emami | Emami share price: Emami’s EBITDA margins are the highest among its peers, at over 30%: NH Bhansali

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“We are focused on the current portfolio as almost all of our strong brands hold leading positions and hold around 60% market share in these niche categories – be it Boroplus or Navratna or balms or even Fair and Handsome or oils. We have a very large market and although we are aggressively developing them, we also offer relevant extensions in the relevant segments,” says NH BhansaliCEO-Finance, Strategy & Business Development, Emma.

Many FMCG companies have highlighted the slowdown being seen in the rural part of the economy, given that 40-50% of the revenue pie comes from the rural segment? What is the reality on the ground?
Yes, there has also been some downturn on the rural side, while modern commerce, e-commerce, is growing very aggressively during this time. There are mainly two reasons; the first is that there was last year’s high base and the intermittent Covid disruptions in this quarter also had an impact.

The impetus that was given in the budget and with the execution of the measures that were announced should accelerate in the short and medium term.

Is this why we have seen a decline in healthcare as well as the male grooming segment?
Yes, while these are the important reasons.

The other thing I wanted to talk about, besides the slowdown in rural demand, is also the pressures on commodity prices. How do you mitigate it and how will you manage to maintain your margins while pushing consumers to raise prices?
Costs have increased for all of us. Costs rose 300 basis points which is very significant and this was led by crude derivatives, vegetable oils and packaging materials, but we were able to maintain our EBITDA even though margins did not decline than 130 basis points on my margins, but despite that, we were able to maintain EBITDA. We did a couple of things; we have made very sensible price increases. We did not go for an aggressive price hike and instead opted for routine price increases. We have implemented very strict cost control initiatives which are continuing and both of these initiatives have helped us contain the reduction in our EBITDA margin and maintain EBITDA. In fact, our EBITDA margins are probably the highest among our peers, at over 30%.

Hindustan Unilever, despite 25% margins, is signaling rural shrinkage at a time when inflation is here and costs are rising. Have you been able to pass on the higher cost to your consumers? Are you seeing a slowdown?
Yes, there has been down trading and there has been an impact of inflation among normal consumers. This had an impact on the rural levies but there was a higher base also during this period and with the measures that should be taken we expect that in the medium term this will follow the right path and we will not not expect cost pressures to remain so aggressive in the future. It will cool down in the fourth quarter. We expect this to normalize over three to six months.

Are you going to do more price increases or because it will normalize in a few months, are you going to wait?
We are not very aggressive on price increases. Our average price increases are in the range of 3% to 4% on an annual basis and we would continue to do so and we do not expect any further spikes to come. As I said, our EBITDA margins are and our gross margins are also very high. Our gross margins are over 65%.

Can you tell us a bit more about your upcoming launches? Are you going to focus only on the current portfolio?
We are focusing on the current portfolio as almost all of our strong brands hold leading positions and hold around 60% market share in these niche categories – be it Boroplus or Navratna or balms or even Fair and Handsome or oils. We have a very large market and although we are aggressively developing these, we also offer relevant extensions in relevant segments. Even in e-commerce and digital platforms, we have many new launches at different price points. We plan to continue new launches and promote existing brands as well.

The board of directors announced a takeover at a price not exceeding Rs 550 per share. Your current market price is around Rs 500 per share. What is the most important message?
We believe that the price at which Emami is currently trading is very low. We would buy the shares at which this equity would be dropped, which would increase the overall ratio in some way and also help other sellers if they wanted to sell at a higher price.

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