Emami stock's outperformance to continue

In September, 2012, Emami recorded strong growth of 16%

Emami stock outperformed BSE FMCG index in last three months, with the scrip gaining 29.3 per cent compared to a 9.5 percent gain of the index. The last one month has also seen the stock gaining 22.6 percent as compared to the index which was marginally down.

This is mainly due to strong sales performance reported by the company in past several quarters backed by robust volume growth.

In September 2012 quarter, where many peers have struggled in reporting robust volume growth, Emami recorded strong growth of 16 per cent thus resulting in strong growth of 22 per cent in domestic sales (95 per cent of total revenues).

Earlier the company’s revenue model was predominantly driven by seasonal nature of its products (read winter products) and hence second half of the fiscal was usually better than the first half thanks to the busy period. However the seasonality factor has reduced for the company now with growing international business and rising share of products like talcum powder, balm, Navratna cooling oil, fair and handsome. The company is doing well in these new focus areas and growth in domestic market including rural areas remain strong. However, international business continues to be a worry. The company is hopeful of good growth over the next couple of quarters.

In a bid to report high sales growth, margins have suffered and may continue to remain under pressure going ahead due to continued high costs on account of recruitment of senior people in international business division and research and development, capacity expansion (Egypt, India), continued higher menthol prices (till high priced contracts expires, benefit of low prices likely to be visible after March 2013 quarter) and continued focus on advertising and promotions.

But analysts do not see it as a major concern  as long as demand  (read volume growth) outlook is strong (which is the case with Emami) that has become critical for FMCG players and many are not able to live upto expectations. They maintain their buy recommendation on the stock, which trade at 28 times FY13 estimated valuations.

Emami stock outperformed BSE FMCG index in last three months, with the scrip gaining 29.3 per cent compared to a 9.5 percent gain of the index. The last one month has also seen the stock gaining 22.6 percent as compared to the index which was marginally down.