Stocks to Buy Today: On 25 September 2023, the financial services firm Emkay Global Financial published the latest research report on Emami shares, assigning a ‘buy’ rating to the stock. The comprehensive analysis also provides valuable insights into the company’s financial health.
Emkay Global Financial is Bullish on Emami and has recommended a ‘buy’ rating on the stock with a target price of Rs 625. Let’s take a closer look at their recommendations for the Emami share price target set by Emkay Global Financial.
Emami’s resurgence post the Covid-19 pandemic is attributed to its relevant portfolio, superior management execution, and the strategic recruitment of skilled professionals. With inflationary pressures receding and heightened anticipation surrounding rural recovery, Emami appears well-poised to sustain its top-line growth. This is further bolstered by the company’s robust margin profile, allowing it to venture into diverse growth pathways.
Over recent years, the company has recalibrated its reliance on rural markets, reducing from 55% to 52%, while intensifying its footprint in urban territories. Presently, contributions from modern retail in urban areas stand at approximately 19%. Yet, the firm remains vigilant, acknowledging that seasonal effects within its core portfolio present a potential risk.
According to the research report, projections for Emami between FY23 and FY26 include a high single-digit top-line Compound Annual Growth Rate (CAGR) and a 14% earnings CAGR, driven primarily by margins. Simultaneously, the promoter has been taking active measures to address concerns related to pledge, aiming to reduce it to low double digits. Initiating coverage of Emami, Emkay Global recommends a “BUY” stance with a target price (TP) of Rs625, based on a 31x Price-to-Earnings Ratio (PER).
Emami’s performance witnessed a slump, decreasing from an average of 20% growth over FY10-15 to roughly 4% during FY16-20. External factors, coupled with diminished attention from promoter-led management, played a role in this slowdown. Nevertheless, the tide began turning post-Covid. Transitioning its leadership to the next generation, Emami effectively addressed several business challenges, culminating in an average growth rate of 9% between FY21 and FY23. Furthermore, the promoter group has been diligently managing the share pledge issue and through buybacks, is witnessing an expansion in shareholding.
Rural markets account for about 52% of Emami’s revenue. These markets predominantly feature seasonal and discretionary product offerings. The company has strategically positioned itself in core categories where competition is sparse and gross margins are elevated. Addressing past structural growth impediments stemming from macro events, Emami now foresees benefits from anticipated accelerations in rural demand, amplified by its broadened village and outlet outreach.
In a bid to bridge the urban portfolio gap, the firm has innovatively revamped its offerings. This has spurred quicker growth in modern retail channels, which now constitute approximately 19% of its revenue, a significant increase from the pre-Covid 6%. To cater to the evolving consumer landscape, Emami has also rolled out direct-to-consumer platforms for its flagship brands.
A standout in the sector, Emami boasts one of the finest margin profiles, owed to its discretionary portfolio and minimal competitive intensity. With raw material prices undergoing deflation, the company envisions a steady margin expansion in the foreseeable future. Interestingly, Emami’s focused categories don’t necessitate affordable Stock Keeping Units (SKUs), instead, demand for these categories surges with increasing affluence.
Emami’s valuations remain tantalizing. With the momentum of double-digit earnings growth being revived and a reduction in promoter shareholding pledge, the risk-reward equation is leaning in favor of Emami. The preceding decade witnessed an average forward PER of 31x, indicative of Emami’s expansive growth potential. The recent stock appreciation can be attributed to the alleviation of business concerns and the company’s guidance on pledge reduction, a trajectory expected to be sustained, especially with the revival of rural demand.
|52-week High (Rs)||583|
|52-week Low (Rs)||341|
|Shares Outstanding (mn)||440.4|
|Market Cap (Rs billion)||231|
|Market Cap (USD million)||2,782|
|Net Debt, FY14E (Rs million)||-2,034|
|ADTV-3M (mn shares)||1|
|ADTV-3M (Rs million)||350.3|
|ADTV-3M (USD million)||4.2|
|Free Float (%)||45.5|
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