INSTITUTIONAL EQUITY RESEARCH Emami Ltd (HMN IN) …

INSTITUTIONAL EQUITY RESEARCH

Page | 1 | PHILLIPCAPITAL INDIA RESEARCH

Please see penultimate page for additional important disclosures. PhillipCapital (India) Private Limited. (“PHILLIPCAP”) is a foreign broker-dealer unregistered in the USA. PHILLIPCAP research is prepared by research analysts who are not registered in the USA. PHILLIPCAP research is distributed in the USA pursuant to Rule 15a-6 of the Securities Exchange Act of 1934 solely by Rosenblatt Securities Inc, an SEC registered and FINRA-member broker-dealer.

Emami Ltd (HMN IN)

Decoding Healthcare 2.0

INDIA | FMCG | Company Update

22 July 2021

We maintain our high conviction BUY on Emami within the mid-cap consumer space with a revised target of Rs 700 (35x Sept-23 EPS) vs. Rs 650 (31x Sept -23 EPS) based on the following:

• Most of the power brands (65-70% of total revenues) will clock double-digit growth over FY21-23 due to Covid-19 tailwinds.

• New launches (Boroplus soap, aloe vera gel, Emasol toilet cleaner, dish washing liquid) are showing healthy offtake. Moderation in growth of power brands once covid-19 tailwinds recede should be compensated by scaling up of new launches and revival in growth of other power brands such as Navratna and Fair & Handsome (that have taken maximum hit due to covid-19).

• Continued momentum in healthcare business (10% of sales): We expect 18%+ revenue growth here in the medium term because of appointment of a new business head, new product launches, and distribution expansion initiatives.

• Beefing up the senior management team; Emami has appointed senior professionals across key functions (sales), channels (international, e-commerce) and categories (healthcare) over the past year, which is helping it to accelerate its revenue growth trajectory. Appointment of a professional CEO (which we believe is some time away) could be a step in the right direction.

• Reasonable valuations: It trades at 25x FY24 EPS vs. peers trading at 35-40x. We expect the discount to narrow based on:

1. Promoter pledge expected to come down to c.25% from current c.30%, as shares pledged with the Nirma group are likely to be released. Our ground checks show that the sale of AMRI hospital (a promoter group entity) is in the last stage and once finalized, it has the potential of bringing promoter pledge down to less than 10%.

2. Ever-improving narrative on double digit growth, stability in margins, focus on innovation and promoters focus coming back to the core business

In this report, we have done a deep analysis on Emami’s healthcare segment (10% of its overall sales). Here, its revenue growth trajectory will accelerate to 18%+ CAGR over FY21-24 (from 14-15% over the past decade) because of the following reasons: 1) Increased consumer preference towards zero side effect ayurvedic products: Customers’

lifestyle changes are leading to more health consciousness and awareness about lifestyle diseases. Covid-19 has accelerated this journey, as it has created heightened awareness about building one’s immunity and fitness. Customers are opting for natural solutions (without side effects) to treat ailments.

2) Scaling up existing business through increasing the distribution reach of chemists’ partners and focus on ayurvedic doctors

3) Aggression on NPD (New product development) due to covid-led tailwinds. 4) Creation of a separate D2C website (Zanducare.com) along with transferring products

from ethical (prescribed route) to OTC, which in turn enables advertisement and helps in enhanced distribution reach.

5) Appointment of new business head (Mr Gul Raj Bhatia), who comes from Dabur.

BUY (Maintain) CMP RS 532 TARGET RS 700 (31%)

SEBI CATEGORY: MIDCAP

COMPANY DATA

O/S SHARES (MN) : 445

MARKET CAP (RSBN) : 227

MARKET CAP (USDBN) : 3

52 - WK HI/LO (RS) : 567 / 184

LIQUIDITY 3M (USDMN) : 4.1

PAR VALUE (RS) : 1

SHARE HOLDING PATTERN, %

Mar 21 Dec 20 Sep 20

PROMOTERS 53.9 53.9 53.9

DII 27.4 27.4 28.6

FII 9.6 9.6 9.0

OTHERS 9.2 9.2 8.6

KEY FINANCIALS

Rs mn FY21E FY22E FY23E

Net Sales 28,608 31,537 34,531

EBIDTA 8,633 9,778 10,695

Net Profit 6,437 7,745 8,591

EPS, Rs 14.2 17.1 18.9

PER, x 37.5 31.2 28.1

EV/EBIDTA, x 27.9 24.3 22.0

P/BV, x 14.6 13.1 11.0

ROE, % 26.2 32.1 36.9

Debt/Equity (%) 12.7 11.4 9.6 PRICE VS. SENSEX

Source: Phillip Capital India Research

Vishal Gutka, Research Analyst (+ 9122 6246 4118) [email protected] Binay Shukla, Research Associate (+ 9122 6246 4129) [email protected]

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Emami BSE Sensex

mailto:[email protected]

mailto:[email protected]


EMAMI COMPANY UPDATE

Deep dive into Emami’s healthcare business What is Emami’s healthcare business made up of? Emami’s healthcare business size is Rs c.3bn (10% of overall sales), with a lion share (c.75%) coming from OTC products. Ethicals/generics contribute 10%/15% respectively to healthcare business

OTC accounts for 75% of total healthcare portfolio

Source: Phillip Capital Estimates

Notes:

• OTC means Over the Counter. These products can be sold like any other FMCG products

• Ethical means branded medicines. Products cannot be sold without doctor’s prescription. Moreover,

these are proprietary products are made after years of R&D efforts and most of time, they command a

pricing premium to generic products, since they have better efficacy levels

• Generics – Medicinal products made as per ingredients prescribed in ancient Ayurveda texts. These

products cannot be sold without doctors’ prescriptions and are available only through the chemists’

network.

What is Emami’s OTC business made up of? Key brands within OTC business (Rs 2.25bn)

Panchrishta and Chyawanprash are major contributors to OTC business

Brand Segment Revenue (Rs mn)

% contribution

to OTC business

Panchrishta Digestion 750 33%

Chyawanprash & Honey Immunity building 800 36%

Nityam Constipation 200 9%

Mughda Rasa

Fumigated grains for better

preservation 150 7%

Vigorex Rejuvenation 80 4%

Others 270 12%

Total 2,250


75%

10%

15%

OTC Ehtical Generics



OTC sales mix


Which are the key brands within ethicals (prescribed medicine)? Key brands within Ethicals business (Rs 300mn)

Rhymasyil contributes half of the revenue within Ethical portfolio

Brand Segment Revenue (Rs mn)

% contribution to

OTC business

Striveda Lactation supplement 100 33%

Rhumasyl Liniment Osteoarthritis and rheumatoid arthritis 150 50%

Others 50 17%

Total 300


Ethical sales mix


33%

36%

7%

9%

4% 12%

Pancharishta Chawyanprash Mugdha Rasa Nityam Vigorex Others

33%

50%

17%

Striveda Rhumasyl Liniment Others



Emami’s healthcare business saw a revenue CAGR of 14% over the past decade and should see 18%+ revenue Cagr over FY21-24 due to the following five reasons:

1. Increased preference towards ayurvedic/natural products (which have zero side effects)

2. Appointment of a new business head (Mr Gul Raj Bhatia), who comes from s reputable company like Dabur.

3. Scaling up existing business in these four ways – (1) increasing distribution reach of chemists’ partners along with focus on ayurvedic doctors; (2) contemporizing into consumer-friendly forms and formats; (3) foray into international markets; and (4) expanding to 500 Zandu ayurvedic stores from current 250.

4. Aggression on NPD due to covid-led tailwinds. 5. Creation of separate D2C website (Zanducare.com), which could become

testing grounds for larger foray into mainstream distribution channels.

Healthcare segment expected to see revenue Cagr of 18% over FY21-24

Source: Company, Phillip Capital Estimates

Increased preference towards ayurvedic products We believe changes in customers lifestyles lead to increased consciousness about health, lifestyle diseases; these customers are more likely to opt for natural solutions (one without side effects) to treat ailments. Covid-19 has also accelerated the transition towards ayurvedic medicines (particularly food supplements and immunity boosters) as the pandemic has created heightened awareness about immunity. Earlier, customers used to take medicines only when health problems arose, but due to covid-19, they have become more conscious, putting more emphasis on preventive healthcare. Although conventional healthcare is still widely preferred, there is a growing demand for all-natural alternatives that could grow the ayurvedic segments. Benefits such as low toxicity levels and fewer side effects even over prolonged periods of use are some of the reasons why consumers are beginning to prefer ayurvedic / natural products. We believe, proper regulation and enforcement in the alternative medicine industry can go long way in building the trust and confidence among users, who might have concerns, since these products are not validated by a regulator. Moreover, in the longer term, we think there will be major metaphormsis from a product-based approach to a holistic wellness approach, where companies will sell alternative medicines as a part of a larger wellness experience. This experience will

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FY21 FY22 FY23 FY24

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incorporate various facets, such as fitness, meditation, and healthy eating, in combination with the practice of alternative medicine.

Appointment of new business head We believe appointment of Mr Gul Raj Bhatia as head of healthcare business (who was earlier associated with Dabur as VP- Healthcare business) is likely to significantly accelerate the revenue profile of Emami’s healthcare business (up 45% in FY21 vs. muted growth in FY20). Our ground checks suggest that second/senior level of management within healthcare has been shored up, and these new members have also come from other mainstream consumer healthcare companies (Dabur, Baidya Nath, Abbott, Himalaya etc).

Emami has beefed up its senior management team in healthcare division over the past 12-24 months Name Position Previous organization and Position Joining date

Rishi Agarwal Sr. GM - Business Head

(Ecommerce & OTC Healthcare)

NA

Jan-19

Subhabrato Das Head - Omni channel & Online products Abbott - Associate Marketing Manager

(Medical Nutrition Division) Apr-18

Dr. Prashant Bagel Medico Market Expert Dabur - Sr. Regional Healthcare Advisor Oct-20

Partha Narayan Joardar AVP Dabur- Head Ayurvedic Specialties Business Jul-18

Dr. Tejpal Modi Trade Marketing Manager Dabur - Territory Manager Oct-19

Dr. Satish Udeg Senior Marketing Manager Himalaya Drug - Manager Dec-20

Source: LinkedIn, Phillip Capital Estimates

Dabur saw decent pick up in Healthcare business in FY19 post appointment of Mr Bhatia as head; however, performance in FY20 was marred by covid-19 related challenges Dabur (Rs. mn) FY18 FY19 FY20

Health supplements 9,074 10,300 11,150

YoY Growth % 6.5% 13.5% 8.3%

Digestive 3,008 3,450 3,720

YoY Growth % 6.9% 14.7% 7.8%

OTC & Ethical 4,593 5,190 5,180

YoY Growth % -2.6% 13.0% -0.2%

Healthcare Revenue 16,675 18,940 20,050

YoY Growth % 3.9% 13.6% 5.9%


Dabur’s healthcare segment has been on upward trajectory during Mr. Bhatia’s tenure


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Appointment of Mr Bhatia, who come from high pedigree organizations such as Dabur has significantly galvanized the performance and morale of employees in the healthcare division Career journey of Mr Bhatia

Period Company Designation

Jun,2020 - Present Emami Ltd President, Healthcare Division

Apr,2018 - Feb,2020 Dabur Limited Vice President - Healthcare

Jul,2017 - Mar,2018 Patanjali Sr. VP - Sales (Foods)

Sep,2006 - Jun,2017 Pfizer Consumer Healthcare Business Unit Head

May,1988 - Jun, 2001 Cadbury India Branch Manager

Source: LinkedIn, Phillip Capital Estimates

Scaling up core business We believe Emami can significantly scale up core business in these four ways

1. Increasing distribution reach of chemists’ partners along with focus on ayurvedic doctors

2. Contemporizing consumer-friendly forms and formats 3. Foray into international markets 4. Expanding to 500 Zandu ayurvedic stores from current 250 stores.

Pancharishta and health supplements (chyawanprash and honey) contribute around 2/3rd of otc business; OTC constitutes c.75% of total healthcare revenues.

Pancharishta was facing growth challenges due to the way it was consumed (as an

antacid such as Eno). It is in fact an ayurvedic solution to enhance digestion. Management has been able to fix this over the past two years by taking the following steps. 1. Changing communication campaign: Clearly highlighting how it improves the

digestive system in the long term, and one shall not expect immediate benefits as seen in the case of antacid.

2. Appointment of Mr Amitabh Bachchan, national icon as brand ambassador. 3. Change in packaging: Movement to PET bottles from glass bottles, leading to

savings in packaging costs and reduced leakages.

Health supplements (Chyawanprash and Honey) Health supplements business has more than doubled from Rs 350-400mn in FY20 to Rs 800mn in FY21 due to covid-19 tailwinds, as new customers entered in to the category. Chyawanprash category (revenue size: Rs 700mn): Emami’s business more than doubled, as consumer’s latched on to the idea that regular consumption of Chawyanprash helps in developing one’s immunity. Ministry of Ayush, Government of India, has been advising that regular consumption of this product, along with a good fitness regime, can significantly help develop one’s immunity.



Extracts from Dabur Annual report – 2021 on Chyawanprash

A multi-centric clinical study was launched to validate the beneficial role of Dabur

Chyawanprash in prophylaxis of COVID-19 infection by virtue of its immunity boosting

property. The findings of the study, which has been submitted for publication in a

peer-reviewed scientific journal, reveal that regular use of Dabur Chyawanprash

reduced the risk of COVID-19 infection by up to 12 times in comparison to control

group which was not consuming Chyawanprash. It was also observed that with

regular usage of Dabur Chyawanprash, there was up to 6 times lesser severity of

COVID 19 infections when compared to subjects in control group. Details of this study

have been shared in the earlier sections of this report. Riding on these initiatives,

penetration of Dabur Chyawanprash doubled to 7-8% during the year. Overall market

share of Dabur Chyawanprash increased by ~200 basis points further strengthening

its position as a market leader in the category

Management is confident of sustaining revenue from Chyawanprash (Rs 700mn for Emami; whereas it stands at Rs 8-9bn for market-leader called Dabur) even after covid-19 tailwinds recede, as Emami leverages its distribution network of chemists and doctors and focuses on marketing its premium range (Zandu Kesari Jeevan).

Key differentiating parameters between Kesari Jeevan (premium) and Chyawanprash (mass market) and mgmt focus on premium range gives it chance to better fight out odds/ competition Zandu Kesari Jeevan Zandu Chyavanprashad

Pricing 2x price (900gm for Rs 720) of Zandu Chyawanprash 900gm for 365

Key ingredient Kesar, Pearl, Amla, Ashwagandha, 15 exotic herbs Amla, Shilajit, Ashwagandha, Giloy

Sweetener Sugar-free Contains Artificial sweetener

Consumer insights Higher efficacy, Good Flavor and Improves Immunity faster Immunity, Fights against cough, cold, weakness

Source: Big basket, Phillip Capital Estimates

Honey Zandu Honey, despite covid -19 tailwinds (see textbox below), was not seeing the growth that Emami desired till 1HFY21, due to its premium positioning. Emami’s management cut prices by c.15% in 3QFY21, thereby making it more competitive vs peers

Zandu Honey is now more competitive vs peer brands post c15% price correction taken in 3Q21

Product

Original Calculated

Qty (gm) MRP Qty (gm) Price

Patanjali Honey 500 165 1000 330

Zandu Pure Honey 500 199 1000 398

Dabur Honey 500 220 1000 440

Apis Honey (Buy 1, Get 1 Free) 500 240 1000 480

Source: Big Basket, Phillip Capital Estimates

Why has honey consumption shot up after covid-19 coming into play? Consumption of ayurvedic products increased very quickly in FY21. Honey being a natural preservative and sweetener was used in many ayurvedic preparations. Moreover, it is also used as a vehicle along with some medicines to improve its efficacy or to mitigate the side effects of the other medicines it is mixed with.



What is the playbook for driving growth of legacy healthcare business ?

For driving growth of the existing business, the playbook is going to be: (1) increase chemist coverage, and (2) improve doctor advocacy. Emami has increased chemists’ coverage to 100,000 outlets in FY21 from 75,000 outlets in FY20 and the target is to keep on increasing this reach by at least 10% every year from a medium-term perspective. Moreover, the company is also present is 6,000-7,000 ayurvedic kendras over and above chemists’ availability. It has also enhanced its doctor coverage to 25,000 in FY21 from 22,500 in FY20. Having a strong doctor network is critical for ensuring success in ethical and generics business (25% of healthcare business) – since these verticals work on a doctor’s prescription.

Generics (c.15% of healthcare business): Despite being commoditized, it is very critical for ensuring the success of healthcare Why is the generics portfolio important for an ayurvedic healthcare company? Our ground checks suggest that c.70% of ayurvedic doctors prescribe medicine based on ingredients written in the ancient texts, and defer recommending specific brand names, which can be used to cure ailments. As a result, if Emami wants to advocate its ethical (branded medicine) portfolio to ayurvedic doctors, it won’t get a foot in the door of the doctor’s clinic until it has a generics business. Do generic products earn decent EBITDA margins? We were concerned that generic products (being commoditized) could earn very low margins and might be margin dilutive, but we found this was not the case. Generics products get marketed or advocated to doctors based on their efficacy, stability, and toxicity claims, which allows them to command a premium over other competitors; this in turn enables entire ecosystems (channel partners + ayurvedic companies) to earn decent margins. We were of the notion that healthcare companies (for e.g., Emami) will transition more brands (ethicals) / products (generics) to OTC, because after converting into an OTC brand, Emami is allowed to advertise, and in turn garner better distribution reach (i.e., non-chemist outlets) and improve sales visibility. Is transition from ethicals to OTC difficult? Our ground checks suggest that transition to OTC from ethicals has been difficult, since doctors stop advocating products that have just got converted to OTC, since that would reduce their clinic’s footfalls. Moreover, pharma companies do not have similar DNA of creating brands vis media blitzkrieg, which traditionally has been the forte of FMCG companies. At what point of time should consumer companies take the plunge of moving to OTC from being a pre-dominantly ethicals brand? The answer as per our discussions with consumer experts is – only when reasonable number of sales are already coming via word-of-mouth referrals amongst patients and when customers start picking up a company’s product to solve minor ailments from chemists’ outlets without giving a second thought. Moreover, conversion into OTC allows companies to spend more on advertisements (which hitherto they were not allowed to) and garner better distribution reach / penetration levels, since they were earlier limited to chemists’ outlets.



Full-blown aggression on New product launches owing to covid-19 led tailwinds Emami has significantly ramped up new launches during FY21 due to covid led tailwinds in the many of the categories / segments and senior management hires, whose KRA is to significantly ramp up contribution from new launches. Management believes for sustaining 20-25% revenue cagr over the medium term, new launches are going to be critical factor for ensuring these targets are met in due course

Massive ramp up has happened in new launches over the past 12 months

Launched New Product Description

FY19 Diabrishta-21 For Diabetic consumer

Relaunched Medico Range (Ethical & Classical) Health Supplements and Immunity Booster

FY20

Ayurvedic Cough Syrup- ₹5 sachet Non-Drowsy Cough Syrup

SwasthyaVeda Revitalizer Ayurvedic Tonic for Healthy Ageing

Striveda Menso-Ease For Menstrual Difficulties

FY21

Ayurvedic Hand Sanitizer Hygiene

Ayush Kwath Powder Immunity booster Kadha

Single Herb Range Stress relief and boost immunity

Sugar Free variants of Kesari Jivan, Pancharishtha and

Chyawanprash

Health Juices Immunity Booster

Immu Soft Chews Immunity Booster for children

Giloy Ghana Vati Immunity Booster

Giloy Churna Immunity Booster

Amla Churna Immunity Booster and prevent infection

Immuzan Tab (Ethical) Immunity Booster

Rhumasyl Maxx (Ethical) Pain relief

Ortho Vedic Oil For Knee and Joint Pain

Giloy Tulsi Juice Immunity Booster

Chyawanprash with Jaggery Chyawanprash with Jaggery and No Added Sugar

launched for the first time in India Source: Company, Phillip Capital Estimates

Consumers generally opt for Ayurveda treatment only in case of chronic disease and generally prefer allopathy treatment for treatment of acute diseases. Acute diseases refer to medical conditions that occurs suddenly and last for short periods. Chronic diseases develop slowly and may last for a lifetime. Chronic diseases are sometimes fatal (cancer, heart-related issues, diabetes, arthritis, etc.). Research-based evidence suggests that through traditional forms of dietary management and interventions of ayurveda, not only risks of NCDs (non-communicable and chronic disease) are reduced; but severity of the disease can also be lessened. To derive the benefits of the above trend, the company has been launching products meant for chronic diseases, but it is yet to find success in these. Launch of Diabrishta-21 (medicine launched for managing sugar levels) Regular consumption of allopathic medicines over a long period leads to gradual increase in sugar levels amongst diabetics, but when consumers combine ayurvedic tonics with allopathic medicines, sugar levels are maintained. In FY20, Emami launched Diabrishta-21, a formulation which diabetic consumers can consume along with their regular medication (allopathy) to improve their daily health. However, it is too early judge the company’s execution capabilities since the last 15 months have been severely impacted due to Covid-19.



Creation of a separate D2C website to drive sales of high margin healthcare portfolio

Snapshot of D2C website – Zanducare.com

Emami created a separate D2C website (www.zanducare.com), almost a year ago. This not only offers product information, but provides an interactive platform to consumers for doctors’ consultations etc., which has significantly added to the sale of healthcare products. Moreover, zanducare.com has been the first to develop a back-end panel of doctors and provide more product information. We carried out blind checks to test these above claims around week back highlighting medical problem and requesting for medical help ; but we are yet to receive call from the doctor.

https://zanducare.com/






http://www.zanducare.com/




Zandu portal has diverse set of products – if rightly executed and monetized; this vertical could be game changer for the company

Zandu Product Range

Digestive Care

Constipation

Diarrhoea

Irritable Bowel Syndrome

GERD (Gastroesophageal

Reflux Disease)

Indigestion

Acidity Management

Health and Wellness

Allergic Rhinitis

Insomnia

Common Cold

Detox

Anemia

Asthma

Immunity

Viral Infection

Mental wellness

Stress Care

Memory Booster

Men's Health

Energy and Stamina

Sexual Wellness

Joint and Bone Care

Arthritis

Back Pain

Osteoporosis

Metabolic Disorder

Blood Sugar Regulation

Weight Management

Women Health

Hypogalactia

Urinary Tract Infection



Most of the digital launches done exclusively on zanducare portal during FY21 have seen healthy offtake

Introduced on Ecom Platform

Product Purpose

Zandu Pachan Vati Digestive Stimulant

Zandu Sandhigata Pida Har Vati Joint Pain Reliever

Zandu Amla Pitta Har Vati Acidity Regulator

Zandu Draksha Pachan Churna Natural Digestion Enhancer

Zandu Papaya Leaf Extract Fights during Dengue by increasing blood platelets

Zandu Chirakin Tablet Anti-Malarial and Anti-viral


In a recent media interaction, Emami’s management highlighted that its D2C platform is clocking a business of Rs 20-25mn every month, and almost about 55,000-60,000 consumers are buying from this portal every month. It has so far collected data of 4.2mn consumers from its D2C channel – it wants to leverage this data and launch exclusive products. For testing these claims, we ordered a Zandu Acidity regulator mid-November 2020, which was delivered after 15 days. Management said the elongated delivery was there because the entire pan-India supply chain was managed from one warehouse; to address logistical challenges, it has added one more warehouse to ease out these problems. Again to check the above claims, we ordered Zandu Kesari Jeevan 4-5 days back and to our surprise, goods were delivered within 2 days alongwith regular update on whatsapp. Emami has changed its pricing strategy for its D2C platforms, and is introducing products at a premium pricing, given that most consumers in the channel are from tier-1 cities.

Coverage Universe Valuation Company Size Fw P/E Reco/Upside

Britannia Industries L 42 BUY 31% Jubilant Foodworks L 60 BUY 18% ITC Ltd L 17 NEU 9% Hindustan Unilever Ltd L 52 BUY 23% Colgate Palmolive L 32 SELL -32% Asian Paints L 70 BUY 11% Godrej Consumer Products L 42 BUY 8% Marico Industries L 43 NEU -8% Dabur India L 49 BUY 4% Nestle India L 62 BUY 6% Titan Company L 62 BUY 5% Emami M 28 BUY 31% Agro Tech Foods S 42 BUY -8% Bajaj Consumer Care S 16 BUY 42% Thangamayil Jewellery S 43 BUY 12% Westlife Development Ltd S NA BUY 8%

Source: Company, PhillipCapital India Research (Note: L/M/S = Large/Mid/Small Cap)



Financials Income Statement Y/E Mar, Rs mn FY21 FY22E FY23E FY24E

Net sales 28,608 31,537 34,531 38,335 Growth, % 8 10 9 11 Total income 28,608 31,537 34,531 38,335 Raw material expenses -9,292 -10,454 -11,238 -12,474 Employee expenses -3,092 -3,324 -3,656 -4,022 Other Operating expenses -7,591 -7,982 -8,942 -9,841 EBITDA (Core) 8,633 9,778 10,695 11,998 Growth, % 25.0 13.3 9.4 12.2 Margin, % 30.2 31.0 31.0 31.3 Depreciation -3,670 -3,178 -1,520 -1,610 EBIT 4,964 6,601 9,175 10,388 Growth, % 40.1 33.0 39.0 13.2 Margin, % 17.4 20.9 26.6 27.1 Interest paid -133 -133 -133 -133 Other Income 703 914 1,096 1,315 Pre-tax profit 5,492 7,381 10,138 11,571 Tax provided -1,142 -1,476 -2,028 -2,314 Profit after tax 4,350 5,905 8,111 9,257 Others (Minorities, Associates) 0 0 0 0 Net Profit 4,350 5,905 8,111 9,257 Growth, % 38.7 35.8 37.4 14.1 Net Profit (adjusted) 6,437 7,745 8,591 9,737 Unadj. shares (m) 454 454 454 454 Wtd avg shares (m) 454 454 454 454

Balance Sheet Y/E Mar, Rs mn FY21 FY22E FY23E FY24E

Cash & bank 2,073 4,819 7,653 11,199 Marketable securities at cost 683 683 683 683 Debtors 3,319 3,659 4,006 4,447 Inventory 2,636 2,906 3,182 3,533 Loans & advances 663 663 663 663 Other current assets 2,269 2,269 2,269 2,269 Total current assets 11,645 15,000 18,457 22,796 Investments 881 881 881 881 Gross fixed assets 30,775 32,775 34,775 36,775 Less: Depreciation -18,853 -22,030 -23,550 -25,160 Add: Capital WIP 80 80 80 80 Net fixed assets 12,003 10,825 11,305 11,695 Non-current assets 898 898 898 898 Total assets 25,427 27,605 31,542 36,270 Current liabilities 8,172 8,530 8,896 9,361 Total current liabilities 8,172 8,530 8,896 9,361 Non-current liabilities 678 678 678 678 Total liabilities 8,850 9,208 9,573 10,038 Paid-up capital 454 454 454 454 Reserves & surplus 16,132 17,951 21,523 25,787 Shareholders’ equity 16,577 18,397 21,968 26,232 Total equity & liabilities 25,427 27,604 31,542 36,270

Source: Company, PhillipCapital India Research Estimates

Cash Flow Y/E Mar, Rs mn FY21 FY22E FY23E FY24E

Pre-tax profit 5,492 7,381 10,138 11,571 Depreciation 3,670 3,178 1,520 1,610 Chg in working capital -134 -252 -257 -327 Total tax paid -1,142 -1,476 -2,028 -2,314 Other operating activities 0 0 0 0 Cash flow from operating activities 7,885 8,831 9,373 10,540 Capital expenditure -1,000 -2,000 -2,000 -2,000 Chg in investments 0 0 0 0 Chg in marketable securities 0 0 0 0 Other investing activities 0 0 0 0 Cash flow from investing activities -1,042 -2,000 -2,000 -2,000 Free cash flow 6,844 6,831 7,373 8,540 Equity raised/(repaid) 0 0 0 0 Other financing activities -1,435 0 0 0 Cash flow from financing activities -5,066 -4,085 -4,539 -4,993 Net chg in cash 1,777 2,745 2,834 3,547

Valuation Ratios

FY21 FY22E FY23E FY24E

Per Share data EPS (INR) 14.2 17.1 18.9 21.5 Growth, % 38.7 35.8 37.4 14.1 Book NAV/share (INR) 36.5 40.5 48.4 57.8 FDEPS (INR) 9.6 13.0 17.9 20.4 CEPS (INR) 17.7 20.0 21.2 23.9 CFPS (INR) 15.9 17.4 18.2 20.3 DPS (INR) 8.0 9.0 10.0 11.0 Return ratios Return on assets (%) 17.2 22.8 27.9 27.7 Return on equity (%) 26.2 32.1 36.9 35.3 Return on capital employed (%) 24.8 33.2 39.5 37.9 Turnover ratios Asset turnover (x) 1.9 2.3 2.5 2.7 Sales/Total assets (x) 1.1 1.2 1.2 1.1 Sales/Net FA (x) 2.1 2.8 3.1 3.3 Working capital/Sales (x) 0.0 0.0 0.0 0.0 Receivable days 42.3 42.3 42.3 42.3 Inventory days 33.6 33.6 33.6 33.6 Payable days 63.9 64.7 64.6 64.9 Working capital days 9.1 11.2 12.9 14.8 Liquidity ratios Current ratio (x) 1.4 1.8 2.1 2.4 Quick ratio (x) 1.1 1.4 1.7 2.1 Interest cover (x) 37.4 49.7 69.1 78.3 Total debt/Equity (%) 12.7 11.4 9.6 8.0 Net debt/Equity (%) 0.2 (14.8) (25.3) (34.7) Valuation PER (x) 37.5 31.2 28.1 24.8 PEG (x) - y-o-y growth 1.4 1.1 0.8 1.8 Price/Book (x) 14.6 13.1 11.0 9.2 EV/Net sales (x) 8.4 7.5 6.8 6.0 EV/EBITDA (x) 27.9 24.3 22.0 19.3 EV/EBIT (x) 48.5 36.1 25.6 22.3



Stock Price, Price Target and Rating History

Rating Methodology We rate stock on absolute return basis. Our target price for the stocks has an investment horizon of one year. We have different threshold for large market capitalisation stock and Mid/small market capitalisation stock. The categorisation of stock based on market capitalisation is as per the SEBI requirement.

Large cap stocks Rating Criteria Definition

BUY >= +10% Target price is equal to or more than 10% of current market price

NEUTRAL -10% > to < +10% Target price is less than +10% but more than -10%

SELL <= -10% Target price is less than or equal to -10%.

Mid cap and Small cap stocks Rating Criteria Definition

BUY >= +15% Target price is equal to or more than 15% of current market price

NEUTRAL -15% > to < +15% Target price is less than +15% but more than -15%

SELL <= -15% Target price is less than or equal to -15%.

Disclosures and Disclaimers PhillipCapital (India) Pvt. Ltd. has three independent equity research groups: Institutional Equities, Institutional Equity Derivatives, and Private Client Group. This report has been prepared by Institutional Equities Group. The views and opinions expressed in this document may, may not match, or may be contrary at times with the views, estimates, rating, and target price of the other equity research groups of PhillipCapital (India) Pvt. Ltd.

This report is issued by PhillipCapital (India) Pvt. Ltd., which is regulated by the SEBI. PhillipCapital (India) Pvt. Ltd. is a subsidiary of Phillip (Mauritius) Pvt. Ltd. References to "PCIPL" in this report shall mean PhillipCapital (India) Pvt. Ltd unless otherwise stated. This report is prepared and distributed by PCIPL for information purposes only, and neither the information contained herein, nor any opinion expressed should be construed or deemed to be construed as solicitation or as offering advice for the purposes of the purchase or sale of any security, investment, or derivatives. The information and opinions contained in the report were considered by PCIPL to be valid when published. The report also contains information provided to PCIPL by third parties. The source of such information will usually be disclosed in the report. Whilst PCIPL has taken all reasonable steps to ensure that this information is correct, PCIPL does not offer any warranty as to the accuracy or completeness of such information. Any person placing reliance on the report to undertake trading does so entirely at his or her own risk and PCIPL does not accept any liability as a result. Securities and Derivatives markets may be subject to rapid and unexpected price movements and past performance is not necessarily an indication of future performance.

This report does not regard the specific investment objectives, financial situation, and the particular needs of any specific person who may receive this report. Investors must undertake independent analysis with their own legal, tax, and financial advisors and reach their own conclusions regarding the appropriateness of investing in any securities or investment strategies discussed or recommended in this report and should understand that statements regarding future prospects may not be realised. Under no circumstances can it be used or considered as an offer to sell or as a solicitation of any offer to buy or sell the securities

N (TP 540)N (TP 545)

N (TP 445) N (TP 450)

N (TP 380)

N (TP 315)

N (TP 300)N (TP 290)

N (TP 190)

N (TP 260)

N (TP 420)

B (TP 510)

B (TP 650)

0

100

200

300

400

500

600

700

A-18 J-18 J-18 S-18 O-18 D-18 J-19 M-19 A-19 J-19 J-19 A-19 O-19 N-19 J-20 F-20 A-20 M-20 J-20 A-20 S-20 N-20 D-20 F-21 M-21



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Sr. no.

Particulars Yes/No

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No

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No

3 Whether compensation has been received by PCIL or its associates from the company(ies) covered in the Research report No

4 PCIL or its affiliates have managed or co-managed in the previous twelve months a private or public offering of securities for the company(ies) covered in the Research report

No

5 Research Analyst, his associate, PCIL or its associates have received compensation for investment banking or merchant banking or brokerage services or for any other products or services from the company(ies) covered in the Research report, in the last twelve months

No

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