Despite the high increase in advertisement & promotion (A&P) spends at 19.0% of sales, the company’s EBIDTA margins at 27.2% rose by 190 basis points (bps) in the fourth quarter and by 170 bps at 26.1% in FY16, mainly on account of gross margin expansion.
The net profit during the quarter under review declined 45% year on year (YoY) at Rs 75.85 crore because of one-off amortisation costs worth Rs 73 crore towards Kesh King acquisition. Net sales rose 21% at Rs 6,708 crore on YoY basis.
“Benign input costs, price hikes and integration of the Kesh King business pushed up gross margins to 68.5%. However higher ad spends and staff costs partially offset by lower other expenses resulted in EBITDA margin expansion,” Religare Institutional Research said in a results review.
Emami’s performance continues to be affected by seasonality. Besides, to achieve its FY17 organic growth target of around 15-16% amid a tough macro, with a slew of product launch/re-launches, would necessitate higher A&P investments. This is likely to keep margins range-bound in the near term, added report.
According to Elara Capital, Emami’s business performance is overdependent on seasonal factors and thus its performance is less consistent and less predictable v/s fast moving consumer goods (FMCG) peers. In the near term, it having benefited from hefty decline in raw materials gross margins stands a risk of contracting if raw material prices rebound.
The company has guided for healthy topline growth of 15-16% led by re-launch in all its power brands, new launches and revival in Kesh King and price increases (2-2.5%). However, higher ad spends on new & re-launches could curtail EBITDA margins, said Emkay Research in a results update.
The stock pares half of its gain and was up 6% at Rs 1,041 at 12:50 pm, as compared to 0.29% decline in the benchmark S&P BSE Sensex. A combined 747,935 shares changed hands so far against an average sub 200,000 shares that were traded daily in past two weeks.