HDFC Securities has upgraded Emami to 'Buy' with target price of Rs 605 as against current market price (CMP) of Rs 561 in its report.
Commenting on the investment rationale, HDFC Securities said, ''Emami's 1QFY15 revenues witnessed revival with a strong 25.6% YoY growth (vs 1.2% de-growth in 4QFY14) to Rs 4.8 billion. Benefitted by delayed monsoon and extreme summer, domestic volumes grew by 13% YoY. Furthermore, international business witnessed 104.4% growth in revenues to Rs 626 million. Despite significant investment on brands and new launches (A&P up 249bps), EBITDA margin expanded 14bps YoY to 15.6% led by softer menthol prices (COGS down 255bps). APAT grew by 18.9% YoY to Rs 696 million (above estimate).
Waning menthol benefit along with higher ad spends (to back new launches) will hurt margins in FY15E. However, Emami's foray into under penetrated high growth categories (backed by A&P) will keep the company in good stead. Its strong focus on a niche product portfolio ensures lower competitive intensity from MNCs and hence very high gross margins (63-64%). Upgrade to Buy; our TP is Rs 605 (27x FY16E).''
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