Profit Dips, Margins Hit By High Cost

Santo Ae

Emami Ltd.’s second-quarter profit fell but beat analyst estimates, while its margins contracted on the back of a rise in ad spends amid high inflation.

Consolidated net profit of the maker of BoroPlus and Zandu Balm fell 1% over the previous year to Rs 184.2 crore in the quarter ended September, according to its exchange filing. That compares with the Rs 176.61-crore consensus forecast of analysts tracked by Bloomberg.

Its profit beat estimates due to lower tax rate and higher other income.

During the quarter, the company converted a loan to Helios Lifestyle Pvt. into equity and revised its value as per IND AS 103.

“Accordingly, gains of Rs 33.85 crore were realised in other income,” the company said.

Helios, the owner of The Man Company, became a subsidiary of Emami, which holds 50.4% stake in the startup.

The tax rate during the quarter was 3% versus 8% last year.

Profit before tax and exceptional items fell 18% to Rs 185.5 crore, due to inflation in input costs and low base during the Covid-19 period, inclusion of new subsidiary costs, upfront marketing investments and strategic outlays on distribution expansion in rural, digital and modern trade channels.

Emami Q2 Key Highlights (YoY)

  • Revenue rose 3.4% to Rs 813.8 crore, compared with an estimate of Rs 822.9 crore. Helios contributed 3.5% to net sales.

  • Operating profit came in at Rs 245.1 crore, down 32%.

  • Margin contracted to 30.1% from 46% a year ago on higher expenses.

  • Expenses shot up 21% over this period to Rs 618 crore.

  • Ad spends rose 34% to Rs 141.4 crore.

  • The company’s domestic sales grew 1% over the previous year, and international sales jumped 17% despite geopolitical uncertainties.

“Consumer demand remained muted across markets with high inflation affecting consumption, especially in the rural markets,” said Mohan Goenka, vice-chairman and whole-time director at Emami.

The firm witnessed a correction in the Covid-19 contextual portfolio of pain management and healthcare products, which grew significantly during the last two years.

The three-year CAGR has been therefore “impressive”, Goenka said, growing 8% compared to pre-pandemic levels.

Segmentwise Highlights

  • BoroPlus sales grew by 17% in Q2. The company roped in Bollywood actor Akshay Kumar to endorse BoroPlus Antiseptic cream.

  • Navratna range sales declined 5%.

  • Male grooming range reported 2% increase in sales.

  • Sales corrected by 13% for the pain management range, which includes the Zandu Balm brand. The segment delivered growth of 20% in Q2 compared to the pre-Covid period (Q2 FY20).

  • The healthcare range also saw sales correction by 16% in Q2. It grew 34% in Q2 compared to the pre-Covid period.

  • D2C portal Zandu Care performed well, despite a drop in demand for immunity products.

  • Sales fell 10% for Kesh King range. The company attributes this to a high base of 28% growth over the last two years (Q2 FY22 and Q2 FY21).

Both modern trade and e-commerce performed well to post a growth of 28% and 55%, respectively. The contribution of modern trade and e-commerce channel increased to 16.5% of Emami’s domestic revenues.

“With our strong focus on cost control, distribution expansion, aggressive marketing campaigns and driving penetration, we expect to deliver double-digit growth with healthy margins in the second half,” said Harsha V Agarwal, vice chairman and managing director at Emami.

“On a full-year basis, we aspire to deliver double-digit growth with higher Ebitda than the previous year for our core business.”

The board has declared an interim dividend at 400% i.e., Rs 4 per equity share.

Shares of Emami fell 0.17% on Friday after the results were declared, as compared with a 1.78% gain in the benchmark Nifty 50 index.

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