Emami Ltd:Annual Report 2023-24 Analysis

Emami Ltd.: A Comprehensive Overview #

About the Company #

Year of Establishment and Founding History:

Emami Ltd. was founded in 1974 by Radhe Shyam Goenka and Radhe Shyam Agarwal. The company initially started as a cosmetic and toiletry manufacturing unit in West Bengal.

Headquarters Location and Global Presence:

The company’s headquarters are located in Kolkata, West Bengal, India. Emami has a significant global presence, with operations in over 60 countries across SAARC, MENA, CIS, Africa, and Southeast Asia.

Company Vision and Mission:

• Vision: To be a leading global player in personal and healthcare.
• Mission: To provide innovative and quality products that enhance the health and beauty of consumers worldwide, while creating value for stakeholders.

Key Milestones in their Growth Journey:

• 1974: Founded as a cosmetic and toiletry manufacturing unit.
• 1990s: Rapid expansion and brand building through celebrity endorsements.
• 2008: Acquisition of Zandu Pharmaceutical Works Ltd.
• 2015: Acquisition of Kesh King brand.
• 2022: Acquisition of Cremica Group’s edible oil business.

Stock Exchange Listing Details and Market Capitalization:

Emami Ltd. is listed on both the Bombay Stock Exchange (BSE: 531162) and the National Stock Exchange (NSE: EMAMILTD). The market capitalization fluctuates but can be found on major financial websites.

Recent Financial Performance Highlights:

(Refer to the latest Annual Report or Investor Presentations for the most current data). Typically, key metrics include:

• Revenue Growth
• Profit After Tax (PAT)
• Earnings Per Share (EPS)
• Operating Margins

Management Team and Leadership Structure:

• Key figures include the founders, Radhe Shyam Goenka and Radhe Shyam Agarwal, as well as their sons leading the company.
• The company follows a structured organizational hierarchy with board of directors, executive management, and functional heads.

Notable Awards or Recognitions:

• Emami has received various awards for its brands, innovation, and corporate social responsibility initiatives. Details can be found on the company website or press releases.

Their Products #

Complete Product Portfolio with Categories:

Emami’s product portfolio spans across several categories:

• Personal Care: Skin Care, Hair Care, Men’s Grooming, Healthcare.
• Healthcare: Ayurvedic formulations, over-the-counter (OTC) products.
• Edible Oils: Cooking oils and related products.

Flagship or Signature Product Lines:

• BoroPlus: Antiseptic Cream
• Fair and Handsome: Men’s Fairness Cream
• Kesh King: Ayurvedic Hair Oil and Shampoo
• Zandu Balm: Pain Relief Balm
• Navratna: Cool Oil

Manufacturing Facilities and Production Capacity:

Emami has multiple manufacturing facilities across India. Specific details on production capacity are proprietary information.

Quality Certifications and Standards:

Emami adheres to stringent quality control measures and has certifications such as:

• ISO certifications
• GMP (Good Manufacturing Practices) certifications

Unique Selling Propositions or Technological Advantages:

• Ayurvedic Expertise: Leveraging traditional Ayurvedic knowledge in product formulations, particularly in the healthcare and hair care segments.
• Strong Brand Recall: Established and trusted brands with high consumer recognition.
• Extensive Distribution Network: Wide reach across urban and rural markets.

Recent Product Launches or R&D Initiatives:

• Emami regularly launches new products and variants based on market trends and consumer needs. Information on recent launches can be found on the company’s website or press releases.

Primary Customers #

Geographic Markets (Domestic vs. International):

Emami has a strong presence in the domestic Indian market, while also focusing on international expansion in regions such as:

• SAARC countries
• MENA region
• CIS countries
• Africa
• Southeast Asia

Distribution Network and Sales Channels:

Emami utilizes a multi-channel distribution strategy:

• General Trade: Traditional retail stores.
• Modern Trade: Supermarkets, hypermarkets.
• E-commerce: Online platforms.
• Institutional Sales: Hospitals, clinics.
• Direct to Consumer (D2C): Company-owned online platforms.

Major Competitors #

Direct Competitors in India and Globally:

• Hindustan Unilever Limited (HUL)
• Procter & Gamble (P&G)
• Dabur India Ltd.
• Godrej Consumer Products Ltd.
• Marico Ltd.

Competitive Advantages and Disadvantages:

• Advantages: Strong brand equity in specific categories (BoroPlus, Kesh King), focus on Ayurvedic products, extensive distribution network in India.
• Disadvantages: Intense competition from multinational corporations with larger marketing budgets, evolving consumer preferences.

How they differentiate from competitors:

• Ayurvedic Focus: Emphasizing natural and herbal ingredients in their products.
• Targeted Branding: Strong brand building through celebrity endorsements and focused marketing campaigns.
• Rural Penetration: Well-established distribution network reaching rural markets.

Industry Challenges and Opportunities:

• Challenges: Rising raw material costs, increasing competition, evolving consumer preferences.
• Opportunities: Growing demand for natural and herbal products, increasing disposable incomes, expanding e-commerce channels.

Market Positioning Strategy:

Emami positions itself as a provider of affordable and effective personal care and healthcare products, with a strong focus on leveraging traditional Ayurvedic formulations.

Future Outlook #

Expansion Plans or Growth Strategy:

• Expanding product portfolio through new product development and acquisitions.
• Strengthening presence in international markets.
• Focusing on digital marketing and e-commerce channels.

Sustainability Initiatives or ESG Commitments:

• Emami is increasingly focusing on sustainability initiatives, including reducing its environmental footprint, promoting ethical sourcing, and contributing to social causes. Details can be found in their annual reports or sustainability reports.

Industry Trends Affecting their Business:

• Growing consumer awareness of natural and organic products.
• Increasing adoption of e-commerce and digital channels.
• Rising demand for personalized products and services.
• Emphasis on sustainability and ethical sourcing.

Long-term Vision and Strategic Goals:

• To be a leading global player in personal and healthcare, driven by innovation, quality, and sustainability.

Comprehensive Performance Overview #

3-Year Trend Analysis of Key Financial Metrics #

• Revenue Growth: FY2023-24 revenue of ₹3,578.09 crore grew 5% over FY2022-23 (₹3,405.73 crore) and 12.2% over FY2021-22 (₹3,187.22 crore).
• EBITDA: FY2023-24 EBITDA of ₹949.54 crore increased 10% over FY2022-23 (₹862.76 crore) but was slightly below FY2021-22 levels(₹952.37).
• EBITDA Margin: FY2023-24 margin of 26.54% improved from 25.33% in FY2022-23, but was lower than 29.88% in FY2021-22.
• PAT: FY2023-24, reported PAT ₹723.53 crore, grew by 13% from 639.57 crore, FY2022-23. Adjusted PAT for FY 2023-24 is 810.82 cr.
• Profit Before Tax (PBT): FY2023-24 PBT of ₹790.83 crore increased 18% over FY2022-23 (₹669.55 crore) and 14.9% over FY2021-22 (₹688.01 crore).
• Gross Margins: Increased steadily, with FY2023-24 at 67.6%, up 290 bps from FY2022-23.
• Net Worth: Grew from ₹2,076.60 crore in FY2021-22 to ₹2,302.80 crore in FY2022-23, and further to ₹2,446.59 crore in FY2023-24.
• ROE (on Adjusted PAT) Decreased to 33.14% from 34.28% from the previous year, FY2022-23, but is lower than 46.28% in FY2021-22.
• ROCE (on adjusted PAT): Marginally decreased to 32.13% from 33.08%, prevoius year, FY2022-23. Lower than the figure of 40.54%, FY 2021-22.
• Debt-Equity Ratio: Remained stable at 0.03 times for both FY2023-24 and FY2022-23, down from 0.13 times in FY2021-22.

Business Segment Performance #

• Domestic Business: Grew by 4% in FY2023-24. Rural demand was impacted by inflationary pressures and a weak monsoon.
• International Business: Showed strong growth of 12% in constant currency and 9% in INR terms in FY2023-24, despite geopolitical tensions and currency depreciation in key markets. Power brands like ‘7 Oils in One’ crossed ₹1 billion in sales, and ‘Creme 21’ achieved its highest ever sales.
• Organized channels: Sales contribution grew up from 22% to 26% in FY2023-24.
• Non-seasonal brands: Increased their revenue share up to 56% in FY2023-24, from 51% of total revenue, FY 2019-20.

Major Strategic Initiatives and Their Progress #

• Strategic Investments: Foray into the juice category with a 26% stake in Axiom Ayurveda Pvt Ltd (AloFrut brand). Increased stake in Brillare Science to 100%.
• Distribution Expansion (Project Khoj): Added over 20,000 rural towns, contributing over 15% of direct rural sales and growing at approximately 30%.
• Chemist Outlet Focus (Project Chemist IQ): Added around 40,000 chemists to direct coverage.
• Upsell & Cross-Sell: Implemented a tool for the frontline sales force, increasing lines per call.
• Beat Optimization and Geo-tagging: Implemented to optimize sales representative travel and outlet mapping.
• Modern Trade and E-commerce: Achieved double-digit growth, with these channels now contributing 22% to domestic business, up from 5% five years ago.

Risk Landscape Changes #

• Macro-economy Risk: Mitigation strategies focus on a diverse product portfolio, consumer insights, flexible supply chain, and strong financial reserves.
• Raw & Packaging Material Risks: Addressed through market monitoring, hedging, strategic purchases, and diversification of the vendor base.
• Climate Risk: Countered by building a balanced brand portfolio with non-seasonal products like Zandu, Kesh King, and Fair and Handsome.
• Technology risk: Mitigated by making investments in automation and latest technologies for enhanced e/fficiency.

ESG Initiatives and Metrics #

• Energy Consumption: Reduced by 12% over FY2021-22.
• Renewable Energy: Usage contributed 19% of total energy consumption, up from FY2021-22. Solar power generation increased by 162%.
• Water Consumption: Reduced by 17% over FY2021-22. Water recycling increased by 11% over FY2021-22.
• Waste Management: Processed 10,485 MT of waste via EPR, achieving 100% compliance with EPR regulations.
• CSR Spending: ₹12.1 crore spent, benefiting 5.69 lakh individuals.
• MSME Sourcing: 34% of inputs sourced directly from MSMEs/small producers, up from 29% in FY2022-23.
• Farmer Engagement: Cultivated 19 rare herbs, engaging 1200 farmers across 300+ acres.
• Emissions: The Company saw a 9% reduction in Total scope 1+2 emissions, FY2021-22.

Management Outlook #

• The Company is optimistic about future growth, citing a favorable economic landscape, a projected normal monsoon, and anticipated rural market recovery.
• The goal is to achieve mid-double-digit revenue growth, focus remains on maintaining robust margins.
• Focus on strategic investments in D2C brands.
• Continued investment of more than H 200 cr. is planned to focus on inorganic opportunities.
• Expansion in organized channels (Modern Trade, E-commerce) and further enhancement of distribution networks.
• Commitment to further digitization, including the establishment of an analytics-led Command Centre and adoption of Generative AI.
• Strengthening of the Information Security Framework to improve resilience against cyber threats.

Detailed Analysis #

Financial Position Analysis of Emami Limited #

Three-Year Comparative Analysis (Consolidated) #

(INR in Lacs)

Significant Changes in Major Line Items (>10% YoY) #

• Non-Current Investments: Increased Significantly due investment in associates.
• Other Non-Current Financial Assets: Decrease by -35.1% primarily due to decrease in incentives receivable and reduced by other receivables.
• Current Investments: Increased by 42% due to additions in mutual funds and equity instruments.
• Trade Receivables: Increased by 19.19%
• Cash and Cash Equivalents: Increased by 13.1%.
• Current Lease Liabilities: Increased by 63.5%
• Trade Payables: Increase by 11.6%
• Other Financial Liabilities: Decreased by 19.9%.
• Provisions: Decreased by 14% due to decrease of provisions in current liabilities.

Asset Quality Metrics #

Impairment: No material risk, as management confirmed no major incidents of fraud.

• Non-Current Investments:
  • Impairment provisions are present, indicating potential past issues with the recoverability of some investments.
• Trade Receivables:
  • Presence of “credit-impaired” receivables, requiring a provision for expected credit losses. This represents assets where full collection is doubtful.

Debt Structure and Maturity Profile #

Debt Structure:

• Borrowings:
  • Current Borrowings: INR 6,568.92 lacs (FY24), largely secured by inventories and book debts.
  • Non-Current Borrowings: Not significant.
• Lease Liabilities:
  • Current portion: INR 1,283.48 lacs.
  • Non-current portion: INR 1,543.19 lacs.

Maturity Profile (Based on available data):

• Short-term: Current Borrowings and the current portion of Lease Liabilities mature within one year.
• Long-term: Non-Current Lease Liabilities extend beyond one year.

Off-Balance Sheet Items #

• Contingent Liabilities: Claims against the Company not acknowledged as debts, including those related to Excise Duty, GST, Customs demands, Sales Tax, and Income Tax.
• Guarantees: Bank Guarantees and Corporate Guarantees issued on behalf of subsidiary companies.
• Commitments:
  • Capital Commitments: Net commitments after advances.
  • EPCG Commitments: Obligations under the Export Promotion Capital Goods Scheme.
  • Financial support: Financial support to subsidiaries

Financial Performance Analysis #

Revenue Breakdown by Segment/Geography #

• Domestic Business: Grew by 4% in FY2023-24.
• International Business: Grew by 12% in constant currency and 9% in INR terms in FY2023-24.
• Non-seasonal brands: Revenue contribution increased to 56% in FY2023-24 from 51% in FY2019-20.
• Organized channels: Increased from 22% in FY2022-23 to 26% in FY2023-24 of domestic revenue (Modern Trade, eCommerce, and institutional sales).
• Modern trade and e-commerce: Contribution to domestic revenue increased from 5% to 22% over five years. E-commerce contributed approximately 12% to domestic business in FY2023-24.
• Rural coverage: Expanded to over 20,000 towns since the launch of Project Khoj. More than 15% of direct rural sales were from these newly activated towns, with ~30% growth.
• GCC region: Grew 34% (International Business).
• MENA and EU regions: Grew by 13% (International Business).
• SAARC-SEA and Africa region: Experienced Slow growth (International Business).
• Russia and CIS countries: Showed Subdued growth due to currency depreciation (International Business).
• Key international power brands (7 Oils in One and Creme 21): Achieved their highest-ever sales during the year.

Cost Structure Analysis #

• Raw material prices: Softened due to moderation in inflation, leading to gross margin expansion.
• Cost of Goods Sold (COGS): Improved due to favorable input material price trends.
• Strategic investments: More than ₹ 200 crore planned in inorganic opportunities, focusing on new product categories.
• Operating Efficiencies: Focus on optimizing efficiency and using design-to-value (DTV) approaches for cost savings.

Margin Analysis #

• Gross Margins: Increased by 290 bps to 67.6% in FY2023-24.
• EBITDA Margin: Increased by 120 bps to 26.5% in FY2023-24, surpassing pre-COVID levels.
• PAT Margin: Increased by 140 bps to 20.2% in FY2023-24.

Quarterly Gross Margins: #

• Q1FY24: 65.4% (+240 bps YoY)
• Q2FY24: 70.1% (+350 bps YoY)
• Q3FY24: 68.8% (+290 bps YoY)
• Q4FY24: 65.8% (+270 bps YoY)

Quarterly EBITDA Margins: #

• Q1FY24: 23.0% (+60 bps YoY)
• Q2FY24: 27.0% (+300 bps YoY)
• Q3FY24: 31.6% (+170 bps YoY)
• Q4FY24: 23.7% (-20 bps YoY)

Quarterly PAT Margins: #

• Q1FY24: 16.7% (+720 bps YoY)
• Q2FY24: 20.6% (-200 bps YoY)
• Q3FY24: 25.9% (+180 bps YoY)
• Q4FY24: 16.7% (-60 bps YoY)

Non-Recurring Items #

• Exceptional Items: ₹ 590 lacs reported in FY2023-24.

EPS Analysis #

• Earnings Per Share (EPS): ₹ 16.58 in FY2023-24 (PY: ₹ 14.49).
• Adjusted EPS: ₹ 18.58 (previous year adjusted: ₹ 17.90).

Quarterly Trends #

Cash Flow and Liquidity Analysis #

Operating, Investing, and Financing Cash Flow (Consolidated, FY2023-24) #

• Operating Cash Flow (OCF): Increased to ₹77,900.58 lacs from ₹73,095.99 lacs in FY2022-23. Profit before tax was ₹79,083.28 lacs, with key adjustments including depreciation and amortization (₹18,590.59 lacs), and finance costs (₹997.72 lacs). Changes in working capital contributed ₹699.76 lacs.
• Investing Cash Flow (ICF): Net outflow increased to ₹(19,228.71) lacs from ₹(10,558.67) lacs in FY2022-23. Major outflows included purchase of property, plant & equipment and intangibles (₹4,058.48) and purchase of current investment.
• Financing Cash Flow (FCF): Net outflow increased to ₹(56,296.95) lacs from ₹(60,764.49) lacs in FY2022-23. Key outflows included dividend payments (₹34,920.00 lacs), interest expense and buy back of shares.

Working Capital Management Efficiency (Consolidated) #

• Inventory days: 33 (slight decrease from 35).
• Trade receivables days: Increased from 44 days in FY2022-23 to 51 days in FY2023-24.
• Trade payables days: Slightly increased from 45 in FY2022-23 days to 46 days in FY2023-24.
• Net working capital days: Remained at 64 days.

Capex Analysis #

• Total additions for property, plant, and equipment and intangible assets amounted to ₹2,884.22 lacs during the FY2023-24

Dividend and Share Buyback Trends (Consolidated) #

• Dividends: Two interim dividends were paid, totaling ₹8.00 per share (800% of face value) in FY2023-24. The total dividend outgo was ₹34,920 lacs, with a dividend payout of 50.36%.
• Share Buyback: The Company bought back 46,50,000 equity shares for ₹18,530.23 lacs (excluding transaction cost), utilizing general reserves.

Debt Service Coverage (Consolidated) #

• Debt service coverage ratio: 11.59 times in FY2023-24, up from 10.72 times in FY2022-23.

Liquidity Position (Consolidated) #

• Current Ratio: 1.76 (up from 1.69 in the previous year).
• Cash and Cash Equivalents: ₹2,771.23 lacs at year-end.
• Other bank balance (including deposits): 14,842.62

Operational Metrics #

Key Performance Indicators #

Profitability Ratios (3-Year Trends) #

• ROE (Return on Equity) (Consolidated, on Adjusted PAT): FY24: 33.14%, FY23: 34.28%, FY22: 46.28%
• ROCE (Return on Capital Employed) (Consolidated, on Adjusted PAT): FY24: 32.13%, FY23: 33.08%, FY22: 40.54%
• EBITDA Margin (Consolidated): FY24: 26.54%, FY23: 25.33%, FY22: 29.88%
• Adjusted PAT Margin (Consolidated): FY24: 22.66%, FY23: 23.18%, FY22: 26.81%
• Net Profit Margin: FY24: 20.51%, FY23: 18.66%

Liquidity Metrics #

• Current Ratio (Consolidated): FY24: 1.76, FY23: 1.69

Efficiency Ratios #

• Inventory Turnover Ratio (Consolidated): FY24 sales divided by average inventory shows an improving trend as Emami’s sales are increasing. Revenue from operations/average inventories in days show increase in holding period of inventories.

Leverage Metrics #

• Debt-Equity Ratio (Consolidated): FY24: 0.03, FY23: 0.03, FY22: 0.13
• Interest Coverage Ratio (Consolidated): FY24: 80.26, FY23: 91.59, FY22: 137.72

Working Capital Ratios #

• Trade Receivable days: FY24: 51 days, FY23: 44 days
• Inventory days: FY24: 33 days, FY23: 35 days
• Trade Payable Days: FY24: 46 days, FY23: 45 days
• Net Working Capital (Days): FY24: 64, FY23: 64

Comparison with Industry Averages and Significant Deviations #

• Industry Profitability: India’s FMCG sector reported a growth of 4.5-6.5% in 2024. Emami reported consolidated PAT growth of 13.1% and revenue growth of 5.1% for FY24.
• Leverage Ratios: Emami’s low debt-to-equity ratio deviates significantly below the industry average.

Financial Performance Analysis #

Revenue and Profitability Metrics #

• Consolidated revenue from operations reached ₹3,578.09 crore, a growth of 5% YoY.
• Domestic Business grew by 4% YoY.
• International Business grew by 12% in constant currency and 9% in INR terms YoY.
• Gross margins at 67.6% increased by 290 bps YoY.
• EBITDA at ₹949.54 crore, grew by 10% YoY.
• EBITDA margin at 26.5% increased by 120 bps YoY.
• Profit Before Tax (PBT) at ₹790.83 crore, grew by 18% YoY.
• PBT margin at 22.1% grew by 240 bps YoY.
• Profit After Tax (PAT) at ₹723.53 crore, grew by 13% YoY.
• PAT margin at 20.2% grew by 140 bps.
• Adjusted PAT ₹810.82 crore.
• ROE (on Adjusted PAT) 33.14 %.
• ROCE (on Adjusted PAT) 32.13%.

Market Share and Competitive Position #

• Navratna Cool Oil: 62.8% market share (by volume) in the cooling oil category.
• BoroPlus Antiseptic Cream: 78.3% market share (by volume).
• Kesh King Oil’s market share increased by 20 bps to 29.3%/4% respectively.
• Fair and Handsome Cream: 67.3% market share (by volume).
• Dermicool: 35.6% market share (by volume) in Prickly Heat + Cool Talc category.
• 6 brands that led their segments.

Key Products/Services Performance #

• Navratna: Navratna Cool Oil category size is ₹1048 crore. 3.2cr+ households are using it. Navratna Gold was promoted through e-commerce and modern trade.
• Pain Management (Zandu, Mentho Plus, Fast Relief): Zandu Ortho Vedic Oil was highlighted for providing relief from knee and joint pain in 7 days.
• BoroPlus: Antiseptic Cream and Body Lotion offtake were strengthened through marketing campaigns. Prickly Heat Powder and Soaps grew in double digits.
• Kesh King: Oils market share increased. Kesh King Shampoo’s penetration grew by 35% as per MAT June'23, reaching nearly 60 lac households.
• Fair and Handsome: Face wash showed strong growth, becoming the second fastest-growing brand in the men’s face wash category. 100% oil clear facewash variant was promoted.
• Dermicool: Delivered double-digit growth despite untimely rains.
• Zandu Healtcare: Sales of Zandu Pancharishta at ₹ 1,82 Cr. Pancharishta sugar-free variant was introduced.
• Zandu Chyavanprash, Zandu Kesari Jivan, Zandu Pure Honey saw specific marketing initiatives.

Geographic Distribution and Market Penetration #

• Overall Reach: Approximately 1 million retailers accessed directly, with an overall retail reach of around 5.1 million stores (direct and indirect).
• International Business: Present in over 70 countries. Cluster-wise revenue contributions for FY24 include: SAARC (32%), MENAP (31%), SEA & Others (21%), CIS (10%), and Africa (6%).
• Rural Expansion: Project Khoj added over 20,000 villages to the distribution footprint. More than 15% of direct rural sales were achieved from these newly activated coverage towns.
• Organized Channels: Sales contribution from organized channels (Modern Trade, eCommerce, and institutional sales) increased from 22% in FY2022-23 to 26% in FY2023-24.
• E-commerce: Reaching over 17,000 pin codes representing 94% of national pin code footprint.

Segment-wise CAPEX and ROIC #

• Capital employed :₹ 2,096.36 crore
• ROI (calculated on standalone basis) : 5.98 %

Operational Efficiency Metrics #

• Production plan adherence: 99%.
• Reduced energy consumption by 12% over FY2021-22.
• Renewable energy contribution: 19%.
• Reduced water consumption by 17% over FY2021-22.
• Waste processed via EPR: 10,485 MT; 100% compliance with EPR regulations.
• Inventory Optimization: Reduced by 2 days.

Growth Initiatives and Challenges #

• Growth Initiatives:

  • Strategic investment in Axiom Ayurveda Pvt Ltd (AloFrut brand).
  • Increased stake in Brillare Science to 100%.
  • Project Khoj: Expanded rural distribution.
  • Project Chemist IQ: Added around 40,000 new chemists to direct coverage.
  • Upsell Cross-Sell Tool: Implemented nationally for retail medical representatives.
  • Beat optimization and geo-tagging: Improved sales representative efficiency.
  • D2C investments in various new age categories.

• Challenges:

  • Slowdown in the FMCG sector, particularly impacting rural demand.
  • Inflationary pressures affecting household spending.
  • Unseasonal rains and a delayed/milder winter impacting sales of seasonal products.
  • Geopolitical tensions and currency depreciation in international markets.

Risk Assessment and Mitigation Strategies #

Strategic Risks #

• Severity: High
• Likelihood: Medium
• Trend: Increasing
• Description: Acquisitions (Zandu, Kesh King, Creme 21, Dermicool) constitute approximately 45% of the FY2023-24 topline, indicating a significant dependence on the success of these integrations. Failure to deliver value from acquisitions can directly impact long-term growth. The company plans to invest more than ₹200 crore in inorganic opportunities.
• Mitigation Strategies: Comprehensive due diligence on target companies (evaluating financial performance, legal compliance, operational efficiency, and cultural compatibility). Post-acquisition focus on integrating the acquired entity by aligning vision, values, processes, and systems.
• Control Effectiveness: Partially Effective. Historical turnaround of Zandu and successful integration of Kesh King, Creme 21, and Dermicool. However, the inherent risk of any acquisition remains.
• Potential Financial Impact: Substantial. Failure could impact long-term growth, especially if acquisitions continue to constitute a significant part of the revenue stream.

Operational Risks #

Fluctuating Demand and Slow Growth in FMCG Sector #

• Severity: High
• Likelihood: Medium
• Trend: Stable (potential for cyclicality)
• Description: FY2023-24 saw a general slowdown, with revenue growth at 5%. Future recovery is dependent on a general economic and rural market recovery, as well as effective distribution.
• Mitigation Strategies: Long-term bookings with suppliers, use of digital platforms and e-auctions for competitive pricing, diversification of supplier base, expansion of retail outlets, and utilization of upsell/cross-sell algorithms.
• Control Effectiveness: Partially Effective. These measures have helped navigate supply chain disruptions and maintain EBITDA margins.
• Potential Financial Impact: Variable. Depends on the success of cost-saving initiatives and maintaining supply chain.

Dependency on Manufacturing Efficiency #

• Severity: High
• Likelihood: Low
• Trend: Improving
• Description: Maintaining high manufacturing efficiency is critical. The Company reported 99% adherence to the production plan and reduced energy and water consumption.
• Mitigation Strategies: Material Requirements Planning (MRP) system, integrated ERP, automated production and packaging, multi-stage quality checks.
• Control Effectiveness: High. Certifications (ISO 9001:2015, ISO 31000:2009, WHO GMP renewal) and consistent production quality demonstrate effectiveness.
• Potential Financial Impact: Moderate. Improvements in manufacturing efficiency can lead to cost savings.

Financial Risks #

Exposure to Foreign Currency Risk #

• Severity: Medium
• Likelihood: Medium
• Trend: Fluctuating
• Description: International business grew by 12% in constant currency but only 9% in INR terms due to currency depreciation, primarily in Bangladesh Taka & Rouble.
• Mitigation Strategies: Timely and effective hedging strategies to protect receivables, market diversification, pricing strategies, and inventory management.
• Control Effectiveness: Partially effective. Growth in constant currency terms demonstrates some success, but currency depreciation still had a notable impact.
• Potential Financial Impact: Significant, depending on the foreign currency exposures and how they might affect.

Compliance/Regulatory Risks #

• Severity: Medium
• Likelihood: Low
• Trend: Stable
• Description: Risk of non-compliance with evolving laws and regulations.
• Mitigation Strategies: Zero-tolerance policy for non-compliance. Implementation of a Compliance Management Tool, development of procedures, systems, and checks. Management tools and compliance systems to keep all functions informed.
• Control Effectiveness: High. The Company uses a Compliance Management Tool and conducts assessments with external compliance software, achieving real-time compliance reports. Compliance checkpoints include Secretarial, Internal, and Statutory Auditors, with quarterly confirmations from responsible personnel.
• Potential Financial Impact: Moderate to high. Penalties and reputational damage from non-compliance.

Emerging Risks #

Outdated Technology #

• Severity: High
• Likelihood: Low
• Trend: Decreasing
• Description: Potential for outdated technology to impact productivity.
• Mitigation Strategies: Investment in automation and contemporary technologies, including AI and ML for demand prediction, geo-coding of outlets, cross-sell and upsell tools. Establishment of a comprehensive Information Security Management System.
• Control Effectiveness: Moderate to High. The deployment of tools like beat optimization and geo-tagging is ongoing.
• Potential Financial Impact: Moderate. Impacts operational efficiency and productivity.

Climate Risk Impacting Product Offtake #

• Severity: Medium
• Likelihood: Medium
• Trend: Increasing
• Description: Climate risk impacting product offtake.
• Mitigation Strategies: Diversifying product portfolio to include non-seasonal brands (Zandu, Kesh King, Fair and Handsome, 7 Oils in One), which now contribute 56% of revenues (up from 51% in FY2019-20).
• Control Effectiveness: Partially Effective, as the seasonality is still a factor.
• Potential Financial Impact: Variable, may impact raw material sourcing, for example.

Strategic and Management Analysis #

Long-Term Strategic Goals and Progress #

• Emami aims for mid-double-digit percentage annual growth.
• Transitioning from a seasonal and rural-focused company to a perennial and universal organization. Non-seasonal brands now contribute 56% of revenue, up from 51% in FY2019-20.
• Focuses on growing addressable markets by way of under-penetration.
• Geographic expansion is a key strategy, with a presence in over 70 countries.
• Invests in Direct-to-Consumer (D2C) brands.
• Planned to invest more than 200cr in inorganic opportunities.
• Focusing on growing revenue and maintaining robust margin.

Competitive Advantages and Market Positioning #

• Holds leadership positions in niche segments like Navratna, BoroPlus, and Fair and Handsome.
• Six of Emami’s brands are segment leaders.
• Demonstrated a first-mover advantage in under-penetrated spaces.
• Leverages a strong Ayurvedic heritage, combined with modern science.
• Wide distribution network covers approximately 1 million direct reach retail outlets and reaches an overall 5.1 million stores, including indirect coverage.

Innovation Initiatives and R&D Effectiveness #

• Emphasizes innovation, launching over 50 new products in FY2023-24.
• R&D focuses on addressing niches and white spaces, and developing next-generation products for the D2C business model.
• Utilizes “Ready-to-Deploy Intelligent Toolboxes” to accelerate D2C and e-commerce launches.
• Investments are made in state-of-the-art R&D centers and specialized talent.
• Leveraging artificial intelligence tools to design products with superior sensorial qualities.
• Delivered significant cost savings through the design-to-value program.
• Emphasizes the development of nature-based, organic, and Ayurvedic products, certified by Ecocert, Cosmos, and NPOP.
• Cultivation of 19 rare herbs and engagement with 1200 farmers demonstrates commitment to sustainable sourcing.

M&A Strategy and Execution #

• Has a history of strategic acquisitions, including Zandu, Kesh King, Creme 21, and Dermicool, which now contribute approximately 45% of the topline.
• Acquired brands, such as Zandu, have been successfully turned around.
• Increased its stake in Brillare Science to 100%.
• Entered the juice category with a 26% equity stake in Axiom Ayurveda Pvt Ltd.

Management’s Track Record in Execution #

• The founders and second-generation promoters lead Emami, backed by a team of seasoned professionals.
• Successfully turned around and integrated acquired brands like Zandu, Kesh King, and Dermicool.
• Successfully navigated challenges like the abbreviated winter seasons, inflation, and currency depreciation.
• The management has a zero-tolerance policy for legal and regulatory non-compliance.
• Introduced a quality alert tool to address quality defects before escalation.
• The company’s workforce is diversified.
• The company adopted the lean operational principles to identify and eliminate waste, implemented just-in-time inventory management.

Capital Allocation Strategy #

• Prioritizes profitable growth, with profit growth percentage exceeding revenue growth percentage.
• Reinvests earnings to widen its distribution network.
• Significant investments are made in brand spending, with H652 crore spent in FY2023-24, representing 18.2% of revenues.
• Strategic investments are made in sunrise D2C categories, with two acquisitions now contributing more than 5% of FY2023-24 revenues.
• The company is cash-rich.

Organizational Changes and Their Impact #

• A shift from a product-centric approach to a consumer-centric approach is evident.
• A blended approach is adopted, with both entry-level pricing for accessibility and a premium positioning.
• The company fostered brand familiarity within the target audience.
• Emami has increased the workforce’s focus on digital channels.
• Emami’s focus on strategic partnerships and collaborations with local farmers, self-help groups, and government institutions.
• The company successfully implemented the Compliance Management Tool, enhancing compliance monitoring.
• The implementation of the supervisor mobile app for field staff is a key initiative.
• Enhanced data management practices through pilot digitization of batch manufacturing records.

ESG Framework and Sustainability Analysis #

Environmental Metrics and Targets #

• Energy consumption was reduced by 12% compared to FY2021-22.
• Renewable energy usage contributed 19% to total energy consumption.
• Water consumption was reduced by 17% compared to FY2021-22.
• Total Scope 1+2 emissions were reduced by 9% compared to FY2021-22.
• Solar power generation increased by 162% compared to FY2021-22.
• Water recycling increased by 11% compared to FY2021-22.
• 10,485 MT of waste was processed via EPR, achieving 100% compliance with EPR regulations.
• A project to upcycle hazardous waste resulted in upcycling over 50MT of hazardous waste.
• The company aims to increase the proportion of recyclable packaging by 2%.
• Plans to introduce 30% post-consumer recycled material for Category-1 packaging by FY2025-26.

Social Responsibility Programs #

• ₹12.1 crore was spent on CSR initiatives, benefiting 5.69 lakh individuals.
• Financial assistance was provided to over 2,300 underprivileged students.
• Educational infrastructure investments benefited 2,100 students.
• After-school coaching programs supported over 120 students.
• Skill development programs empowered nearly 1,000 underprivileged youth.
• Hunger mitigation programs reached over 470,000 impoverished individuals.
• Outpatient clinics at CSR centers provided healthcare services to nearly 76,000 patients.
• Financial aid for medical intervention was provided to over 700 patients.
• Water and sanitation programs were delivered to 7,500 beneficiaries.
• Street rescue and rehabilitation drive impacted nearly 6000 lives.
• 34% of inputs were sourced directly from MSMEs/small producers.
• Farmer engagement programs cultivated 19 rare herbs and engaged 1,200 farmers across 300+ acres.

Governance Structure and Effectiveness #

• The Board of Directors includes expertise in taxation, banking, finance, entrepreneurship, marketing, consumer mapping, legal, and general management.
• Key Board skillsets include leadership, strategic planning, M&A, consumer insights, innovation, marketing, financial and risk management, supply chain management, and governance oversight.
• A Compliance Management Tool is used to enhance regulatory compliance awareness and monitoring.
• The Board has established various Board-level committees (Audit, Nomination and Remuneration, Stakeholders Relationship, Corporate Governance, CSR, Risk Management, Finance, and Share Transfer).
• Executive compensation is overseen by the HR Department and the Nomination and Remuneration Committee, adhering to corporate standards and legal requirements.
• A comprehensive policy on the materiality of Related Party Transactions is in place, aligned with Regulation 23 of the SEBI Listing Regulations 2015.
• The Company utilizes a Registrar & Transfer Agent and dedicated email ID for investor services, along with registration with SCORE and ODR for grievance redressal.

Sustainability Investments and ROI #

• The company is increasing its focus on renewable energy sources.
• Focus on Operational Efficiency: The Company seeks to optimize efficiency across all business processes, as highlighted in the Managing Director’s Review.

ESG Ratings and Certifications #

• ISO 9001:2015 certification for processes and systems.
• WHO GMP renewal audit for Healthcare units was completed, with re-issuance of COPPs for over 47 products.
• The Company’s Pacharia unit received the Gold Award for Occupational Health & Safety.

Regulatory Compliance and Future Preparations #

• The Company maintains a zero-tolerance policy for legal and regulatory non-compliance.
• A Compliance Management Tool is in use for compliance monitoring across all functions.
• Compliance with EPR regulations is at 100%.
• Regulatory compliance excellence is emphasized, with regular audits and assessments across operations.
• The company aims to meet plastic waste management rule targets by FY2025-26
• The Company Secretary is responsible for ensuring adherence to all applicable laws.

Forward Outlook #

Management Guidance and Assumptions #

• Management aims for mid-double-digit percentage growth annually.
• Management assumes personal income increases will drive increased personal care spending.
• Management believes sustained investment is key to growth.
• Management is focused on growing revenues, expanding markets, and capturing incremental growth.
• No specific assumptions about currency movements are considered.

Market Growth Forecasts #

• The FMCG sector is expected to grow to USD 192 billion by the end of 2024 and reach USD 220 billion in 2025.
• India’s FMCG sector is expected to grow 4.5-6.5% by value in 2024.
• FMCG segment market size growth by 2030 is estimated at USD 21 trillion, reaching USD 937.5 billion by 2032, with an 18.24% CAGR during 2024-2032.
• The number of internet users in India is expected to surpass 1 Billion by 2030.

Planned Strategic Initiatives #

• Maintain agility and a strategically driven entrepreneurial approach.
• Focus on capturing market share and growing markets.
• Strengthen the distribution pipeline, both directly and through new-age channels.
• Expand modern trade and e-commerce presence.
• Pursue inorganic growth through acquisitions and investments, particularly in D2C brands, with a planned investment of over ₹200 crore.
• Introduce low-priced packs to service a new consumer class and encourage daily use, then gradually move them to premium products.
• Strengthen presence in non-seasonal product categories.
• Continue leveraging the “Emami touch” for the turn around of acquired brands.
• Digitize Supply Chain processes, spanning Sales & Operations Planning, Demand & Supply Planning, and other critical operations.
• Digitize its Budget Planning and MIS process with an integrated digital platform.
• Develop a solution for the pre-procurement process.
• Streamline manufacturing operations for efficiency and cost-effectiveness.
• Leverage third-party manufacturing partnerships to reduce time-to-market.
• Prioritize localized production for international business.

Capital Expenditure Plans #

• Invest in automation and contemporary technologies to enhance efficiency and productivity.
• Establish a comprehensive Information Security Management System.
• Invest more than ₹200 crore in inorganic growth opportunities.
• Continue consolidating its presence in new-age spaces.

Efficiency Improvement Targets #

• Achieve higher savings in 2024 through purchase cost reduction and cost avoidance strategies.
• Target annual mid-double-digit percentage growth.
• Gross margins expanded as inflation remained under control with an expectation of further expansion.
• Strive for EBITDA margin improvements.
• Increase capital efficiency and strengthen cash reserves.
• Optimize sales beat to improve efficiency and coverage.
• Enhance efficiencies in newly added towns and stores.
• Improve process efficiencies in the Modern Trade Channel.
• Drive retail growth through the implementation of upsell-cross-sell algorithms.
• Enhance warehouse operations with QR code-enabled picking and packing.
• Increase recyclable and biodegradable materials in packaging.
• Meet regulatory requirements and sustainability goals by introducing 30% post-consumer recycled material for Category-1 packaging, along with 10% for Category-2 and 5% for Category-3 by FY2025-26.
• Enhance the proportion of recyclable packaging materials in its total packaging material consumption by 2%.
• Reduce resource intensity, waste and emissions.
• Increase renewable energy contribution to total energy consumption.
• Reduce energy consumption and emissions per unit of output.
• Maximize use of treated effluents for toilet and gardening needs.
• Reduce water use year-on-year across operations.

Potential Challenges and Opportunities #

• Challenges:
  • Macro-economic risks impacting FMCG industry growth.
  • Product liability risks.
  • Raw and packaging material risks.
  • Climate risks impacting offtake.
  • Regulatory and compliance risks.
  • Foreign currency risks.
  • Acquisition risks.
  • Technology risks.
  • Human capital risks.
  • Geo-political tensions and supply chain disruptions.
• Opportunities:
  • Leverage rising disposable incomes and the expanding consumer base in India.
  • Capitalize on the growth of modern trade, e-commerce, and D2C channels.
  • Expand product portfolio into new categories through strategic investments and acquisitions.
  • Grow market share by focusing on under-penetrated segments.
  • Enhance brand recall and consumer loyalty through differentiated product positioning and marketing.
  • Expand international presence and tailor products to local needs.
  • Leverage Ayurveda and natural ingredients to create innovative products.
  • Implement cost optimization and efficiency improvement initiatives.
  • Enhance sustainability practices to meet evolving consumer preferences and regulatory requirements.

Scenario Analysis and Sensitivity to Key Assumptions #

• Slower-than-expected economic growth in India: Lower revenue growth than targeted. Sensitivity analysis should focus on the impact of lower volume growth on profitability and cash flow.
• Higher-than-expected raw material price inflation: Pressure on gross margins. Sensitivity analysis should examine the impact of different levels of cost inflation on profitability.
• Successful execution of D2C and e-commerce strategy: Higher revenue growth and improved margins. Sensitivity analysis should consider the impact of varying levels of D2C/e-commerce contribution on overall revenue and profitability.
• Change to taxes payable: If there is a tax policy change in the near term, the Company may exercise the option under section 115BAA of the IT Act for lower tax rates.

Audit and Compliance Analysis #

Auditor’s Opinion and Qualifications #

• Standalone Financial Statements: The auditor’s report on the standalone financial statements for the year ended March 31, 2024, contains no qualifications, reservations, adverse remarks, or disclaimers.
• Consolidated Financial Statements: The auditor’s report on the consolidated financial statements contains a qualified opinion. This qualification is due to the financial results/statements of one subsidiary being unaudited, having been furnished by management. The management does not expect a significant impact if audited.

Key Accounting Policies and Changes #

• Revenue Recognition: Revenue is recognized when control of goods transfers to the customer, net of variable considerations like discounts and rebates. The expected value or most likely method is used to estimate variable consideration.
• Property, Plant & Equipment (PP&E): Stated at acquisition cost less accumulated depreciation and impairment. Depreciation is provided on the straight-line method over estimated useful lives, with some assets (buildings, plant & machinery) having useful lives differing from Schedule II of the Companies Act, 2013.
• Investments: Investments in subsidiaries and associates are carried at costs.
• Leases: The Company has adopted Ind AS 116.
• Accounting Policies Changes: Amendments in IND AS8 may impact future accounting, with a focus on disclosures.

Internal Control Effectiveness #

• The Company maintains an adequate system of internal controls commensurate with its size and operations.
• The internal audit department and risk management system are accredited with ISO 9001:2015 and ISO 31000:2018 certifications, respectively.
• The Audit Committee reviews internal audit findings.
• The company also has a Whistle-blower policy.

Regulatory Compliance Status #

• The Company states compliance with the Companies Act, 2013, and SEBI (Listing Obligations & Disclosure Requirements) Regulations, 2015.
• Compliance with Secretarial Standards SS-1 and SS-2.
• An online compliance management tool is used for real-time monitoring, covering all locations, including subsidiaries.
• Compliance checkpoints include Secretarial Auditors, Internal Auditors, and Statutory Auditors.
• Quarterly confirmations of compliance from responsible personnel at business locations.
• 100% compliance with EPR regulations related to plastic waste management.

Legal Proceedings and Potential Impact #

• The Company has disclosed the impact of pending litigations on its financial position.
• There were no material orders passed by regulators/courts/tribunals impacting the going concern status.

Related Party Transactions #

• All related party transactions were conducted in the normal course of business on an arm’s length basis.
• No materially significant agreements, contracts, or arrangements with related parties were entered during the year.
• An omnibus approval process is in place for repetitive transactions, with quarterly review by the Audit Committee.
• Disclosure of related party transactions is made in compliance with Ind AS 24 and reported quarterly in the Corporate Governance Compliance Report.

Accounting Quality and Regulatory Risk Assessment #

• Accounting Quality: The use of estimates and judgments (e.g., useful lives of assets, impairment assessments, provisions) is noted. The auditor’s qualified opinion on consolidated financial statements is related to an unaudited subsidiary and is not material. There is a structured process of Board and Audit Committee review of Financials.
• Regulatory Risk:
  • The Company claims overall compliance with applicable laws and regulations.
  • A robust compliance management system and monitoring process are in place.
  • Engagement with regulatory authorities and industry associations is mentioned.
  • The Company emphasizes a zero-tolerance policy for legal and regulatory non-compliance.
  • Specific risks identified and mitigated include regulatory and compliance risk, through the use of a Compliance Management Tool and a culture of strong governance.