Emami

WITH its ambitious plans of inorganic growth by acquiring brands and building a diverse product portfolio, Kolkata-based Emami is an FMCG company to watch out for. The company’s stock has moved up by 18% in the past two months against the Sensex’s movement of 11% during the same period.

The Rs 1,000-crore Emami made the big-ticket acquisition of Zandu Pharma last year and also acquired two smaller Bengal-based companies — Lakshmibilas Hair Oil Company and M Bhattacharya, a small homeopathy drugs company.

The company has plans to acquire new brands in the personal and healthcare segment. It is currently in talks to acquire an edible oil brand. It is also reportedly looking to buy Godrej Hershey’s beverage brands — Jumpin and XS. If this acquisition fructifies, it will transform the company into a onestop shop for entire gamut of FMCG products, from face creams to edible oils and juices and beverages. Never before has a company of the size of Emami successfully dealt with such a disparate business segments. It has to be seen how the company works with such a profile.

In the past, Emami has bought companies in distress and managed to turn them around to generate profits. The company’s management is confident of replicating a similar kind of success with its acquisitions in new categories like foods. Financially, Emami is in a good shape with almost a dent-free balance sheet and steadily improving operating margins.

However, the company’s stock is currently trading at a price-to-earnings multiple of 35. This seems a little too high for a mid-sized company. Recent earnings performance has not been very satisfactory — with the company reporting a mere 5% y-o-y increase in its consolidated net profit (on a trailing four-quarter basis). Going forward, it will have to generate a better earnings growth to justify its high valuations and big growth plans.