Why Has Emami Disappointed Investors For Five Years Despite Bull Runs On Stock Markets?

Indian stock markets have seen significant growth in the last five years with companies posting good returns. However, FMCG major Emami Ltd, which owns popular brands like Kesh King and Navratna, stands out as an exception

Last five years have seen several bull-runs on the Indian stock markets. While the BSE 30 index has given 75 per cent return in this period, the NSE-50 index has also increased investors’ wealth by 71 per cent. Despite the blip of Covid, most listed companies with a sound business model have given decent returns to investors. But FMCG major Emami Ltd stands out as an exception. The Kolkata-headquartered company’s stock price has plunged over 20 per cent in the last five years. For a perspective on the opportunity cost to investors, the Nifty FMCG index gained nearly 70 per cent during the same period.  
The company’s stock has been trading below the all-time high of Rs 682 it touched on January 10, 2018, on the NSE for a while now. On the BSE, the Emami stock has slipped over 19 per cent compared to a 55 per cent growth in the BSE FMCG index.  
Established in 1974, Emami is the flagship company of the Emami Group that owns seven manufacturing units across India along with one overseas factory. It caters to several niche categories. Some of the well-known brands owned by Emami include Kesh King, Navratna, Boroplus, Zandu, Mentho Plus, and Fair & Handsome. The FMCG major had also acquired Dermicool from Reckitt for Rs 432 crore in 2022.  
Despite the solid performances of FMCG and benchmark indexes, the decline in share price of a company which owns several popular brands throws up an interesting question. Is it a case of undervaluation or rather a reflection of underlying issues with the company’s business? 
Competitors Outpace Emami 
Looking at the financials of the company in the last five years, the company’s profit after tax (PAT) has increased from Rs 306 crore in FY18 to Rs 627 crore in FY23. A rise of 104 per cent in PAT would generally be seen as a reason for investors’ confidence in a company’s stock. But the case of Emami shows that the sentiment of investors in the stock market depends on an overall outlook of company’s business.  
While the company was able to post growth in some key indicators, it was lower than its competitors in the market. Between the financial years 2018 and 2023, Emami’s gross sales increased by 34 per cent from Rs 2,540 crore to Rs 3,405 crore. Its total income in the same period increased by 32 per cent to Rs 3,474 crore.  
Its competitors Dabur India Ltd, Hindustan Unilever, Nestle and Marico India’s numbers throw a light on Emami’s underperformance. As seen in the table of growth in the last six financial years, the company was behind in terms of growth in all the indicators analysed except PAT. 

Table 1


Shashwat Grover, senior consultant, Financial Advisory & Valuations Services, Aranca points out better performance by rival companies for the plight of Emami stock price. "From FY18 to FY23, Emami's revenue growth was only modest, while some competitors like Godrej Consumers, Hindustan Unilever, and Marico saw much better growth.”  
Competitors' better performance is reflected in the strong growth of their share prices in the last five years. It appears that they have benefitted from the multiple bull runs and confidence of investors in the Indian stock market.  

Graph 1

Anita Gandhi, Whole-Time Director, Head of Institutional Business at Arihant Capital Markets Ltd, says that Emami’s competitors were able to match the pace of industry’s growth. “HUL has capitalised on increasing consumer demand in segments like personal care, home care, and refreshments. Nestle exhibited significant growth, expanding its market presence with diverse products like water, coffee, tea, and food. Dabur India, focusing on Ayurvedic and personal care products, maintained steady growth and a substantial market share,” she adds.   
Given the performance of Emami compared to its peers, another factor that weighed on the stock prices of the company was its high price to earnings ratio. According to data sourced from Ace Equity, the firm’s PE ratio was over 70 in the financial year 2018.    
“The stock was trading at a higher price compared to its earnings. To justify that kind of value over the long term, a company needs strong growth and stable margins," Grover says. 
While the company’s underperformance in several key indicators translated into lower confidence among investors, analysts point to the decision of pledging a large number of shares by firm’s promoters for explaining the negative sentiment around Emami’s stocks.  
Pledged Shares Play Spoil Sport 
According to the available data, the promoters’ shareholding that was pledged was as high as 89 per cent in 2020. Pledging of shares refers to when the promoters of a company pledge their shares as collateral to secure a loan or meet their financial requirements. In simple terms, pledges in the stock markets means taking a loan against its securities. High amount of pledged shares is perceived negatively by investors which in turn reflects in the price of the company on the bourses.  
According to Gandhi, the pledging of shares by promoters might have raised concerns among investors, leading to negative market sentiment. According to BSE website, promoters own 54.52 per cent of the stake in the company currently.  
To address investors' concern, the promoters vowed to reduce their pledged shares to zero by hiving off group’s assets. In the last few years, the promoters have sold their stake in several businesses. In 2021, the company had sold its cement business to Nirma Group for Rs 5,500 crore. This deal helped the promoters reduce their pledged shares ratio to 45 per cent from 89.  
Emami’s vice chairman Mohan Goenka had said last year that the pledged shares number would further be reduced by selling the group’s hospital chain and real-estate owned by the promoters and a few group companies.  
Emami is awaiting West Bengal government’s approval to sell its AMRI Hospitals Ltd to Manipal Health Enterprises. Emami Group owns 98 per cent in AMRI Hospitals and the West Bengal government owns the remaining 2 per cent. A “no-objection” certificate is required from the government for the proposed takeover. In May 2023, the group sold its solar power business to a Canadian investment company, Brookfield Asset Management, through a 100 per cent stake sale. 
As a result of promoters’ bid to reduce the pledged shares, the number has come down to around 33 per cent. With the Indian markets setting new records and the economy continuing its recovery from the pandemic shock, there are hopes that the company’s stock may finally post positive momentum in the coming years.  
Can Emami Become Wealth Creator Again? 
Analysts studying the company suggest that the company will have to work on the fundamentals of its group’s business to gain investors’ trust. "The mixed demand environment, especially in discretionary categories like personal care, has raised uncertainties about the company's prospects. Improvements in distribution channels and consistent long-term growth may be required to regain investor trust," says Gandhi.  
In addition to it, the company’s inability to gain market share in its product segments has raised worries about its growth prospects, impacting investor confidence. Compared to other FMCG brands like ITC, Britannia, Nestle, Marico, Colgate Palmolive, and Hindustan Unilever, Emami has not been able to capitalise on its brand and build upon its past growth.  
“The group needs to have a serious relook at its various businesses and regroup its resources towards those businesses where its core strength lies and it sees maximum potential in the years to come,” Amar Singh Deo, head advisory at Angel One Ltd, says.  
Emami’s strength lies in its range of products, including popular brands like Zandu, Boroplus, and Kesh King. The firm can boost its market position and growth potential by focusing on marketing these well-known brands and launching new products.  
According to Kaustubh Pawaskar, DVP Fundamental Research at Sharekhan by BNP Paribas, sustained focus on product launches, distribution expansion, scale-up of emerging channels, a strong pipeline of D2C brands, growth in international business, and improved penetration will help to improve its growth prospects in the medium term. With stabilising raw material prices, the margins are expected to improve in the coming years.  
Whether Emami is able to capitalise on several brands it owns and reap the benefits of the sustained investor confidence in the Indian stock market remains to be seen. However, the story of the last five years has been one of disappointment for its investors. The ball is in the group’s court to make sure the FMCG major is able to match the performance of its popular competitors.

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