Emami bets on winter demand as inflation keeps a lid on growth

Inflation remains the biggest factor that could temper demand growth, even as consumer sentiment improves and rural demand holds up despite the patchy and deficient monsoon this year, Emami Ltd vice chairman and managing director Harsha Vardhan Agarwal said.

Talking to ET after announcing the company’s quarterly results, Agarwal said demand could strengthen further if inflation remains under control. While rising input costs have necessitated product price hikes, the company has begun seeing encouraging signs in the winter portfolio, with trade sales picking up.

“Rural demand is consistent. If the monsoon had been normal, our results in the second quarter would have been even better. Right now, all signals on the geopolitical front are also positive, and the only factor to monitor is inflation. We expect to sustain the growth momentum in the second half of the fiscal,” Agarwal said.

Emami, the maker of BoroPlus and Zandu Balm, on Thursday reported a 36% year-on-year increase in consolidated revenue to Rs 1,088 crore for the second quarter ended September. Revenue from its domestic business grew 49%, driven by volume growth of 43%.

However, consolidated net profit declined 3% to Rs 144 crore due to the normalisation of the effective tax rate following the phase-out of fiscal incentives. Earnings before interest, tax, depreciation and amortisation (EBITDA) rose 25% to Rs 222 crore.

The company said the operating environment during the quarter remained challenging, with renewed geopolitical tensions in West Asia, floods in Nepal, persistent inflationary pressures across several commodity categories and deficient rainfall in parts of the country.
Agarwal said Emami had taken price increases to offset raw material inflation and would be able to improve margins if prices remain at current levels. The company raised prices by 4-5% in the first half of the fiscal and is also undertaking cost-efficiency measures to absorb the remaining input cost increases.Emami’s skin care business grew 31% during the quarter, while hair care expanded 30% and healthcare 11%. Its strategic investments portfolio grew 73% on a like-for-like basis and now accounts for 26% of domestic business, compared with 8-9% a year ago.

The portfolio comprises newer-age businesses and brands acquired by the company. Agarwal said the segment is expected to generate revenue of more than Rs 800 crore in the current fiscal, underlining its growing contribution to Emami’s overall business.