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Salman Khan cameo, better cost control helps Emami report record margins in Q3.

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Emami Ltd’s December quarter results are encouraging, to say the least. Consolidated revenues increased by nearly 15% year-on-year to 933 crore. Volume growth of the domestic business, accounting for 83% of December quarter’s sales, came in at 13%. This is better than September quarter volume growth of 10%.

“Notably, even Fair & Handsome business, which has been laggard since past two years, grew 5% year-on-year post appointment of Salman Khan as brand ambassador," wrote Vishal Gutka, research analyst at PhillipCapital (India) Pvt. Ltd on 27 January.

Indeed, in the domestic brand wise performance, Emami’s male grooming range grew by 5%. Note that this segment had declined by 51% for the half year-ending September. To be sure, revenue contribution of this segment is still relatively small, said analysts. For the December quarter, healthcare range grew by 38%, BoroPlus grew by 21%, Kesh King grew by 16%, pain management range grew by 12% and 7 Oils in One grew by 32%. On the other hand, the Navratna range declined by 12%.

Further, Emami’s international business, which contributed 14% sales in the December quarter, saw 26% growth, comparing favourably with 11% growth in the September quarter.

The most striking aspect of Emami's results are the profit margins. Ebitda margin expanded by 395 basis points year-on-year to 36.4%. Ebitda is earnings before interest, tax, depreciation and amortization; a key measure of profitability. One basis point is a hundredth of a percentage point.

“This is not only best ever (for Emami) but also meaningfully higher than most peers," said analysts from Jefferies India Pvt. Ltd in a report on 27 January.

Softer input costs helped. Gross profit margins expanded 214 basis points. Further, employee costs, advertisement & sales promotion expenses and other expenses declined as a percentage of revenues versus last year.

“In our view, covid-19 has provided required momentum, as it is gaining market share from local / unorganized players, who are finding it difficult to operate in the pandemic situation. Its strong presence in rural / wholesale markets (from where actually growth is coming for the entire sector) is acting like icing on the cake," pointed out the PhillipCapital report.

Going ahead, investors can expect promoter level debt to decline. “Management, in no uncertain terms, highlighted its intent to reduce promoter level debt in coming months, which is also comforting," said Jefferies analysts.

Emami’s investors have little to complain about. After all, the shares have appreciated as much as 37% from its pre-covid highs seen in January 2020. The stock trades at almost 34 times estimated earnings for financial year 2022, based on Bloomberg. December quarter results could well support Emami’s valuations from a near-term perspective.

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