Emami gains 2% as CITI upgrades stock to ‘Buy’; why are brokerages bullish?

Emami share price: Shares of Emami Ltd gained 2 per cent on Friday after brokerage firm Citi revised the target price for the stock to Rs 600 and upgraded its rating to ‘buy’. The revised target price is 33 per cent higher than the earlier price of Rs 455 per share.

Global brokerage Nuvama also upgraded Emami’s rating to ‘buy’ and raised the target price from Rs 550 to Rs 660 per share.

Shares of Emami Limited opened higher at Rs 542 apiece on the BSE on Friday. Buoyed by the bullish outlook of brokerages, the stock was trading 2.07 per cent higher at Rs 534.85 apiece on BSE at 11:53 AM.

Brokerages bullish on stock due to demand recovery potential

According to Citi, the sales and strategic initiatives of Emami using new age channels and distribution policies could pay off in the long run. The brokerage firm has given Emami a double upgrade (target price and rating) as it believes that the company is poised to gain from a potential recovery in demand trends.

Emami has a stronghold in rural areas and is anticipated to benefit from growth in this segment. The FMCG firm will see the shares of modern trade (MT) and e-commerce channels in the top line rise from 19.4 per cent to 25-26 per cent in the next 2–3 years, the brokerage said.

The dependence of the company on wholesale distribution is expected to fall from 50 to 35 per cent. The FMCG brand is expected to recover in the healthcare sector, with the segment expected to post double-digit growth. The launch of new products is also anticipated to benefit Emami. The company’s international trading is set to rise 15 per cent in the long run.

The stake of promoters may decline to 18–20 per cent from 33 per cent after the sale of AMRI Hospitals, another point that has led Citi to upgrade its outlook on Emami.

The valuation of Emami is lower compared to its competitors like Dabur, Marico and Godrej Consumer Products. The firm has a forward P/E of 27.5x compared to Dabur’s 46.4x and Marico’s 45.6x. Similarly, Jyothy Labs and Godrej Consumer Products have a much higher valuation with a forward P/E of 37.2x and 451x, respectively.

In the April-June quarter, Emami’s net profit increased to Rs 137 crore, a jump of 87 per cent year-on-year. Revenue rose 6 per cent YoY to reach Rs 826 crore in the same period.