The company's rural growth could also be compromised owing to the wholesale channel issue, as majority of rural business is dependent on that," said analysts at Nirmal Bang, in a report last month. Notably, brands such as Kesh King get 75 per cent of sales through the wholesale channel.
No doubt, Emami is expanding its other businesses such as retail and modern trade, but it may not move the needle much immediately, given their relatively smaller size compared to the overall portfolio.
Secondly, margin pressure owing to high input costs (though menthol prices have softened sequentially, they are still high year-on-year) would weigh on its earnings. Also, considering the subdued growth trajectory (single-digit revenue growth for seven quarters), it needs to be seen if Emami opts for further price hikes (already taken 2-2.5 per cent). Moreover, the company also expects ad spends to remain high in FY19 (at 18-18.5 per cent of sales). "High advertising expenses on new products, besides input cost pressure, would weigh on Emami’s operating margins," said Sachin Bobde, analyst at Dolat Capital.
The management, however, sounds confident about maintaining margins at the current level with the recent price hike.
Against this backdrop, investors can wait for a few quarters to get clear signals on volumes and margins.