Emami eyes summer recovery as new-age portfolio supports growth and margins

Investment View and Key Takeaways

Motilal Oswal Financial Services Limited described Emami's 4QFY26 performance as an uninspiring print, with weak seasonal demand and West Asia disruption causing a revenue and EBITDA miss. Nevertheless, the broker reiterated its Buy view and retained a target price of Rs 525, compared with the CMP of Rs 414.

The positive view is supported by an expected recovery in the summer portfolio from 1QFY27, continued growth from the new-age portfolio and strategic subsidiaries, and Emami's core-brand market leadership and valuation. The target price is based on 25 times March 2028 estimated EPS.

4QFY26 Operating Performance

Emami's consolidated net sales declined 4% year-on-year to Rs 9,251 million in 4QFY26, versus MOFSL's estimate of Rs 9,454 million. Domestic revenue fell 3%, as domestic volumes declined 7%. Unfavourable weather affected the summer portfolio, which declined 22%, with talcum powders falling 40%.

Kesh King delivered its second consecutive quarter of growth following nine quarters of decline, supported by its revamp. In contrast to the weak summer portfolio, the non-summer domestic portfolio grew 11%, including 7% volume growth.

International Business and New-Age Channels

International revenue declined 5% in 4QFY26 as the West Asia conflict disrupted supply chains and increased freight costs. Management expects the international business to stabilise by June and deliver double-digit growth by 2QFY27.

Strategic subsidiaries grew 34% during the quarter, and management expects their growth momentum to continue. D2C brands contributed 9% of Emami's domestic business, up from 5% in FY23. Management also indicated that margins in new-age channels are now closer to general-trade margins.

During FY26, Emami reduced trade receivables by more than Rs 1,000 million, implying a 10-day improvement in the working-capital cycle.

Profitability and Earnings

Gross margin expanded 230 basis points year-on-year to 68.4% in 4QFY26, supported by disciplined cost management, calibrated pricing and operational efficiencies. However, employee expense increased 6% and advertising spending rose 12%. Operating deleverage caused EBITDA margin to contract 260 basis points to 20.2%, below MOFSL's estimate of 21.8%.

Lower tax led adjusted PAT to decline 12%, although it was ahead of MOFSL's estimate. For FY26, revenue declined 1%, EBITDA declined 6% and adjusted PAT declined 3%.

Earnings Outlook and Growth Priorities

MOFSL has largely maintained its earnings estimates and forecasts a recovery in FY27, supported by the summer portfolio, new-age brands and strategic subsidiaries.

Emami is rebranding its portfolio to reduce seasonal dependence and expanding distribution, particularly through modern trade, e-commerce and quick commerce. MOFSL believes Emami's market leadership in core categories should improve its ability to pass on raw-material pressure, limiting FY27 margin risk relative to peers.

Key Risks

• Another weak summer season could delay the expected recovery in the summer portfolio.
• Continued geopolitical disruption in West Asia could affect international operations, supply chains and freight costs.
• Raw-material cost pressure could affect profitability.
• Weaker volumes or sustained brand investment could create operating-margin pressure.