“We are confident, going forward, on an overall year basis we will be able to grow in terms of net profit and top line (revenue). GST has played a very big role in decline of the top line, due to destocking; the bottom line (profit) was the result of this reduction,” said Harsha V Agarwal, director.
Analysts agree that underlying demand and channel restocking should mean healthy earnings in the coming quarter. “Restocking has started in all geographies and the wholesale (channel) recovered in the last 10 days of July,” said one with brokerage Motilal Oswal.
Abneesh Roy, research analyst at Edelweiss Securities, is also optimistic about near-term performance. “I expect Emami to clock better growth, led by a robust innovation pipeline, being a key beneficiary of rural recovery and reducing overall reliance on the wholesale channel,” he said.
R S Agarwal, chairman, told shareholders at the recent annual general meeting that the company had initiated a process to reduce its dependence on wholesale channels, and raising the emphasis on direct distribution. In 2016-17, the company increased its direct distribution by 100,000, to 730,000 outlets. This financial year’s target is up to 800,000.
Harsha Agarwal says wholesalers were unsure about the GST impact, resulting in destocking. “The apprehension has reduced and the trade has gone up but will take some time,” he said.
A second factor for its the bad quarterly performance was stress on the international business. A report from HDFC Securities stated this business, owing primarily to political and related issues in West Asia and a reduction in channel inventory, suffered a 19 per cent decline on a year-on-year basis.
“On account of slow recovery in some geographies, we reduced (estimated) international business revenue’s compounded annual growth to 15 per cent over FY17-20 against the 18 per cent projection earlier,” said Naveen Trivedi, research analyst with HDFC Securities.
Agarwal said inventory correction in international markets had been done and new launches in Bangladesh would help in better sales.
Although analysts predict a high double-digit sales volume growth for the remainder of 2017-18, the stress in April-June and projections over the international business is expected to bring the annual consolidated growth down to seven or eight per cent.
The major bet for the company this year is on its balm portfolio, Boroplus and Fair & Handsome.