Despite favourable rural conditions, Emami's Q1 volume growth disappoints

The Navratna portfolio grew 19 per cent in volume over the year-ago period
The stock of consumer goods conglomerate Emami was one of the biggest losers among companies in the segment on Wednesday, shedding four per cent as the June quarter results missed analyst expectations.


The company reported 14 per cent growth in revenue to a little over Rs 6.1 billion, lower than the consensus estimate of Rs 6.3 billion. Overall volume growth at 16 per cent was less than analyst expectations of 20-plus per cent, given the low base of the year-before quarter. Revenue was also expected to be higher.

The company had reported a sales decline of 16 per cent in the the same quarter (first or Q1) of 2017-18, since the domestic business was significantly impacted due to down-stocking after implementation of the goods and services tax (GST). Its international business had also been hit by global economic slowdown and issues in the West Asian market.


An analyst at a domestic brokerage said as Dabur had reported growth of 21 per cent in Q1, the Street had expected Emami to report similarly, especially given the low base.


While selective price hikes have helped on revenue, analysts say a muted summer saw sales of products such as cooling oil and talcum powder (Navratna) not gain as much as they normally would. The Navratna portfolio grew 19 per cent in volume over the year-ago period. Analysts say seasonality plays a big part in Emami’s results, in the colder months, too, due to its winter care portfolio.


Kesh King is another product that has not gained as much momentum, registering growth of 10 per cent in the quarter. The business was acquired three years before and has been struggling to improve its volumes, amid challenging conditions such as demonetisation and GST.


Positives in the quarter were the strong growth in pain management (Zandu Balm), up 39 per cent, and in health care (Zandu Pancharishta), up 28 per cent. On the operational front, cost of goods sold as a percentage of sales was down 140 basis points to 33.7 per cent, led by falling prices of menthol, a key raw material, and the lower base.


Going ahead, the key trigger for Emami gets over half its sales from the rural market and a key trigger would be recovery in that segment, led by higher minimum support prices for a range of crops. Volume growth is also expected from new product launches.


Says Abneesh Roy of Edelweiss Securities, “The company has to up its ante on innovation, be it in terms of application or pricing, missing in the portfolio vis-à-vis competitors.” The lack of meaningful innovation is also showing in the sales growth over the past two years, which at 0.8 per cent is the lowest among its listed fast moving consumer goods peers. Given their more balanced portfolios or pricing strategies, sales growth for Godrej Consumer and Dabur has been two to six per cent.

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