s margins can potentially see significant upside of ~220bps in FY14. We believe, growth in low-penetration core categories, sustained product innovation, and expansion in the international business will drive ~19% earnings CAGR over FY13-15. Recommend Buy rating on the stock.

Source : IIL Ltd.  

Note : Emami Ltd is a Shariah Compliant stock and hence those investors who are following shariah guidelines can invest in this stock. Its Ethical to invest in this particular stock as of today 9th November, 2013. We will update if this stock is removed from the list of Shariah Compliant Companies.

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