“The promoters of Emami Group announced a sale of 10 per cent stake in Emami, raising approximately Rs 1,600 crore. The transaction was executed on the stock exchange today and the purchasers included SBI Mutual Fund, PremjiInvest, Amundi, IDFC, L&T Mutual Fund and others,” the company said on Monday in a press release.
The stake sale proceeds will reduce promoter debt which was used in the creation of assets like cement, solar power etc. The sale effectively brings down the promoters’ holding in Emami from 72.74 per cent to 62.74 per cent.
It is expected that paring debts of the group will help reduce the pledged shares of the promoters in Emami with financial institutions. Earlier, out of their total shareholding, the promoters in Emami Ltd had pledged 47.6 per cent of their stakes to raise capital to fund capital intensive projects like its cement, power and healthcare businesses.
Commenting on the divestment, Mohan Goenka, Director, Emami said, “We have concluded a stake sale which will ease the liquidity position of the promoter group and reduce the debt. We are committed to maintaining our significant majority stake in the company and do not anticipate any further dilution of stake in the foreseeable future.”
The stock of Emami had underperformed the market by falling 18 per cent in the past one month, as compared to a 2.5 per cent decline in the benchmark S&P BSE Sensex till Monday. It touched a 52-week low of Rs 338 on Monday, February 18, 2019 on the BSE in intra-day trade.
Emami posted a 6.02 per cent decline in its net profit for the quarter ended December 31, 2018 (Q3FY19) at Rs 138.30 crore even though its net sales increased by 7.15 per cent at Rs 810.90 crore. The fall in net profit on account of rising costs, especially associated with the stockpile of finished goods, stock-in-trade and work in progress. A delayed winter slashed its revenue growth (47 per cent of its products are winter-aimed).
Ebitda (earnings before interest, taxation, depreciation and ammortisation) margin contracted 209 basis points (bps) to 32.9 per cent in Q3FY19 over the previous year quarter. The company expects healthy growth (double-digit domestic growth). Gross margin pressure is expected to come off as raw material prices have eased.
Analysts at Anand Rathi Share and Stock Brokers believe that revived rural demand (driven by bumper crops and a rise in MSPs), the company’s continuous launches, its sharper focus on high-margin products and extended direct reach would aid in its faster growth.
“Further, we believe price hikes, a better product-mix, market-share gains and cost-saving measures would counter-balance the short-term pressure on margins. Thus, we build in 11 per cent and 12 per cent CAGRs for respectively revenue and earnings over FY18-21. Further, we believe that the 28 per cent price drop in the last six months has already factored in the sluggish performance of the last few quarters,” the brokerage firm said in company update.
At 11:21 am, Emami was trading 14 per cent higher at Rs 405 on the BSE, as compared to 0.41 per cent rise in the S&P BSE Sensex. A combined 2.94 million equity shares changed hands on the counter on the NSE and BSE so far.