Value Pick: Emami's acquisition of Dermicool opens up to 44% upside in stock, say brokerages

Several brokerages have turned bullish on Emami shares as company last week acquired a 'Dermicool' from the Reckitt Benckiser (India) Ltd's stable for a consideration of Rs 432 crore. The company had reported the same last week through a filing to exchanges. 

Brokerages see this acquisition to provide visibility of consistent growth for the FMCG company and pointed out it may also provide a lot of synergistic benefits. The stock on Wednesday closed over 3 per cent higher to Rs 445.65 per share on the BSE as against 1.3 per cent rise in the BSE Sensex. 

See Zee Business Live TV Streaming Below:

YES Securities 

Though the size of the acquisition (of Dermicool) is small and does not impact revenues significantly, management believes that lack of focus and investments by peers in this neglected segment provides a strong opportunity to grow the category leveraging brand equity and distribution. 

Management expects to clock double‐digit growth in Dermicool with stable margins over next five years., the brokerage said, building in revenue/EBITDA/PAT growth of 9/9/9 per cent over FY21‐24E and reiterate Buy rating on the stock with a revised target of Rs 591 apiece, upside of 33 per cent.   

Key risks to our call would be a prolonged rural slowdown, erratic seasons, category challenges and unexpected group level issues. YES Securities expect the re‐rating to begin once high visibility of sustained double‐digit growth and easing of inflationary pressure is visible for the company. 

ShareKhan 

Emami’s acquisition of Dermicool was in line with its strategy to strengthen portfolio with formidable brands, which provides visibility of consistent good growth in the medium to long term. The brand provides a lot of synergistic benefits and scope for margin improvement in the long run.  

The stock has corrected by 13 per cent in the last one month, and 26 per cent in the last six months factoring the near-term uncertainties. It is currently trading at discounted valuations of 24.7x/20.3x its FY2023E/24E EPS. Maintaining Buy rating, it revised target to Rs 550 apiece, (24 per cent upside). 

Highlighting Key Risks, ShareKhan said in a report, Emami’s product portfolio is seasonal in nature. Hence, any weather vagaries or supply disruption due to frequent lockdowns would affect performance in the near to medium term. 

Credit Suisse 

The brokerage states Dermicool acquisition by Emami strengthens presence in a profitable niche. It maintains an Outperform stance with target price of Rs 640 per share (44 per cent upside). The company expects the deal to be EPS accretive from year one itself.  

It said, there is an impact of higher commodity costs, and hence see lower near-term rural growth, EPS estimates cut by 2-5 per cent for FY23/24.