Rebranding To Smart And Handsome And New Products Will Boost Male Grooming Market Position

Key Takeaways

• Rebranding and celebrity endorsements in male grooming are anticipated to boost sales and strengthen market position.
  
• Expansion in channels and international markets could drive revenue growth, improve margins, and diversify the geographic footprint.
  
• Subdued demand, investment declines, and market challenges could pressure Emami's revenue growth, impacting earnings and profitability across segments.

Catalysts

Manufactures and markets personal and healthcare products in India and internationally.

• The rebranding of Fair and Handsome to Smart and Handsome, combined with new product launches and a celebrity endorsement, is expected to boost revenue growth and enhance Emami's position in the male grooming market.
  
• Expansion of distribution channels, particularly through modern trade and e-commerce, is projected to drive higher sales volumes, positively impacting revenue.
  
• Strategic interventions and potential brand revamps for products like Kesh King aim to address category issues and revive sales, potentially increasing earnings in the hair care segment.
  
• International business is anticipated to rebound with new product introductions in various geographies, which could enhance overall revenue growth and improve margins due to geographic diversification.
  
• The launch of new products such as Mentho Plus Balm Total and continued focus on cost efficiencies may lead to improved gross margins and higher net margins over time.

Emami Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Emami's revenue will grow by 8.7% annually over the next 3 years.
• Analysts assume that profit margins will increase from 21.2% today to 23.9% in 3 years time.
• Analysts expect earnings to reach ₹11.5 billion (and earnings per share of ₹26.79) by about January 2028, up from ₹7.9 billion today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 38.6x on those 2028 earnings, up from 31.5x today. This future PE is lower than the current PE for the IN Personal Products industry at 52.0x.
• Analysts expect the number of shares outstanding to decline by 0.61% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 13.4%, as per the Simply Wall St company report.

Emami Future Earnings Per Share Growth

Risks

• The subdued urban demand caused by rising food inflation and cash-strapped retail and wholesale trade could pressure Emami's future revenue growth.
  
• The decline in strategic investments and underperformance in the international business, evidenced by a 13% and 3% revenue drop respectively, could negatively impact overall consolidated earnings.
  
• The male grooming segment, specifically Kesh King and The Man Company, faces declines due to market challenges and competitive pressures, which could constrain revenue growth and profitability.
  
• Delayed seasonal patterns, such as milder winters affecting seasonal product demand, pose risks to maintained revenue growth rates in these categories.
  
• Tight liquidity in urban retail and wholesale channels may affect inventory levels and revenue realization from this segment, impacting net revenue and potentially straining cash flows.

Valuation

• The analysts have a consensus price target of ₹709.93 for Emami based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of ₹925.0, and the most bearish reporting a price target of just ₹510.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be ₹48.0 billion, earnings will come to ₹11.5 billion, and it would be trading on a PE ratio of 38.6x, assuming you use a discount rate of 13.4%.
  
• Given the current share price of ₹572.2, the analyst's price target of ₹709.93 is 19.4% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.