Emami The Ayurvedic touch Emami is the flagship company of the Emami Group jointly promoted by Kolkata based industrialists R. S. Agarwal and R. S. Goenka. It is in the personal, beauty and healthcare business. The Company develops and manufactures modern-day personal, beauty and health care products through an effective leverage of Ayurveda, the ancient Indian science of well being and healing. Objective of the current issue is to comply with the clause 40A of the listing agreement. The clause states that listed company shall maintain the minimum level of non-promoter holding to at least 10%. Currently non promoter stake is 3.92%, which post issue will be 11.77%. Other objectives include partly financing the construction of corporate house, meet the requirement for the normal capital expenditure, strategic initiatives and acquisitions and meet the issue expenses. FMCG companies require efficient marketing and distribution network to expand their market. Its presence in all the four regions of the country is covered by almost 1,700 distributors, complemented with 2,100 sub-stockists, 150 super-stockists and 3.5 lakh retail outlets. Its sales are well spread over all these regions, however the northern region contributes slightly more than other regions. This is due to the harsh winter conditions prevailing in the north. Most of its products are influenced by seasonal demands. To change this it has already repositioned the Boroplus antiseptic cream as an all-purpose cream. Launching Sona Chandi Amritprash as a protein diet during summers to complement Sona Chandi Chawanprash consumed mainly during winter is another tactic. On the advertisement and promotional front major bollywood and leading sports personalities endorses its brands. Brand recall plays a major part in making purchase decisions for FMCG products and most of its brands are well established. This helps in future brand extensions and new product launches which is there in the company’s agenda in the years to come.
In the antiseptic cream category Emami’s Boroplus has 60% market share and faces stiff competition from Boroline and Borosoft. Its Prickly Heat Powder with 24% market share has rivals like Nycil & Dermicool. In the Chyawanprash segment it has 13% market share and competes with Dabur, Zandu and Baidyanath. Its Navratna Oil enjoys 46% share and competes with Himgange and Banphool. Mentho Plus Pain Balm has rivals like Zandu, Amrutanjan and enjoys 12% market share whereas its Himani Fast Relief with only 6% share competes with Moov and Iodex. All the twenty (6 core and fourteen non-core) brands are owned by Emami itself. In most of the segments there are significant presence of other players with equally good brand positioning for their products. It is expected that stiff competition will continue to be experienced in future. The only key factor that differentiates Emami from its peers is its association with ayurveda based products which is being more preferred by consumers today rather than synthetic products. Its focus has now shifted to growing these brands and also to enter the OTC market for ayurvedic products, which currently has Dabur and Himalaya Drugs as the main players. The company's rural sales increased substantially in 2003-04 compared to the previous year due to its innovative packaging in smaller affordable packs at various strategic price points. The UPA Government’s 2005-06 budget giving high priority to the rural sector will indirectly increase rural income and boost its topline in future as this market is yet to be fully tapped by all FMCG players. Exports and institutional sales have also grown considerably. Emami products, available across 48 countries, generated a turnover of Rs. 21 crore in 2003-04. It expects to more than double its sales by FY2005-06. The company is open to foreign mergers and acquisitions mainly in Europe and Middle East to achieve faster growth. It caters to the premium cosmetic and health care segment in UK under the product range called AYUCARE. This is specifically developed and formulated for the affluent foreign consumers. It operates via a subsidiary in UK, called Emami UK Ltd. incorporated on September 13, 2000. This subsidiary as on year end March, 2004 had negative reserves of more than Rs.0.1 crore and incurred losses to the tune of Rs. 0.90 crore for the FY ended 2003-04. Another subsidiary, Emami Bangladesh Ltd. incorporated on 25th November 2004 has not yet started its operations. The company doesn’t utilize its full production capacity but outsources around 30% of its sales, it prefers to do so, as industry dynamics demand such balancing to remain competitive. However if demands improve the company is well equipped to handle increase in demand. It has installed state of the art manufacturing facilities at Guwahati, which enjoys 100% exemptions from Income Tax and excise duty refund upto FY 2013 and sales tax exemption upto Rs.1227 lakh till FY 2010. This would help to produce goods at very competitive rates. The entire promoter group comprises of the Agarwal family, Goenka family and their relatives. The promoter group has in all, more than 22 companies involved in a wide array of businesses. Investments’, trading in shares and securities is the most common business of these companies. Some of the other businesses include trading and distribution of all kinds of automobiles and vehicles, manufacturing and dealing in writing instruments particularly ballpoint pens, printing papers and news prints, chain of retail medicine shops, departmental stores, real estate, advanced medical facilities, food chain and development of software services. Of all the promoter group companies, joint ventures and group companies, five of them have negative reserves totaling Rs.3.87 crore as on year end March, 2004 and eight have incurred losses for a sum of Rs. 4.89 crore for the FY ended 2003-04. The company does not handle the marketing of its own products. It is marketed by J.B.Marketing and Finance Ltd. (JBMFL) a group company through a wide network of distribution consisting of 25 depots, 1700 distributors and 3.5 lakh retail outlets. However proper monitoring is done from Emami’s end to ensure smooth flow of operations. Ayurvedic medicines currently attract 8% to 13% sales tax whereas it is 12% to 23% in case of cosmetics and toiletries. Under the new VAT White paper, medicines and drugs attract 4% tax and most of Emami’s products are classified as Ayurvedic Medicines, which will attract the lower rate. Toiletries and cosmetics would continue to attract a duty, which will be closer to the lower limit of duty paid currently. However, VAT bills are yet to be finalised. The financial trend of the company depicts that sales figures have shown a CAGR of 10% between 2000 and 2004, but the growth has not been consistent. PAT has not shown any significant rise over the years and has been fluctuating around Rs 20 crore. Operating margin had fallen in the last three years, but has improved in the last nine months period, interest outflow has been significantly reduced in the last two years. This was achieved as the company reduced amount availed for cash credit, packing credit etc. from Rs. 27 odd crore in FY 2002 to Rs. 2.73 crore in FY 2004. Unsecured loans of Rs 13 odd crore were also brought down to Rs. 0.10 crore which also contributed to lower interest outflow. Most major FMCG companies are setting up production facilities in tax-exempt backward areas to lower their cost of production and improve margins. Expansion plans are in the form of brand extension, new product launches and focus on core brands backing up with significant marketing and promotional campaign. Emami is also following these trends. Emami’s scrip is currently traded around Rs 85, with a 52-week high of Rs 104 and a low of Rs 36.45. Till November 2004, the scrip was languishing around Rs 45, mainly due to lack of interest and poor liquidity. The nine-month annualised EPS works out to Rs 5.2. However, the fourth quarter is off-season quarter and hence annualisation can not give a correct picture. One can expect EPS of around Rs 4.2 for year ending March 2005 on fully diluted equity. This is discounted by 14.3 to 16.7 times by the offer price band of Rs 60 to Rs 70. Around current price of Rs 110, 5-times larger competitor Dabur is getting a P/E of 22 times its expected FY 05 EPS. Dabur’s scrip has recently attracted lot of interest on its acquisition of Balsara and aggressive growth plans. Dabur’s nine-month sales and net profit are also up 11% and 43% compared to Emami’s 3% and 18%. To sum up the company’s past financial track record is lackluster and the fact that marketing and distribution is in the hands of a group company is a major irritant. However the growth potential of ayurvedic and herbal medicines and personal care products is encouraging.
Emami: Results
Emami V/S Dabur –at a glance
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