With the rising importance of Ayurveda as a key to a healthy lifestyle, Emami has created an Ayurveda backbone! Know Its Value!
Emami Limited is one of the leading and fastest-growing personal and healthcare businesses in India, with an enviable portfolio of household brand names such as BoroPlus, Navratna, Fair and Handsome, Zandu Balm, Menthol Plus Balm, Fast Relief and Kesh King. Established in 1974, the company has a portfolio of more than 300 products based on ayurvedic formulations. Emami Limited is globally present in more than 60 countries.
The Market Cap of Emami Limited is INR 13,662.13 Crores as on 10th August 2020. Emami’s revenue stood at INR 2,654.88 Crores for FY 19-20 with degrowth of 1.41% on YOY basis and an Operating Profit Margin of 13.33%.
The sales growth for the past 5 years was 5.04% with an average Operating Profit Margin of 16.13%. The revenues for Q1 FY2021 was INR 481.34 Crores registering degrowth of 25.79% YOY and an Operating Profit Margin of 10.01%.
Ayurvedic growth story!
The fast-moving consumer goods (FMCG) sector is the 4th largest sector in the Indian economy. The increasing population is one of the biggest opportunities for the FMCG sector. With a population base of over 1.38 billion people, the rural population constitutes over 70% but accounts for only 40-45% of the Total Revenue of the FMCG industry. Driven by the measures taken by the Government to boost the rural income, rural consumption is growing steadily and is expected to grow demand further.
In recent years, Ayurveda has witnessed an evolution in the form of ayurvedic products and services. Rising awareness about the importance of a healthy lifestyle, increasing preference in favor of chemical-free natural products, as well as favorable government initiatives have led to the expansion of the Ayurveda market in India. Believing in the power of Ayurveda and its ability to deliver long- term solutions to problems without side-effects – Emami has been pioneering in India in offering Ayurveda-based lifestyle and healthcare products.
The ‘Ayurveda renaissance’ has led to growing traction for Emami Limited and will enable the company to create a long-term platform for sustainable growth. The company’s portfolio includes wellness, beauty, and personal care, male grooming, and pain management products. While the Navratna range of products provides relief from stress and heat, there is ‘BoroPlus’, ‘Kesh King’, etc. for beauty and personal care too. From pain management, stress relief, and beauty related products adapted from Ayurveda, Emami’s growth has been spearheaded by a basket of wellness-centric products and conveniences. Emami has created an Ayurveda backbone and has been tapping in the underpenetrated segments through differentiated products across the globe.
The outbreak of the deadly coronavirus has shifted the consumer sentiment towards adopting a healthy lifestyle, thereby giving a boon to the Health & Hygiene segment. The Health & Hygiene portfolio of Emami that contributes around 43% to the total revenues grew by 29% in Q1 FY2021. While on the other hand, the COVID-19 led lockdown has severely impacted the demand for discretionary products. Thus, the beauty, personal care, and male grooming segment of Emami comprising of brands like Navratna, Kesh King, and Male grooming range that contributes around 57% registered degrowth of around 44%. However, as the lockdown has started to ease in some parts of the country, the demand for these products has started gaining momentum and the company expects an uptick in demand for discretionary products by the second half of the year.
To take advantage of the rising consumer demand for health and hygiene products, Emami made 12 new launches under its brand BoroPlus and Zandu in Q1 FY2021 catering to this segment. The company introduced Hand Sanitizer, Antiseptic Soap, and Aloe Vera Gel under the BoroPlus umbrella and launched Ayurvedic Hand Sanitizer and various other immunity booster and digestive stimulant products under the brand Zandu. In the international markets, the company has launched hygiene products under its brands Crème 21, Gold Turmeric, and BoroPlus. Further, Emami is planning to foray into the Home Hygiene Products segment by introducing disinfectant sprays, toilet and bathroom cleaners, etc. in the coming quarters. All these factors account for strong growth potential for Emami in the long term.
Based on the above narrative, the following inputs for the Business Valuation of Emami Limited have been considered.
The last trading price was INR 307 on 10th August 2020, when this valuation was undertaken.
Assumptions for Valuation of Emami Limited:
- Forecast Period is taken as 30 Years
- Expected Inflation Rate is taken at 5%. (The Cost of Equity computed is based on 5% Expected Inflation Rate)
- Sales Growth is assumed at -20% for FY 2021, 25% for FY 2022, 12% for 3-5 Years, 10% for 6-20 Years and 9% for 21-30 Years
- As the company has targeted to internally improve its cost by INR 80-100 Crores in the next 12 months, Target Operating Profit Margin has been assumed to improve to 21%
- Incremental Fixed Asset Investment is assumed to be 55% of Incremental Sales
- Incremental Net Working Capital Investment is assumed at 11% of Incremental Sales
- Income Tax is assumed to be at 25.17% during the Forecast and the Residual Period
- Debt Equity Ratio is assumed at 2% Debt and 98% Equity
- The Cost of Debt is taken at 8%
- The Cost of Equity is taken at 10.27%. (Expected Inflation Rate of 5% is used to compute Cost of Equity under the CAPM Model)
Import Valuation to analyze/iterate all the Value Drivers to understand its Value and you can also edit the plan and build your own assumptions to Compute Value. Also, check Valuation Report for Future Value Per Share.
The Intrinsic Value of Emami Limited has been computed based on the above assumptions. For detailed reports, assumptions, and in-depth valuation, import the valuation from CoValue App. You must view the Free Cash Flow Report, Valuation Report, and Shareholder Value Augmented Report to get a better insight and perspective. The estimated Future Value Per Share is also mentioned in the Business Valuation Report.