In light of these concerns, analysts at IIFL have sharply revised their FY21 revenue estimates. Compared to a 6.3 per cent growth estimated earlier, they now expect Emami’s revenue to fall 5.1 per cent.
There is little doubt that the lockdown has changed buying behaviour, making the business environment more challenging for firms such as Emami, which earn significant revenue from the sale of discretionary or non-essential products (85-90 per cent, according to analysts’ estimates).
In fact, Emami’s Navratna cool oil and talc, which contribute 20-25 per cent to overall business, are expected to take a hit due to the disruption, given that the June quarter is the peak season.
Analysts believe the seasonal nature of Emami’s products will worsen the situation. Besides, pressure on its international business (12 per cent of revenues) will be a further drag on its top line.
The sale of its cement business to Nirma group
provides relief to investors, as it will help promoters reduce their pledge (89.24 per cent as of March 2020) on their shareholding in Emami. Yet, some doubts remain.
“Emami’s cement deal with Nirma group
is very positive. However, the deal completion could get delayed,” says Shirish Pardeshi, analyst at Centrum Broking. He also believes that the structural growth story of Emami looks difficult over next two years, given that new product launches may not occur in the near term.
In this backdrop, investors are recommended not to be taken in by the low-valuation trap, until signs of growth revival emerge. The company did not comment on queries sent by Business Standard due to silent period.