Emami?s Q1 performance was well ahead of our as well as consensus expectations. Sales growth was a robust 25.6% (highest in 15 quarters) at R480 crore, with underlying domestic volume growth at 12.5%. Domestic sales grew 19.7% y-o-y, while International and CSD posted growth of 104.4% and 6.3%, respectively. Our sales estimates underestimated the extent of volume recovery.
Gross margin expanded 260 bps to 61.4%, led by benign RM prices. However, higher ad spends (up 250 bps y-o-y) and other expenses (up 10 bps) restricted Ebitda margin expansion to 20 bps y-o-y to 15.6%. Thus, Ebitda posted a healthy 26.7% y-o-y growth to R75 crore. Lower depreciation (writeback of R47.7 crore), higher other income (up 37.4%) and lower interest costs (down 30.8%) aided the PBT growth of 31.1%. However higher tax rate (up 960 bps to 23.1%) due to certain deferred taxes dragged the PAT growth to 16.6% to R70.7 crore.
Domestic revenues grew 19.7% y-o-y with broad-based growth across power brands ? Navratna Oil, Balms and Fair & Handsome grew 14%, 13% and 14%, respectively.
We upgrade our estimates by 2-5% to factor in Q1 beat. Near-term expected margin disruption notwithstanding, the runway for growth in the medium term looks attractive as it scales up new products. Emami remains our top pick in the tier-II consumer space along with Britannia. Maintain ?buy?, with a target price of R600.
